Co-authors: Laura Alfaro, Martí Mestieri, Felipe Sáenz
Affiliation: Universidad de Los Andes (Colombia)
Date and time: Thursday, October 1, 2026 14:30 (Santiago, GMT-3:00)
Location (Hybrid Seminar):

• Auditorio at the Central Bank of Chile, Morandé 115, second floor.
• Online meeting

Registration: seminarios@bcentral.cl

Abstract: Modern firms in developing economies contribute far more to income than to employment. While scarce modern employment is often attributed to weak economic activity, high-quality job creation can lag behind value-added growth when the firms driving it face distortions against labor or adopt labor-saving technologies. Using a general-equilibrium model with constrained occupational choice across occupations in traditional and modern production, we assess the importance of these channels. Distortions differ in the strength of their effects across margins: non-labor distortions mainly compress aggregate income, while labor distortions mainly govern access to modern jobs. Because access affects wages and determines who enters modern employment, it governs both employment and the distribution of earnings. We use fifty years of Colombian microdata representative of the universe of private firms and workers, both formal and informal, as well as direct measures of labor distortions. We then estimate modern firms' wedges on revenue and capital, jointly with technology and demand, and embed them in the model. The gap, measured as the difference between the share of firms with at least ten workers in total labor earnings and their share of job, in Colombia is 51 percentage points. Across these periods, distortions explain 40 to 60 percent of this jobless modernity, and labor distortions make up 70 percent of that share.