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Income Inequality in Latin America: A Factor Component Analysis

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  • Verónica Amarante

Abstract

The decline in inequality observed in most Latin American countries after 2002 was surprisingly good news, particularly given that most developed countries were experiencing a rise in inequality at that time. Various arguments have been put forward to explain this decline, but there is still no consensus on the most plausible explanation. This article contributes to the ongoing discussion by performing inequality decompositions by factor components. We estimate the importance of each source of income in explaining the observed decline in income inequality between 2002 and 2011 in five Latin American countries. Specifically, we explore the role of the process of formalization that has taken place in regional labor markets, separating formal and informal wages and considering self‐employment incomes. In the five countries studied here informal wages and self‐employment income contributed to decreasing inequality. Formal sector wages, on the other hand, fostered inequality in all countries except Bolivia.

Suggested Citation

  • Verónica Amarante, 2016. "Income Inequality in Latin America: A Factor Component Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(S1), pages 4-21, August.
    • Handle: RePEc:bla:revinw:v:62:y:2016:i:s1:p:s4-s21
    DOI: 10.1111/roiw.12236
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    Cited by:

    1. Jara, H. Xavier & Montesdeoca, Lourdes & Colmenarez, María Gabriela & Moreno, Lorena, 2025. "Two decades of tax-benefit reforms in Ecuador: How much have they contributed to poverty and inequality reduction?," World Development, Elsevier, vol. 190(C).
    2. Zagdbazar, Manlaibaatar, 2025. "Inequality Reduction in Mongolia: A Dynamic Income Source Analysis," MPRA Paper 125762, University Library of Munich, Germany.
    3. Diego Winkelried & Bruno Escobar, 2022. "Declining inequality in Latin America? Robustness checks for Peru," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 223-243, March.
    4. Luca Giangregorio & Davide Villani, 2025. "Functional distribution, personal income inequality, and top shares of income: do social classes still matter?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 23(1), pages 143-176, March.
    5. Lahsen, Amina. A & Piper, Alan T., 2018. "Property Rights and Intellectual Property Protection, GDP growth and Well-Being in Latin America," MPRA Paper 90034, University Library of Munich, Germany.
    6. Zagdbazar, Manlaibaatar, 2025. "Inequality Reduction in Mongolia: A Dynamic Income Source Analysis," MPRA Paper 125662, University Library of Munich, Germany.
    7. Caroline Krafft & Elizabeth E. Davis, 2021. "The Arab inequality puzzle: the role of income sources in Egypt and Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 13(1), pages 1-26, January.
    8. De Rosa, Mauricio & Flores, Ignacio & Morgan, Marc, 2024. "More unequal or not as rich? Revisiting the Latin American exception," World Development, Elsevier, vol. 184(C).
    9. Luca Giangregorio & Davide Villani, 2023. "Income inequality, top shares of income and social classes in the 21st century," JRC Working Papers on Social Classes in the Digital Age 2023-05, Joint Research Centre.
    10. Nelson R. Ramírez- Rondán & Marco E. Terrones & Diego Winkelried, 2020. "Equalizing growth: The case of Peru," Working Papers 176, Peruvian Economic Association.
    11. repec:osf:socarx:akq89_v1 is not listed on IDEAS
    12. Roberto Mauricio Sánchez-Torres, 2017. "Desigualdad del ingreso en Colombia: un estudio por departamentos," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID.

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