Cycles versus trends: The effects of economic growth on earnings in Bolivia

This paper analyzes the effects of economic growth on labor earnings in Bolivia during 1999-2012. More precisely, we develop a labor market model to capture both cycle and trend effects of prices, and production on earnings, which is estimated econometrically using pseudo-panel data methods. The results show that labor earnings have had a pro-cyclical behavior. In particular, we find that, in the short run, an increase of 1% in prices or production explains an earnings rise of around 0.5%, while, in the long run, a production increase of 1% is associated with an earnings variation of 0.4%. Furthermore, we find that labor earnings growth by sector follows, to some extent, the economic performance of its corresponding sector, which responds to the sector segmentation characteristics in the Bolivian labor market.