Understanding Changes in Wage Inequality in Egypt: Evidence from A Quantile Analysis

Over the past two decades, Egypt has undergone substantial economic and political transformations that have directly influenced labor market outcomes, particularly in terms of wages and earnings. In this paper, we analyze the patterns and dynamics of wage inequality in Egypt from 2006 to 2021. Our findings show that real wages exhibit an upward trend over the period 2006-16, followed by a decline after the floating of the national currency. They also experience a phase of stagnant inequality prior to 2016 and an overall decline over the entire period. Using an intertemporal decomposition approach based on a generalization of the Oaxaca-Blinder decomposition method, we find evidence that the observed changes in wage inequality are mainly driven by changes in returns to demographic and labor market characteristics (wage structure effect). The detailed decomposition of the Gini coefficient reveals that, only for the pre-Arab Spring period, changes in returns to education significantly contribute to the decline of wage inequality in Egypt. This implies that implementing improved redistributive policies primarily focused on elevating educational levels is crucial to sustaining these trends over an extended period. In other words, policies that specifically target educational advancement can play a key role in ensuring the longevity of these positive trends.