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Understanding the Dynamics of Labor Income Inequality in Latin America

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Carlos Rodriguez-Castelan & Luis F. Lopez-Calva & Nora Lustig & Daniel Valderrama, 2016. "Understanding the Dynamics of Labor Income Inequality in Latin America," Working Papers 1608, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1608
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    References listed on IDEAS

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    1. Understanding the Dynamics of Labor Income Inequality in Latin America
      by maximorossi in NEP-LTV blog on 2016-08-30 19:49:28

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    2. Facundo Alvaredo & Mauricio de Rosa & Ignacio Flores & Marc Morgan, 2022. "The Inequality (or the Growth) we Measure: Data Gaps and the Distribution of Incomes," Working Papers halshs-03693223, HAL.
    3. David Jaume, 2018. "The Labor Market Effects of an Educational Expansion. A Theoretical Model with Applications to Brazil," CEDLAS, Working Papers 0220, CEDLAS, Universidad Nacional de La Plata.
    4. Andersson, Martin & Palacio, Andrés, 2019. "The Revival of Agriculture and Inclusive Growth during the Commodity Boom in Latin America?," Lund Papers in Economic History 208, Lund University, Department of Economic History.
    5. Jaume, David, 2021. "The labor market effects of an educational expansion," Journal of Development Economics, Elsevier, vol. 149(C).
    6. David Jose Jaume, 2017. "The Labor Market Effects of an Educational Expansion. A Theoretical Model with Applications to Brazil," 2017 Papers pja468, Job Market Papers.
    7. Leonardo Gasparini, 2019. "La Desigualdad en su Laberinto: Hechos y Perspectivas sobre Desigualdad de Ingresos en América Latina," CEDLAS, Working Papers 0256, CEDLAS, Universidad Nacional de La Plata.
    8. Erhan Artuc & Gladys Lopez-Acevedo & Raymond Robertson & Daniel Samaan, 2019. "Exports to Jobs," World Bank Publications - Books, The World Bank Group, number 31274, November.
    9. Manuel Fernández & Gabriela Serrano, 2022. "New Perspectives on Inequality in Latin America," Documentos CEDE 020295, Universidad de los Andes – Facultad de Economía – CEDE.
    10. Julian Messina & Joana Silva, 2018. "Wage Inequality in Latin America," World Bank Publications - Books, The World Bank Group, number 28682, November.

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    More about this item

    Keywords

    Inequality; Labor Incomes; Education Premium; Experience Premium; Latin America.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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