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On the Determinants of Changes in Wage Inequality in Urban Bolivia

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  • Gustavo Canavire-Bacarreza
  • Fernando Rios-Avila

Abstract

In recent years, Bolivia has experienced a series of economic and political transformations that have directly affected the labor markets, particularly the salaried urban sector. Real wages have shown strong increases across the distribution, while also presenting a decrease in inequality. Using an intertemporal decomposition approach, we find evidence that changes in demographic and labor market characteristics can explain only a small portion of the observed inequality decline. Instead, the results indicate that the decline in wage inequality was driven by the faster wage growth of usually low-paid jobs, and wage stagnation of jobs that require higher education or are in traditionally highly paid fields. While the evidence shows that the reduction in inequality is significant, we suggest that such an improvement might not be sustainable in the long run, since structural factors associated with productivity, such as workers’ level of education, explain only a small portion of these wage changes. This suggests that enhanced redistributive policies accompanied by long-term structural policies aimed to increase productivity and educational level should be implemented in order to maintain the trends.

Suggested Citation

  • Gustavo Canavire-Bacarreza & Fernando Rios-Avila, 2017. "On the Determinants of Changes in Wage Inequality in Urban Bolivia," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 18(4), pages 464-496, October.
  • Handle: RePEc:taf:jhudca:v:18:y:2017:i:4:p:464-496
    DOI: 10.1080/19452829.2017.1353350
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    References listed on IDEAS

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    1. Francois Bourguignon & Francisco H.G. Ferreira & Nora Lustig, 2005. "The Microeconomics of Income Distribution Dynamics in East Asia and Latin America," World Bank Publications, The World Bank, number 14844, September.
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