Wage inequality in the developing world: Evidence from Latin America

We study the dynamics of wage inequality in Latin America in the past two decades. We find a consistent trend reversal in wage inequality in the region since the early 2000s: wage inequality fell across all countries in a way not predicted by the trends each country had experienced in the 1990s. The...

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Bibliographic Details
Published in:Review of development economics 2022-11, Vol.26 (4), p.1944-1970
Main Authors: Rodríguez‐Castelán, Carlos, López‐Calva, Luis Felipe, Lustig, Nora, Valderrama, Daniel
Format: Article
Language:English
Subjects:
education wage premium
experience wage premium
Inequality
Latin America
Residence
Reversal
Trends
Wage differential
wage inequality
Wage structure
Workers
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Summary:We study the dynamics of wage inequality in Latin America in the past two decades. We find a consistent trend reversal in wage inequality in the region since the early 2000s: wage inequality fell across all countries in a way not predicted by the trends each country had experienced in the 1990s. The decline in wage inequality is explained by a disproportional expansion in the real hourly wage among low‐paid workers, reducing both lower and upper tail inequality. About 40% of the observed reduction in wage variance was a response to the more equal wage structure, while the rest derived from a reduction in wage dispersion among workers with similar observable traits. The equalization of the wage structure in the 2000s is correlated with a reduction in the wage premium across education, experience, and place of residence. The reduction in the gender gap contributed, to a lesser extent, to the trend reversal.
ISSN:1363-6669
1467-9361
DOI:10.1111/rode.12912