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Wage inequality in the developing world: Evidence from Latin America

Author

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  • Carlos Rodríguez‐Castelán
  • Luis Felipe López‐Calva
  • Nora Lustig
  • Daniel Valderrama

Abstract

We study the dynamics of wage inequality in Latin America in the past two decades. We find a consistent trend reversal in wage inequality in the region since the early 2000s: wage inequality fell across all countries in a way not predicted by the trends each country had experienced in the 1990s. The decline in wage inequality is explained by a disproportional expansion in the real hourly wage among low‐paid workers, reducing both lower and upper tail inequality. About 40% of the observed reduction in wage variance was a response to the more equal wage structure, while the rest derived from a reduction in wage dispersion among workers with similar observable traits. The equalization of the wage structure in the 2000s is correlated with a reduction in the wage premium across education, experience, and place of residence. The reduction in the gender gap contributed, to a lesser extent, to the trend reversal.

Suggested Citation

  • Carlos Rodríguez‐Castelán & Luis Felipe López‐Calva & Nora Lustig & Daniel Valderrama, 2022. "Wage inequality in the developing world: Evidence from Latin America," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 1944-1970, November.
    • Handle: RePEc:bla:rdevec:v:26:y:2022:i:4:p:1944-1970
    DOI: 10.1111/rode.12912
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    Cited by:

    1. De Rosa, Mauricio & Flores, Ignacio & Morgan, Marc, 2022. "More Unequal or Not as Rich? Revisiting the Latin American Exception," SocArXiv akq89, Center for Open Science.
    2. Wenwu Zhang & Jiayin Wang & Xi Ou, 2024. "Trade liberalization, city size, and urban wage premium: evidence from China’s city and individual micro-data," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.

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