Heterogeneous impacts of commodity price shocks on labour market outcomes

Evidence and theory for the Chilean mining sector

Abstract

Using data for the Chilean mining sector, we provide SVAR evidence in order to answer the research question regarding what are the distributional consequences that commodity price shocks have in labour market outcomes for heterogeneous workers at business cycles frequencies in a Small Open Economy (SOE). We show that an unexpected impulse in commodity prices increases the wage premium between high and low-skilled workers and, at the same time, it decreases the employment level ratio between high skilled and low skilled workers. The latter constitutes a novel finding in the literature of commodity price shocks. In order to rationalize these findings, we build a DSGE-SOE model with asymmetric search and matching (SAM) frictions. The theoretical model, calibrated and estimated with Chilean data, achieves to replicate the empirical labour market dynamics that come from an unexpected increase in the commodity price for the small open economy. Besides, we find that the principal parameters that determine how the commodity shock is going to affect labour market outcomes between high and low-skilled workers are the Nash bargaining power of workers, and the skill intensity in commodity production. The former affects the distribution of wages, and the latter affects the employment level distribution among high and low-skilled workers.