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Economic Growth and Wage Stagnation in Peru: 1998-2012

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  • Peter Paz

    (ITAM)

  • Carlos Urrutia

    (ITAM)

Abstract

In the last two decades, the Peruvian economy exhibited rapid growth. Moreover, the composition of the labor force improved in terms of education and experience, two variables which are typically associated to higher human capital. The average worker in 2012 had a higher level of education and was one and a half years older than in 1998, reflecting the impact of the demographic transition. However, the average real wage was roughly constant. We show that a decline in the wage premium for education, and to a minor extent for experience, is responsible for the lack of growth in the average real wage. Had these two premia remained constant throughout the period of analysis, average labor earnings would have increased by about 2.6 percent per year, of which 0.7 percentage points are accounted for the changes in the composition of the labor force in terms of age and education. We explore the role of the relative supply of workers with different levels of human capital as an explanation for the decline in the wage premium for education. Finally, we analyze the implications of these findings for some macroeconomic variables, as earnings and wage inequality, the labor share and total factor productivity.

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Bibliographic Info

Paper provided by Peruvian Economic Association in its series Working Papers with number 2014-5.

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Date of creation: Feb 2014
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Handle: RePEc:apc:wpaper:2014-005

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Web page: http://perueconomics.org/
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  1. Francisco Rodriguez & Arjun Jayadev, 2010. "The Declining Labor Share of Income," Human Development Research Papers (2009 to present) HDRP-2010-36, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
  2. Lustig, Nora & Lopez-Calva, Luis F. & Ortiz-Juarez, Eduardo, 2012. "Declining inequality in Latin America in the 2000s : the cases of Argentina, Brazil, and Mexico," Policy Research Working Paper Series 6248, The World Bank.
  3. Miguel Jaramillo & Jaime Saavedra, 2011. "Menos desiguales: la distribución del ingreso luego de las reformas estructurales," Documentos de Investigación dt59, Grupo de Análisis para el Desarrollo (GRADE).
  4. Juan Castro & Gustavo Yamada, 2012. "“Convexification” and “Deconvexification” of the Peruavian Wage Profile: A Tale of Declining Education Quality," Working Papers 12-02, Departamento de Economía, Universidad del Pacífico, revised Apr 2012.
  5. Benjamin F. Jones, 2011. "The Human Capital Stock: A Generalized Approach," NBER Working Papers 17487, National Bureau of Economic Research, Inc.
  6. Brent Neiman, 2013. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
  7. Norman V. Loayza, 2008. "El crecimiento económico en el perú," Revista Economía, Departamento de Economía - Pontificia Universidad Católica del Perú, issue 61, pages 9-25.
  8. Cristian Aedo & Ian Walker, 2012. "Skills for the 21st Century in Latin America and the Caribbean," World Bank Publications, The World Bank, number 2236.
  9. Ledesma, Alan, 2010. "Crecimiento Potencial y Productividad de Factores," Revista Moneda, Banco Central de Reserva del Perú, issue 145, pages 4-8.
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