Fifteen Years of Inequality in Latin America: How Have Labor Markets Helped?

49 Pages Posted: 20 Apr 2016

See all articles by Joao Pedro Azevedo

Joao Pedro Azevedo

affiliation not provided to SSRN

João Pedro Azevedo

World Bank

Maria Eugenia Davalos

affiliation not provided to SSRN

Carolina Diaz-Bonilla

World Bank

Bernardo Atuesta

United Nations - Economic Commission for Latin American and the Caribbean (ECLAC)

Raul Andres Castaneda

affiliation not provided to SSRN

Date Written: March 1, 2013

Abstract

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.

Keywords: Poverty Impact Evaluation, Inequality, Services & Transfers to Poor, Labor Policies, Labor Markets

Suggested Citation

Azevedo, Joao Pedro and Wagner de Azevedo, João Pedro and Davalos, Maria Eugenia and Diaz-Bonilla, Carolina and Atuesta, Bernardo and Castaneda, Raul Andres, Fifteen Years of Inequality in Latin America: How Have Labor Markets Helped? (March 1, 2013). World Bank Policy Research Working Paper No. 6384, Available at SSRN: https://ssrn.com/abstract=2233243

Joao Pedro Azevedo (Contact Author)

affiliation not provided to SSRN

No Address Available

João Pedro Wagner de Azevedo

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Maria Eugenia Davalos

affiliation not provided to SSRN

No Address Available

Carolina Diaz-Bonilla

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Bernardo Atuesta

United Nations - Economic Commission for Latin American and the Caribbean (ECLAC) ( email )

Av. Dag Hammarskjöld 3477
Vitacura
Santiago, 7630412
Chile

Raul Andres Castaneda

affiliation not provided to SSRN

No Address Available

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