Explaining Changes in Sri Lanka’s Wage Distribution, 1992-2014: A Quantile Regression Analysis

Prathi Seneviratne
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Prathi Seneviratne: Carleton College

No 2017-01, Working Papers from Carleton College, Department of Economics

Abstract: This paper investigates the evolution of Sri Lanka’s wage distribution during 1992-2014, a period of robust economic growth following the adoption of liberal economic policies. Using unconditional quantile regression, the analysis reveals wages grew across the distribution and more strongly at lower quantiles, causing inequality to fall. The decline in inequality came almost entirely from changes to wage returns consistent with rising relative demand for lessskilled labor. However, changes in workforce composition widened income gaps, most notably through educational and occupational upgrading. The study further demonstrates selection bias overestimates average incomes and underestimates inequality in a given year, while also mismeasuring changes in those variables over time. The study discusses the negative implications of

persistent inequities along education, occupation and gender divisions, and recommends policies to address them.

Date: 2017-09
Note: In Copyright
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