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Income Inequality in Latin America: A Factor Component Analysis

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  • Branko Milanovic
  • Verónica Amarante

Abstract

The decline in inequality observed in most Latin American countries after 2002 was surprisingly good news, particularly given that most developed countries were experiencing a rise in inequality at that time. Various arguments have been put forward to explain this decline, but there is still no consensus on the most plausible explanation. This article contributes to the ongoing discussion by performing inequality decompositions by factor components. We estimate the importance of each source of income in explaining the observed decline in income inequality between 2002 and 2011 in five Latin American countries. Specifically, we explore the role of the process of formalization that has taken place in regional labor markets, separating formal and informal wages and considering self‐employment incomes. In the five countries studied here informal wages and self‐employment income contributed to decreasing inequality. Formal sector wages, on the other hand, fostered inequality in all countries except Bolivia.
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  • Branko Milanovic & Verónica Amarante, 2016. "Income Inequality in Latin America: A Factor Component Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62, pages 4-21, August.
    • Handle: RePEc:bla:revinw:v:62:y:2016:i::p:s4-s21
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    File URL: http://hdl.handle.net/10.1111/roiw.12236
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    References listed on IDEAS

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    1. Oscar Altimir, 1987. "Income Distribution Statistics In Latin America And Their Reliability," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 33(2), pages 111-155, June.
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    4. Cornia, Giovanni Andrea (ed.), 2014. "Falling Inequality in Latin America: Policy Changes and Lessons," OUP Catalogue, Oxford University Press, number 9780198701804.
    5. Leonardo Gasparini & Guillero Cruces & Leopoldo Tornarolli, 2011. "Recent Trends In Income Inequality In Latin America," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 147-201, January.
    6. -, 2014. "Compacts for Equality: Towards a Sustainable Future," Libros y Documentos Institucionales, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 36693 edited by Eclac.
    7. Giovanni Andrea Cornia, 2010. "Income Distribution under Latin America's New Left Regimes," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 11(1), pages 85-114.
    8. -, 2014. "Compacts for Equality: Towards a Sustainable Future," Documentos de posición del período de sesiones de la Comisión 36693, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
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    Cited by:

    1. Diego Winkelried & Bruno Escobar, 2022. "Declining inequality in Latin America? Robustness checks for Peru," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 223-243, March.
    2. Roberto Mauricio Sánchez-Torres, 2017. "Desigualdad del ingreso en Colombia: un estudio por departamentos," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, October.
    3. Luca Giangregorio & Davide Villani, 2023. "Income inequality, top shares of income and social classes in the 21st century," JRC Working Papers on Social Classes in the Digital Age 2023-05, Joint Research Centre.
    4. Caroline Krafft & Elizabeth E. Davis, 2021. "The Arab inequality puzzle: the role of income sources in Egypt and Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 13(1), pages 1-26, January.
    5. Nelson R. Ramírez- Rondán & Marco E. Terrones & Diego Winkelried, 2020. "Equalizing growth: The case of Peru," Working Papers 176, Peruvian Economic Association.
    6. Lahsen, Amina. A & Piper, Alan T., 2018. "Property Rights and Intellectual Property Protection, GDP growth and Well-Being in Latin America," MPRA Paper 90034, University Library of Munich, Germany.

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