Wage Inequality in Latin America understanding the past to prepare for the future
This report seeks to explain the over-time trends in wage inequality in Latin America and the Caribbean (LAC) since the mid-1990s. It explains how wage inequality has been associated with household-income inequality in LAC in the past decades, and discusses how labor-supply and labour-demand trends...
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| Format | eBook |
| Language | English |
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Washington
World Bank Publications
2017
World Bank The World Bank |
| Edition | 1st ed. |
| Series | Latin American development forum. |
| Subjects | |
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| Abstract | This report seeks to explain the over-time trends in wage inequality in Latin America and the Caribbean (LAC) since the mid-1990s. It explains how wage inequality has been associated with household-income inequality in LAC in the past decades, and discusses how labor-supply and labour-demand trends have affected wage inequality.The Latin American region achieved something truly remarkable during the 2000s: it sustained vigorous economic growth with declining inequality. Other regions in the world grew strongly during this period, but this growth was not shared equitably. However, lower commodity prices and slower growth in China have reduced Latin America's growth prospects in recent years. At the same time, inequality reduction has halted in many countries. As the new low-growth scenario hits labor markets, it is important to ask whether the social gains of the 2000s can be sustained. Will lower wage growth occur across all segments of the wage distribution in Latin America, or will the slowdown disproportionately hurt those who have less? Will the economic slowdown put the brakes on the reduction of wage inequality in Latin America? To answer these forward-looking questions and to know what to expect, it is essential to understand the causes of the observed changes in wage inequality in the past decades, which is the focus of this research project. |
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| AbstractList | What caused the decline in wage inequality of the 2000s in Latin America? Looking to the future, will the current economic slowdown be regressive? Wage Inequality in Latin America: Understanding the Past to Prepare for the Future addresses these two questions by reviewing relevant literature and providing new evidence on what we know from the conceptual, empirical, and policy perspectives. The answer to the first question can be broken down into several parts, although the bottom line is that the changes in wage inequality resulted from a combination of three forces: (a) education expansion and its effect on falling returns to skill (the supply-side story); (b) shifts in aggregate domestic demand; and (c) exchange rate appreciation from the commodity boom and the associated shift to the nontradable sector that changed interfirm wage differences. Other forces had a non-negligible but secondary role in some countries, while they were not present in others. These include the rapid increase of the minimum wage and a rapid trend toward formalization of employment, which played a supporting role but only during the boom. Understanding the forces behind recent trends also helps to shed light on the second question. The analysis in this volume suggests that the economic slowdown is putting the brakes on the reduction of inequality in Latin America and will likely continue to do so—but it might not actually reverse the region's movement toward less wage inequality. What caused the decline in wage inequality of the 2000s in Latin America? Looking to the future, will the current economic slowdown be regressive? Wage Inequality in Latin America: Understanding the Past to Prepare for the Future addresses these two questions by reviewing relevant literature and providing new evidence on what we know from the conceptual, empirical, and policy perspectives. The answer to the first question can be broken down into several parts, although the bottom line is that the changes in wage inequality resulted from a combination of three forces: (a) education expansion and its eff ect on falling returns to skill (the supply-side story); (b) shifts in aggregate domestic demand; and (c) exchange rate appreciation from the commodity boom and the associated shift to the nontradable sector that changed interfi rm wage differences. Other forces had a non-negligible but secondary role in some countries, while they were not present in others. These include the rapid increase of the minimum wage and a rapid trend toward formalization of employment, which played a supporting role but only during the boom. Understanding the forces behind recent trends also helps to shed light on the second question. The analysis in this volume suggests that the economic slowdown is putting the brakes on the reduction of inequality in Latin America and will likely continue to do so—but it might not actually reverse the region’s movement toward less wage inequality. This report seeks to explain the over-time trends in wage inequality in Latin America and the Caribbean (LAC) since the mid-1990s. It explains how wage inequality has been associated with household-income inequality in LAC in the past decades, and discusses how labor-supply and labour-demand trends have affected wage inequality.The Latin American region achieved something truly remarkable during the 2000s: it sustained vigorous economic