Sacrifice rate and labor precariousness in Mexico, 2005Q1-2019Q4

Abstract

Since 1998, the Mexican economy has clearly presented six disinflationary episodes. We estimate seven Phillips curves, to evaluate the social cost in terms of the sacrifice rate in GDP, unemployment rate and in the Rate of Critical Labor Conditions (RCLC). Our results suggest that, by including labor precariousness in the New Keynesian Phillips Curve, measured with RCLC, inflation behavior is more accurately modeled. We found that there are important cointegration relationships that reflect that for 2005Q1-2019Q4 labor precariousness has been the main disinflationary adjustment variable, since 1 point reduction in inflation corresponds to an increase of 3.65 points in RCLC.