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Skill premium, labor supply, and changes in the structure of wages in Latin America

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  • Fernández, Manuel
  • Messina, Julián

Abstract

After a decade of increasing wage inequality, this paper documents a sharp compression in the distribution of wages in Argentina and Chile during the 2000s. In Brazil, wage inequality has steadily declined since the early 1990s. Counterfactual exercises show that the evolutions of the schooling and experience premiums are key determinants of the decline in inequality. The 2000s witnessed a rapid decline in the schooling and experience premiums, at the same time as the working population was aging and becoming more educated. To understand these changes, the paper develops a model of imperfect substitution across experience and education groups and estimates the relevant elasticities of substitution. Changes in labor supply contributed significantly to the decline of the experience and education premiums, but are not enough to account fully for the observed changes. The demand for experience shifted in favor of younger workers, while the relative demand for college graduates declined during the 2000s.

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  • Fernández, Manuel & Messina, Julián, 2018. "Skill premium, labor supply, and changes in the structure of wages in Latin America," Journal of Development Economics, Elsevier, vol. 135(C), pages 555-573.
  • Handle: RePEc:eee:deveco:v:135:y:2018:i:c:p:555-573
    DOI: 10.1016/j.jdeveco.2018.08.012
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    Cited by:

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    2. Dávila, Andrés O. & Fernandez Sierra, Manuel & Zuleta, Hernando, 2021. "The Natural Resource Boom and the Uneven Fall of the Labor Share," IZA Discussion Papers 14592, Institute of Labor Economics (IZA).
    3. Manuel Fernández & Gabriela Serrano, 2022. "New Perspectives on Inequality in Latin America," Documentos CEDE 020295, Universidad de los Andes – Facultad de Economía – CEDE.
    4. Tomas Havranek & Zuzana Irsova & Lubica Laslopova & Olesia Zeynalova, 2020. "Skilled and Unskilled Labor Are Less Substitutable than Commonly Thought," Working Papers IES 2020/29, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2020.
    5. Fernández, Manuel & Messina, Julián, 2018. "Skill premium, labor supply, and changes in the structure of wages in Latin America," Journal of Development Economics, Elsevier, vol. 135(C), pages 555-573.
    6. Henrique Z. Motte & Rodrigo C. Oliveira, 2020. "The effect of class assignment on academic performance and the labour market: Evidence from a public federal university in Brazil," WIDER Working Paper Series wp-2020-8, World Institute for Development Economic Research (UNU-WIDER).
    7. Birulin, Oleksii & Parfinenko, Nina & Smirnov, Vladimir & Wait, Andrew, 2019. "Signaling and the College Wage Premium," Working Papers 2019-14, University of Sydney, School of Economics, revised Nov 2019.
    8. Birulin, Oleksii & Smirnov, Vladimir & Wait, Andrew, 2020. "The evolving nature of the college wage premium," Economic Modelling, Elsevier, vol. 93(C), pages 474-479.
    9. Gustavo Canavire-Bacarreza & Luis C. Carvajal-Osorio, 2020. "Two Stories of Wage Dynamics in Latin America: Different Policies, Different Outcomes," Journal of Labor Research, Springer, vol. 41(1), pages 128-168, June.
    10. Havranek, Tomas & Irsova, Zuzana & Laslopova, Lubica & Zeynalova, Olesia, 2020. "The Elasticity of Substitution between Skilled and Unskilled Labor: A Meta-Analysis," MPRA Paper 102598, University Library of Munich, Germany.
    11. Motte Henrique & Oliveira Rodrigo, 2020. "The effect of class assignment on academic performance and the labour market: Evidence from a public federal university in Brazil," WIDER Working Paper Series wp2020-8, World Institute for Development Economic Research (UNU-WIDER).
    12. Julian Messina & Joana Silva, 2018. "Wage Inequality in Latin America," World Bank Publications - Books, The World Bank Group, number 28682.

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    More about this item

    Keywords

    Earnings inequality; Unconditional quantile regressions; Supply-demand framework; Human capital;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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