Decomposing inequality changes in Uruguay: the role of formalization in the labor market

Abstract

During the first decade of the twentieth century, the Uruguayan labor market showed a significant decline in wage inequality and in the incidence of labor informality, while similar changes also took place in other Latin American countries. These trends were observed in a period of strong economic dynamism. Most extended explanations for this declining inequality in the region have been centered on falling returns to education. The main goal of this paper is to present new evidence on the relation between informality and wage inequality through a RIF-based regression decomposition analysis which, besides confirming the relevant role of education, shows that the process of labor market formalization also played a significant role in the reduction of inequality in Uruguay, mainly through a price effect.JEL Classification: D31, J31

Wage Inequality in Latin America: Understanding the Past to Prepare for the Future

“…fi nd that the reduction of the formal-informal wage gap from 1995 to 2012 in Brazil contributed to a reduction of 1.7 Gini points of the total inequality reduction of 9 Gini points. Amarante, Arim, and Yapor (2016) also report a signifi cant impact in Uruguay. Are these fi ndings generalizable across the region?…”

“…27. For a detailed discussion of the link between informality and inequality, see Amarante, Arim, and Yapor (2016).…”

Education as a key to reduce spatial inequalities and informality in Argentinean regional labour markets

“…In this field, it is possible to identify at least three groups of studies in the related literature: those who analyse the bond between informality in labour markets and inequality, a second group that considers the effects of informality in wages, and finally those who examine the dynamics and the characteristics of labour market transitions. In the first group we can mention the study by Amarante, Arim, and Yapor (2016), who analyse the relation between informality and inequality changes in Uruguayan labour markets, finding that both formalization and education level have an equalizing effect. Similarly, for the Argentinean case, Paz (2017) measured the effects of workers traits, for example, education in the reduction of inequality, finding that more educated individuals contribute positively to the reduction of social disparities gaps.…”

Skills and the Labor Market in a New Era: Managing the Impacts of Population Aging and Technological Change in Uruguay

“…Distributional impacts appear to have been limited so far. Jobs with a higher incidence of tasks that require mid-level skills seem to have lost returns in comparative terms, but this effect is very weak and not enough to offset the impact of other changes that, since 2003, explain an important improvement in income distribution (Amarante, Arim, and Yapor 2016). In addition to rapid economic growth from 2003 to 2017, for example, wages in Uruguay were affected by significant institutional changes, such as increases in the minimum wage, the establishment of wage councils, and the introduction of reforms in the tax and health systems.…”