Varieties of functional income inequality in Latin America: Chile and Mexico compared

Abstract

Contributing to a better understanding of the varying inequality patterns within Latin America, this article examines the drivers of the private sector labour shares of Chile and Mexico between 1980 and 2011. Over this period, Chile’s labour share has declined, similar to many advanced economies, while Mexico’s labour share has remained relatively stable. Our historical and econometric analysis suggests that in Chile high private indebtedness has undermined wage demands and induced wage cuts, while policies of small government have also contributed to the decline in its wage share. Chile’s natural resource exports have benefited from Latin America’s commodity boom and exhibited some limited positive effects on its wage share. Contrariwise, we find that Mexico, as a more capital-intensive economy, has experienced significant substitution effects, which have undermined its wage share. Yet, high government spending has counterbalanced the negative effects of globalization. These comparative results challenge popular narratives around hyper-globalization and policy homogenization.

Financialisation, globalisation, and the industrial labour share: A comparison between Iran and Thailand

“…First, the reliability of self‐employment data in developing economies is questionable given that most self‐employed work is informal (van Treeck, 2020). Second, conceptually, not adjusting the wage share is more appropriate because the key hypotheses of the literature refer to the outcome of the private employer–employee negotiation (Gouzoulis & Constantine, 2021).…”

Economic and political determinants of the South African labour share, 1971–2019

“…This is the motivating question for this study. The empirical literature on the drivers of wage shares in advanced economies concludes that deunionisation, withdrawal of the welfare state, globalisation and financialisation have all contributed to rising functional income inequality since the 1980s (Alvarez, 2015;Bengtsson, 2014;Dünhaupt, 2017;Flaherty and Ó Riain, 2020;Gouzoulis, 2021;Kristal, 2010;Lin and Tomaskovic-Devey, 2013;Stockhammer, 2017;Wood, 2017). Similar conclusions are drawn for the handful of studies that investigate the cases in emerging economies, which, however, focus on a limited number of explanatory factors (Guschanski and Onaran, 2017;Ibarra and Ros, 2019;Jayadev and Narayan, 2020;Onaran, 2009).…”

“…Given the single-equation design of our study, we use the Unrestricted Error Correction Model (UECM) (Davidson et al, 1978; Sargan, 1964), which is widely used in empirical wage share studies (Bengtsson, 2014; Flaherty and Ó Riain, 2020; Gouzoulis, 2021; Gouzoulis and Constantine, 2021; Kristal, 2010). This approach largely addresses the usual serial correlation issues, especially in the context of macro-level and small sample size studies.…”

“…The ILO (2008) and IMF (2017) provide evidence that foreign assets and liabilities have contributed to the rise of functional income inequality. Also, Harrison (2002), Jayadev (2007), Onaran (2009), Stockhammer (2017) and Gouzoulis and Constantine (2021) report panel and time series evidence that trade and capital account openness and FDI have decreased the labour shares of both advanced and emerging economies. Finally, Böckerman and Maliranta (2012) empirically demonstrate that Finland’s export share causes intra-industry restructuring that decreases its labour share.…”

“…The extant literature on the determinants of the functional distribution of income stresses the roles of labour market institutions, the welfare state, trade and financial globalisation, and financialisation. Given the complex and ever-evolving nature of power relations in a society, different theories underline the importance of different channels that influence the employer-employee balance of power (Gouzoulis, 2021;Köhler et al, 2019;Stockhammer, 2017). The remainder of this section reviews these channels that co-determine the private sector functional distribution of income.…”