Fifteen Years of Inequality in Latin America : How Have Labor Markets Helped?
Household income inequality has declined in Latin America in the past decades, contributing significantly to poverty reduction in the region. Although available evidence shows that changes in the labor income are among the main factors behind these inequality trends, few studies have analyzed more closely the labor market dynamics that have led to a decline in total income inequality in some countries, but also to an increase in others. Using household survey data for a sample of 15 countries in Latin America from 1995 to 2010, this paper uses an extension of the Juhn-Murphy-Pierce methodology to decompose changes in labor income inequality (hourly wages) into a quantity effect (capturing changes in the distribution of workers' skills), price effect (reflecting returns to skills), and unobservables effect (other components, within skill groups, affecting labor income). The results show that falling returns to skills for both education and experience is, on average, driving the decline in labor income inequality in Latin America. The quantity effect, in turn, has contributed little to inequality reduction, mostly attributable to a larger dispersion in years of experience, possibly linked to the region's demographic transition and to significant increases in female labor force participation. Additional findings show that wage inequality, still high in the region, is coupled with inequality in terms of hours worked. The paper complements the existing literature by presenting separate results for males and females, as well as formal and informal sector workers as an attempt to control for secular shifts in these characteristics.
| Summary: | Household income inequality has declined
in Latin America in the past decades, contributing
significantly to poverty reduction in the region. Although
available evidence shows that changes in the labor income
are among the main factors behind these inequality trends,
few studies have analyzed more closely the labor market
dynamics that have led to a decline in total income
inequality in some countries, but also to an increase in
others. Using household survey data for a sample of 15
countries in Latin America from 1995 to 2010, this paper
uses an extension of the Juhn-Murphy-Pierce methodology to
decompose changes in labor income inequality (hourly wages)
into a quantity effect (capturing changes in the
distribution of workers' skills), price effect
(reflecting returns to skills), and unobservables effect
(other components, within skill groups, affecting labor
income). The results show that falling returns to skills for
both education and experience is, on average, driving the
decline in labor income inequality in Latin America. The
quantity effect, in turn, has contributed little to
inequality reduction, mostly attributable to a larger
dispersion in years of experience, possibly linked to the
region's demographic transition and to significant
increases in female labor force participation. Additional
findings show that wage inequality, still high in the
region, is coupled with inequality in terms of hours worked.
The paper complements the existing literature by presenting
separate results for males and females, as well as formal
and informal sector workers as an attempt to control for
secular shifts in these characteristics. |
|---|