Recent decline in wage inequality and formalization of the labour market in Argentina

Abstract

Labour market conditions improved during the 2000s in Latin America, a process that included a reduction in the magnitude of informal employment. A decline of wage inequality was another feature of this period. Both dynamics were particularly intense in Argentina. The purpose of this study is to evaluate the role played by the process of formalization of the labour market that occurred in Argentina during that period on the reduction of income inequality, while additionally taking into account other factors that might have also contributed to such dynamics of income inequality. The method employed is a decomposition proposed by Firpo, Fortin and Lemieux, which allows extending the Oaxaca-Blinder approach to decompose some distributive statistics of income between a ‘composition effect’ and a ‘returns effect’. The study concludes that the process of increasing labour market formalization had an equalizing effect over the period, a finding that had not been emphasized in previous studies.