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Twenty Years of Wage Inequality in Latin America

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  • Julian Messina
  • Joana Silva

Abstract

This article documents an inverse U-shape in the evolution of wage inequality in Latin America since 1995, with a sharp reduction starting in 2002. The Gini coefficient of wages increased from 42 to 44 between 1995 and 2002 and declined to 39 by 2015. Between 2002 and 2015, the 90/10 log hourly earnings ratio decreased by 26 percent. The decline since 2002 was characterized by rising wages across the board, but especially at the bottom of the wage distribution in each country. Triggered by a rapid expansion of educational attainment, the wages of college and high school graduates fell relative to the wages of workers with only primary education. The premium for labor market experience also fell significantly. However, the compression of wages was not entirely driven by changes in the wage structure across skill groups. Two-thirds of the decline in the variance of wages took place within skill groups. Changes in the sectoral, occupational, and formal/informal composition of jobs matter for the process of reduction in inequality, but they do not fully account for the fall in within-skill variance. Evidence based on longitudinal matched employer-employee administrative data suggests that an important driver was falling wage dispersion across firms.

Suggested Citation

  • Julian Messina & Joana Silva, 2021. "Twenty Years of Wage Inequality in Latin America," The World Bank Economic Review, World Bank, vol. 35(1), pages 117-147.
  • Handle: RePEc:oup:wbecrv:v:35:y:2021:i:1:p:117-147.
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    File URL: http://hdl.handle.net/10.1093/wber/lhz029
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    Keywords

    inequality; labor markets; firm dynamics; development; schooling and experience premiums; informality;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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