Wage inequality in the developing world: Evidence from Latin America

Carlos Rodríguez‐Castelán, Luis Felipe López‐Calva, Nora Lustig and Daniel Valderrama-Gonzalez
Authors registered in the RePEc Author Service: Carlos Rodríguez-Castelán and Luis Felipe Lopez-Calva

Review of Development Economics, 2022, vol. 26, issue 4, 1944-1970

Abstract: 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.

Date: 2022
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