Changes in the relative wages of workers with different amounts of education have profound implications fordeveloping countries, where initial levels of inequality are often very high. In this paper we use micro data forfive Latin American countries over the 1980s and 1990s to document trends in men's returns to education, andto estimate whether the changes in skill premia we observe can be explained by supply or demand factors. Wepropose a model of demand for skills with three production inputs, and we allow the elasticity of substitutionbetween the different educational inputs to be different using a nested CES function. Using this model, weshow that the dramatic expansion in secondary school in many countries in Latin America depressed the wagesof workers with secondary school. We also show that there have been sharp increases in the demand for moreskilled workers in the region.
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0712.
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