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Understanding the Dynamics of Labor Income Inequality in Latin America

Listed author(s):
  • Carlos Rodriguez-Castelan

    ()

    (Poverty and Equity Global Practice, World Bank)

  • Luis F. Lopez-Calva

    ()

    (Poverty and Equity Global Practice, World Bank)

  • Nora Lustig

    ()

    (Department of Economics, Tulane University)

  • Daniel Valderrama

    ()

    (Poverty and Equity Global Practice, World Bank)

Since the early 2000s, after a long period of wide and persistent gaps, Latin America has experienced a steady decline in income inequality. This paper presents evidence of a trend reversal in labor income inequality, which is considered the main factor behind such a decline in income inequality across the region. Our analysis shows that, while labor income inequality increased during the 1990s, with heterogeneous experiences across countries, it fell in a synchronized way across countries beginning in the early 2000s. This systematic decline was supported by an expansion in real hourly earnings among the bottom of the wage distribution and, to a lesser extent, the middle part of the earnings distribution, thus reducing both upper and lower tail inequality. This trend reversal is explained by a lower dispersion of earnings among workers with observable different attributes and by a much less extensive dispersion of residual labor inequality. Regarding the earnings differentials among workers with observable different attributes, our analysis concludes that the decline in labor inequality in Latin America has been closely associated with a reduction in the college/primary education premium and in the urban-rural earnings gap, coupled with a steady drop in the high school/primary education premium, which accelerated markedly since the 2000s, as well as a reduction in the experience premium across all age-groups.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1608.pdf
File Function: First Version, August 2016
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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1608.

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Date of creation: Aug 2016
Handle: RePEc:tul:wpaper:1608
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  1. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
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  8. Louise Cord & Maria Eugenia Genoni & Carlos Rodriguez Castelan, 2015. "Shared Prosperity and Poverty Eradication in Latin America and the Caribbean," World Bank Publications, The World Bank, number 21751, April.
  9. Leonardo Gasparini & Sebastián Galiani & Guillermo Cruces & Pablo Acosta, 2012. "Educational Upgrading and Returns to Skills in Latin America. Evidence from a Supply-Demand Framework, 1990-2010," CEDLAS, Working Papers 0127, CEDLAS, Universidad Nacional de La Plata.
  10. Leonardo Gasparini & Nora Lustig, 2011. "The rise and fall of income inequality in Latin America," Working Papers 213, ECINEQ, Society for the Study of Economic Inequality.
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  17. repec:hal:journl:halshs-00120375 is not listed on IDEAS
  18. 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, April.
  19. Luis F. Lopez-Calva & Nora Lustig & Eduardo Ortiz-Juarez, 2015. "A Long-Term Perspective on Inequality and Human Development in Latin America," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 16(3), pages 319-323, August.
  20. Lakner, Christoph & Milanovic, Branko, 2013. "Global income distribution : from the fall of the Berlin Wall to the great recession," Policy Research Working Paper Series 6719, The World Bank.
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  23. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
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