Accounting for Changing Earnings Inequality in Costa Rica, 1980-99

After declining from the mid-1970s to the mid-1980s, inequality in monthly earnings in Costa Rica stabilised from 1987 to 1992 and then increased from 1992 to 1999. In this article, we use recently developed techniques to measure the extent to which these changes in earnings inequality were the result of changes associated with the distributions of personal and workplace characteristics of workers or the earnings differences associated with those characteristics. We present evidence that the most important cause of the fall in inequality prior to 1987 was a decline in returns to education. Inequality stopped falling in Costa Rica in the 1990s in part because returns to education stopped falling. The most important cause of rising inequality in monthly earnings in the 1990s was an increase in the proportion of workers working a non-standard work week (part-time or over-time).