The Expansion of Higher Education and Wage Inequality in Chile

Known for its unequal income distribution, Chile experienced some improvement in this area in the 2000s. This study attempts to identify the contribution of the expansion and diversification of higher education to Chile's wage equalisation from 2000 to 2013. For this purpose, we employ the decomposition method proposed by Firpo, Fortin, and Lemieux (2009), which allows performing the Oaxaca-Blinder decomposition at any unconditional quantile. Our findings show that the positive composition effect of higher education, primarily derived from the increasing share of workers with technical training centre (centro de formación técnica, CFT) and postgraduate education, is larger at the upper quantiles of the distribution. However, the negative wage structure effect of higher education, primarily derived from the decreasing return to university education, was substantially larger at the upper quantiles and exceeded the positive composition effect, thereby contributing to the wage equalisation during this period. Indeed, the wage structure effect of higher education explains 27.6% of the reduction in wage gap between the 90th and 10th quantile during this period. Since the increasing supply of CFT graduates was associated with decreasing wage premiums for university education, it is suggested that CFT education has substituted for university education.