DIE 01-25 Desempleo en el Uruguay: Un análisis de las causas de sus fluctuaciones y los determinantes de su nivel de equilibrio

This research focused on the study of unemployment in Uruguay between 1990 and 2019, with the aim of determining to what extent its fluctuations were driven by labor market rigidities or by changes in its equilibrium level. Additionally, it sought to identify the determinants of this equilibrium level, in order to contribute to a better understanding of labor market dynamics.

The Chain Reaction Theory (CRT) posits that labor market variables are interconnected. Therefore, shocks to one variable trigger a chain reaction of effects, generating lagged adjustment processes that keep the variables away from their equilibrium levels. Following this framework, a system of equations was estimated to model labor demand, labor supply, and the real wage. The results showed that the main driver of the observed movements in the unemployment rate corresponds to the adjustment processes generated in the labor market in response to a shock from some exogenous variable, rather than to the Natural Rate of Unemployment (NRU).

The findings reject both the degree of unionization and the wage-setting system as determinants of the NRU. At the same time, they provide evidence supporting the influence of the terms of trade on the labor market and align with the CRT on the role of labor productivity, the working-age population, and the capital stock as drivers of unemployment fluctuations, as well as its equilibrium level.

Keywords: Unemployment, natural rate of unemployment, labour market, chain reaction theory, lagged adjustment processes.