The close relationship between individual earnings and household income inequality is both an artifact and a reality, reflecting at least two important factors. The first regards measurement. The household surveys used to measure household income inequality do a good job of tracking earnings but likely underestimate the income from sources other than labor. Since nonlabor income tends to be more concentrated in the upper part of the income distribution and labor income is more spread throughout the income distribution[1], our estimates of household income inequality are likely to be downward-biased. Note, however, that in the few countries in which one can correct household income inequality measures in the household surveys using data from top income earners, the inequality levels are altered, but not the trends: it is still true that inequality in these countries fell during the 2000s.[2] The second important factor concerns the limited capacity of Latin American countries to redistribute income. Although these two factors might lead to a downward bias in the measurement of nonlabor income (as labor earnings account for the lion’s share of total income), they are unlikely to challenge the strong association between individual earnings and household income inequality.
- Sizable expansion of real wages at the bottom of the wage distribution
Although the (unweighted) average earnings in Latin America increased for the bottom, middle, and top of the labor income distribution over the past decade—following no change during the 1990s—the largest increase in wages occurred for those workers at the bottom of the earnings distribution.
- Changes in the education premium
The earnings premium for a college education versus primary school was 67 percent in the 1980s (Manacorda, Sánchez-Páramo, and Schady 2010),12 increased moderately in the 1990s (by around 10 percent), and has decreased sharply since 2003 (by around 25 percent), following a trend similar to that of earnings inequality. In contrast, there has been a steady but very slow decline of the college versus high school premium since the mid-1990s.
- Changes in the experience premium
Work experience premiums remained relatively stable in the 1990s but fell in the 2000s, a trajectory similar to that of wage inequality (figure 2.6, panel b). That is, the gap between those with more years of experience and those with less experience remained relatively constant during the 1990s, and then fell in the early 2000s. This evident fall in labor earnings for the most-experienced workers relative to less-experienced workers implies that skills gained through years in the labor market might be losing value since the past decade and may represent lower wages for older cohorts.
- Changes in the gender, race, and urban-rural wage gaps
During the 2000s, most labor market gaps narrowed in the region (gender, race, and spatial wage gaps). There were changes in the gender composition of the labor force (with an increase in female labor force participation) and in the corresponding wage gap of male workers compared to female workers. However, in a divergence from overall wage inequality trends, the gender gap remained relatively stable over 1993–99 (figure 2.6, panel c). In contrast, the urban-rural gap increased from 36 percent in 1993 to 46 percent in 2002, followed by a significant decline from 46 percent in 2002 to 25 percent in 2013 (figure 2.6, panel c). This decline may have been triggered by the commodity boom, which boosted the supply of agricultural goods and other commodities.
- ^ Piketty, Thomas, 1971-. Capital in the twenty-first century. Goldhammer, Arthur,. Cambridge Massachusetts. ISBN 9780674430006. OCLC 858914389.
{{cite book}}: CS1 maint: extra punctuation (link) CS1 maint: multiple names: authors list (link) CS1 maint: numeric names: authors list (link) - ^ De la Torre, Augusto. (2015). LAC Semiannual Report October 2014 : Inequality in a Lower Growth Latin America. Beylis, Guillermo., De la Torre, Augusto., Didier, Tatiana., Levy Yeyati, Eduardo., Rodriguez Castelan, Carlos., Schmukler, Sergio. Washington, D.C.: The World Bank. ISBN 9781464804298. OCLC 1029499523.