Theme Three
Inequality and Markets
Trends in inequality have been mostly driven by labor market developments, yet the driving forces of the recent decline in wage inequality are not fully understood. Transitions into and out of informality generate inequality in access to services like healthcare, pensions and unemployment insurance, but we know little about how these are determined and why.
The study of workers’ informality cannot be disentangled from the study of the distribution of firms. Markups and product market concentration are high in the region. Because business ownership is highly concentrated, rents in the goods markets likely contribute to the concentration of income at the top of the distribution. Firms may also contribute to high levels of income inequality. By reducing wages, firms’ markdowns in the labor market are a potential source of lower labor share and interpersonal inequality.
The third theme focuses on the relationship between markets (for labor, capital and goods) and inequality. It studies the extent to which the labour market constitutes a fundamental driver of earnings and income inequality, and then explores the relationship between firm size distribution and competition in different goods markets in order to understand wage dispersion and inequality of capital incomes.
What are the implications of labor market turnover on inequality?
How is firm size distribution related to personal income distribution? Click on the links below to delve deeper into inequality and market dynamics in LAC with our working papers:
Firms and inequality in Latin America
Inequality and market power in Latin America and the Caribbean
Labor market turnover and inequality in Latin America
Minimum Wage Policy and Inequality in Latin America and the Caribbean
Globalization and Inequality in Latin America
Some key Findings:
- The region displays a deficit of employment generation in small and medium-sized enterprises, by contrast to both microbusinesses (including self-employment) and large corporations. While the former tend to remunerate both workers and owners with very low incomes, the latter pay high wages but also exhibit low labor shares (Eslava et al., 2023).
- Market power is high in Latin America and the Caribbean, leading to a lower labor share and higher income inequality (Messina et al., 2023).
- In Latin America, job exit rates to nonemployment are similar to those of European countries, such as Portugal, Italy, and Germany, where labor market regulations are more stringent. In contrast, job-to-job transition rates are higher, aligning more closely with those prevailing in the U.S. and Ireland (Menezes-Filho & Narita, 2023).
- Setting an ambitiously high minimum wage, and/or turning a blind eye to minimum wage violations, is likely to produce labor informality, and higher inequality (Gindling & Ronconi, 2023).
- Latin American countries are characterized by decades of import substitution policies, large trade liberalization episodes in the 80s and 90s, burdensome labor market regulations, and large informal sectors (Kovak & Dix-Carneiro, 2023)
Panel Members
Julián Messina
Universidad de Alicante
Richard Blundell
University College London and Institute for Fiscal Studies (IFS)
Santiago Levy
Brookings Institution
Raquel Fernandez
New York University
Marcela Eslava
Universidad de Los Andes
Andrés Velasco
London School of Economics and Political Science