growth with declining inequality. Other regions in the world grew strongly during this period, but this growth was not shared equitably. However, lower commodity prices and slower growth in China have reduced Latin America's growth prospects in recent years. At the same time, inequality reduction has halted in many countries. As the new low-growth scenario hits labor markets, it is important to ask whether the social gains of the 2000s can be sustained. Will lower wage growth occur across all segments of the wage distribution in Latin America, or will the slowdown disproportionately hurt those who have less? Will the economic slowdown put the brakes on the reduction of wage inequality in Latin America? To answer these forward-looking questions and to know what to expect, it is essential to understand the causes of the observed changes in wage inequality in the past decades, which is the focus of this research project. |
| Author | Silva, Joana Messina, Julián |
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| Keywords | WAGE EARNINGS INEQUALITY LABOR MARKETS EDUCATION EXPANSION INEQUALITY ECONOMIC DEVELOPMENT LATIN AMERICA ECONOMIC BOOM FIRM HETEROGENEITY |
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| Snippet | This report seeks to explain the over-time trends in wage inequality in Latin America and the Caribbean (LAC) since the mid-1990s. It explains how wage... What caused the decline in wage inequality of the 2000s in Latin America? Looking to the future, will the current economic slowdown be regressive? Wage... |
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| SubjectTerms | BUSINESS & ECONOMICS Labor Wage differentials |
| SubjectTermsDisplay | BUSINESS & ECONOMICS Labor |
| Subtitle | understanding the past to prepare for the future |
| TableOfContents | 5.1 Comparison of Real Minimum Wages in Latin America and Minimum Wage Growth in the Region Relative to Selected Organisation for Economic Co-operation and Development Countries -- 5.2 Ratios of Minimum Wage to Median Wage in Latin America and Comparisons with Selected Organisation for Economic Co-operation and Development Countries -- 5.3 Ratio of Minimum Wage to Median Wage and Noncompliance with the Minimum Wage, South America, and Central America and Mexico, 1995-2014 -- 5.4 Kernel Estimates of Wage Density for All Salaried Workers, Selected Latin American Countries -- 5.5 Effects of the Minimum Wage on Unemployment and Formality in Brazil, 2003-15 -- 5.6 Decomposition of Factors Contributing to Wage Inequality Changes in Brazil, 1995-2003 vs. 2003-12 -- 5B.1 Effect of the Minimum Wage on Different Household Income Levels, Selected Latin American Countries -- Tables -- 2.1 Decomposition of Overall Wage Inequality in Latin America, 1997-2013 -- 2.2 Decomposition of Wage Inequality within Sector-Occupations into Within-Group and Between-Group Components in Brazil, 1994, 2003, and 2012 -- 2.3 Decomposition of Wage Inequality within Sector-Occupations in Brazil, 1986-95 vs. 2003-12 -- 2.4 Effects of Formality on Wage Structure, Selected Latin American Countries, 2002 and 2012 -- 2A.1 Evolution of Earnings Inequality, Top and Bottom of the Income Distribution, Selected Latin American Countries, 1995-2013 -- 2A.2 Decomposition of Wage Inequality into Within-Group and Between-Group Components Using a Different Number of Categories for Sector of Employment, Latin America, 1997-2013 -- 2D.1 Changes in Inequality-Related Indicators, Selected Latin American Countries, 1995-2003, 2003-13, and 1995-2013 -- 2D.2 Correlations of Inequality-Related Indicators, Selected Latin American Countries, 1995-2003, 2003-13, and 1995-2013 2E.1 Changes in Informality Measures, Selected Latin American Countries, 1995-2003, 2003-13, and 1995-2013 Shifts in Domestic Demand and Rising Wages for Unskilled Workers -- Exchange Rate Appreciation from the Commodity Boom and Interfirm Wage Differentials -- Why Skill-Biased Technological Change, Job Polarization, and Traditional Trade Channels Do Not Explain the Decline in Wage Inequality -- Conclusions -- Annex 4A. Skill Intensities and Employment Expansion during the Commodity Boom in Selected Latin American Countries -- Annex 4B. Why Exchange Rate Appreciation Should Reduce Wage Inequality within an Industry -- Notes -- References -- Chapter 5: Exploring the Role of Minimum Wages and Unions in Recent Inequality Trends -- Introduction -- The Role of the Minimum Wage -- The Differentiated Effect of the Minimum Wage on Wage Inequality in Good and Bad Times -- The Role of Unionization in Wage Inequality -- Conclusions -- Annex 5A. Supplementary Minimum Wage Information -- Annex 5B. Who Makes the Minimum Wage in Latin America? -- Notes -- References -- Chapter 6: Conclusions and Policy Reflections -- Introduction -- Review of the Trends -- Causes of the Declines in Wage Inequality -- Shifting Wage Inequality Trends: The Remaining Challenges -- Looking to the Future: How Will the Drivers of Wage Inequality Evolve? -- Conclusions: How to Row against the Tide? -- Notes -- References -- Boxes -- 2.1 The Relationship between Wage and Household Income Inequality: Artifact and Reality -- 4.1 Estimating the Role of Firm Heterogeneity -- 5.1 Minimum Wage Policies in Latin America -- Figures -- 2.1 Wage and Total Income Inequality in Latin America, 1995-2015 -- 2.2 Household Income Inequality in Latin America Compared with Other Regions, 2013 -- 2.3 Wage Inequality Relative to 2002: Latin American Countries Compared with Countries Outside the Region, 1993-2013 2.4 Decomposition of Average Annual Changes in Household