HOW DO PRODUCTIVITY, MINIMUM WAGE AND EXOGENOUS
VARIABLES AFFECT URBAN UNEMPLOYMENT IN ECUADOR?
CUESTIONES ECONÓMICAS VOL. 28, Nº 2:2, 2018
¿Cómo la productividad, el salario mínimo y variables exógenas afectan el
desempleo urbano en el Ecuador?
Fecha de recepción: 01 de septiembre de 2018
Fecha de aceptación: 23 de noviembre de 2018
Guillermo Avellán Solines, Msc. *
Ecuador’s 2016 recession demonstrated the vulnerability of its economy due to
volatility of exogenous variables such as oil prices and US dollar exchange rate.
Additionally, annual increases in the minimum wage and labor productivity growth
had an impact on the labor market during the last decade. This research estimates the
effects of labor productivity, real minimum wage and exogenous factors—oil prices
and US dollar exchange rate—in Ecuador’s urban unemployment rate between
June 2007 and June 2017. The main conclusions of this study are as follows: i) a
reduction of oil price and an appreciation of the US dollar cause an increase in the
urban unemployment rate; ii) an increase in the real minimum wage, not taking into
account labor productivity, provokes an increase in the urban unemployment rate; iii)
an increase in labor productivity generates an increase in the urban unemployment
rate in the short-term consistent with recent literature; iv) nally a distributed lag
model including these four variables explains 64% of the change in the urban
unemployment rate between 2007 and 2017.
Keywords: unemployment, minimum wage, productivity, exogenous variables,
stepwise regression, distributed lag model.
JEL Classication: E24, J08, J64, J68
* Full-time professor and researcher at Universidad Espíritu Santo, Ecuador.
I thank Manuel Gonzalez-Astudillo and Christian Rosero-Barzola for helpful comments. I also thank
Teresa Larreta-Mendoza for excellent research assistance. This paper beneted greatly from discussions
among participants during VI Congreso Internacional de Economía at Universidad San Francisco de Quito
and the 9th Bolivian Conference on Development Economics at Universidad Privada de Santa Cruz de la
Sierra. Email: firstname.lastname@example.org.