Inequality and market power in Latin America and the Caribbean
- Market power is high in Latin America and the Caribbean, leading to a lower labor share and higher income inequality.
- Variation in the labor share across firms is fundamentally affected by labor market power, with product market power playing a secondary role. Firms with more bargaining power over wages present a lower labor share.
- The high dispersion of labor market power across firms is consistent with the importance of inter-firm wage inequality for inter-personal wage inequality.
- The negative relationship between market power and the labor share is exacerbated at the macroeconomic level because largest firm have more labor market power.
- While market power undeniably plays a significant role in regional inequality, Latin America and the Caribbean do not distinctly stand out in any of the dimensions explored in the paper with respect to other middle-income countries that have significantly less inequality. Thus, the roots of Latin American inequality exceptionalism likely lie somewhere else.
