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Changes in Earnings in Brazil, Chile, and Mexico: Disentangling the Forces Behind Pro-Poor Change in Labour Markets

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  • Eduardo Zepeda

    ()
    (International Poverty Centre)

  • Diana Alarcón

    ()
    (United Nations Department of Economic and Social Affairs)

  • Fabio Veras Soares

    ()
    (International Poverty Centre)

  • Rafael Guerreiro Osorio

    ()
    (International Poverty Centre)

Abstract

Despite the recovery of economic growth in Latin America during the 1990s, rising unemployment, high informality rates and sluggish wages lie at the root of high inequality and poverty. This paper looks at changes in hourly earnings from the early 1990s to the early 2000s in three relatively stable countries: Brazil, Chile and Mexico. Using econometric techniques, the paper decomposes the change in earnings per worker into changes in the demographic and socio-occupational characteristics of workers, changes in the returns to such characteristics, and changes in unobservable factors. The paper attempts to address the link between labour markets and the dynamics of inequality and poverty by comparing the average performance of the entire working labour force with the performance of the 20 per cent of workers with the lowest earnings. The paper finds that earnings per worker are the result of slow-moving changes in the structure of employment and the characteristics of workers, as well as rapid changes in the prices of labour for specific workers. Demographic changes, better education and the decline of agricultural labour are among the most significant changes in the structure of employment, and they contribute to observed changes in earnings. Among the most important changes in prices contributing to the change in earnings are changes in the returns to formal and informal employees relative to the self-employed; changes to full-time employment relative to part-time workers; changes in the returns to urban workers relative to rural workers; and change in the earnings of workers in services relative to workers in agriculture. In general, changes in earnings frequently favoured low-earning workers, mostly because of the change in the returns for their labour. This is in contrast to the changes in the structure of employment, which tended to favour high-earning workers.

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File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper51.pdf
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Bibliographic Info

Paper provided by International Policy Centre for Inclusive Growth in its series Working Papers with number 51.

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Length: 29
Date of creation: Mar 2009
Date of revision:
Publication status: Published by UNDP - International Policy Centre for Inclusive Growth , March 2009, pages 1-29
Handle: RePEc:ipc:wpaper:51

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Keywords: Changes in Earnings in Brazil; Chile; and Mexico: Disentangling the Forces Behind Pro-Poor Change in Labour Markets;

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References

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  1. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  2. Nanak Kakwani & Shahid Khandker & Hyun H. Son, 2004. "Pro-poor growth: concepts and measurement with country case studies," Working Papers 1, International Policy Centre for Inclusive Growth.
  3. Galli, Rossana & Kucera, David, 2004. "Labor Standards and Informal Employment in Latin America," World Development, Elsevier, vol. 32(5), pages 809-828, May.
  4. Diana Alarcon & Eduardo Zepeda, 2004. "Economic reform or social development? the challenges of a period of reform in Latin America: case study of Mexico," Oxford Development Studies, Taylor & Francis Journals, vol. 32(1), pages 59-86.
  5. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, December.
  6. David Fairris & Gurleen Popli & Eduardo Zepeda, 2008. "Minimum Wages and the Wage Structure in Mexico," Review of Social Economy, Taylor & Francis Journals, vol. 66(2), pages 181-208.
  7. Hyun H. Son & Nanak Kakwani, 2006. "Global Estimates of Pro-Poor Growth," Working Papers 31, International Policy Centre for Inclusive Growth.
  8. Fisher,Franklin M., 2005. "Microeconomics," Cambridge Books, Cambridge University Press, number 9780521023290, October.
  9. Eduardo Zepeda & Diana Alarcón & Fabio Veras Soares & Rafael Guerreiro Osório, 2007. "Growth, Poverty and Employment in Brazil, Chile and Mexico," Working Papers 42, International Policy Centre for Inclusive Growth.
  10. Fabio Veras Soares & Sergei Suarez Dillon Soares & Marcelo Medeiros & Rafael Guerreiro Osório, 2006. "Cash Transfer Programmes in Brazil: Impacts on Inequality and Poverty," Working Papers 21, International Policy Centre for Inclusive Growth.
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