Income Inequality, Selected Latin American Countries, 1990-2003 and 2003-11 -- 2.5 Index of Labor Earnings in Latin America: 10th Percentile vs. 50th and 90th Percentiles of the Income Distribution, 1990-2013 -- 2.6 Returns to Education, Experience, and Relative Gender and Urban-Rural Wage Gap Trends, Latin America, 1993-2013 -- 2.7 Wage Inequality Trends in Latin America Compared with Other Regions and by Country Subgroup -- 2.8 Labor Earnings Dynamics in Selected Latin American Countries -- 2.9 Income and Wage Inequality Trends Relative to the Education Premium in Latin America, 1993-2013 -- 2.10 Within-Group, Between-Group, and Total Wage Inequality, Selected Latin American Countries -- 2.11 Decomposition of Changes in Wage Inequality into Within-Group and Between-Group Components, Latin America, 1997-2001 vs. 2001-13 -- 2.12 Education Expansion in Latin America, by Education Level -- 2.13 Skill Growth in 17 Latin American Countries Relative to the Russian Federation, South Africa, Sri Lanka, Turkey, and the United States, 2003-10 -- 2.14 Real Effective Exchange Rate in Latin America, by Subregion, 1990-2015 -- 2.15 Wage Inequality and Domestic Demand Trends in Latin America -- 2.16 Employment and Unemployment Rates, by Education and Regional Subgroup, Latin America, 1993-2012 -- 2.17 Employment and Skill-Use Growth, by Sector Type, in South America -- 2.18 Informal Employment Trends, Selected Latin American Countries, 1995, 2002, and 2013 -- 2.19 Distribution of Wages for Formal and Informal Male Workers, Selected Latin American Countries, 2002 -- 2.20 Relative Wages of Formal Male Workers and Informal Male Workers, Selected Latin American Countries, 2002 -- 2.21 Changes in Formal Employment, by Wage Percentile, Selected Latin American Countries Cover -- Half Title -- Title -- Copyright -- Contents -- Acknowledgments -- About the Authors -- Abbreviations -- Chapter 1: Introduction -- Rationale -- Road Map of the Book -- Annex 1A. Background Papers for This Book -- Notes -- References -- Chapter 2: Wage Inequality Changes since 1990: Key Trends and Stylized Facts -- Introduction -- Trends in Overall Inequality -- Trends in Wage Inequality -- Contribution of Skills and Education to the Changes in Overall Wage Inequality -- Contribution of Pay Differentials among Workers with Similar Skills to Overall Wage Inequality -- Labor Supply Trends: Rising Numbers of More-Educated Workers -- Macroeconomic Conditions and Labor Demand Shifts -- The Labor Market of Skilled and Unskilled Workers and Differences across Tradable and Nontradable Sectors -- Informality and Wage Inequality -- Cross-Country Heterogeneity in Main Trends, and Correlations between Key Inequality-Related Indicators -- Conclusions -- Annex 2A. Supplementary Wage and Income Inequality Figures -- Annex 2B. Robustness of Returns to Skill to Different Estimation Methodologies -- Annex 2C. Robustness of Employment and Skill-Use Growth in Tradable and Nontradable Industries to a Different Definition -- Annex 2D. Country-by-Country Changes in Inequality-Related Indicators and Correlations between the Key Variables -- Annex 2E. Supplementary Informality Figures and Correlations -- Notes -- References -- Chapter 3: The Role of Labor Supply in Wage Inequality Trends -- Introduction -- Skill Supply and Demand in the Determination of Relative Wages -- Falling Wages of Recent Cohorts of College-Educated Workers: Degraded Tertiary versus Skill Obsolescence -- The Degraded Tertiary Effect -- Conclusions -- Notes -- References -- Chapter 4: The Role of Labor Demand Conditions in Wage Inequality Trends -- Introduction 2A.1 Wage and Total Income Inequality in Latin America, by Country -- 2B.1 Wage Premium from Education, Correcting for Selection Bias, Latin America, 1993-2013 -- 2B.2 Wage Premium Estimations by Educational Group, with and without Dropouts, 1993-2013 -- 2C.1 Employment and Skill-Use Growth, by Sector Type, in South America -- 3.1 Wage Premium and Relative Labor Supply for High School vs. Primary Education, by Work Experience Level, Selected Latin American Countries -- 3.2 Change in the Share of the Workforce and Wages of College-Educated Workers, by Country and Experience Level, Selected Latin American Countries -- 3.3 Skill Premium in Selected Latin American Countries: Observed and Simulated Data -- 3.4 Changes in Demand for Skill, Selected Latin American Countries, 1990-2013 -- 3.5 Higher Education Expansion and Student Quality in Colombia -- 3.6 Impact of Attending a Newly Created Higher Education Program in Colombia, 2008-11 -- 4.1 Domestic Demand and Labor Income Distribution Trends during the Economic Boom in Selected Latin American Countries, 2003-11 -- 4.2 Framework for a Shift in Aggregate Demand and Expansion in the Skilled-Labor Supply Leading to a Decline in Wage Inequality -- 4.3 Labor Supply Elasticity in Latin America and Selected High-Income Countries -- 4.4 Decomposition of Wage Variance among Full-Time Male Workers across Firms in Costa Rica and Brazil -- 4.5 Employment Share Changes, by Skill Percentile, United States, 1980-2005 -- 4.6 Employment Share Changes across Occupations, Ranked by Skill Level, Selected Latin American Countries -- 4.7 Employment Share Changes across Sectors, Ranked by Skill Level, Selected Latin American Countries -- 4.8 Wage Changes across Occupations, Ranked by Skill Level, Selected Latin American Countries -- 4.9 Evolution of the Relative Price of Skill-Intensive Goods in Mexico and Chile |
| Title | Wage Inequality in Latin America |
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