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Drichelmo Tamayo; Juan Carlos Palacios; David Puebla
Analiti a, Revista de análisis estadístico, Vol. 15 (1), 2018
8
Abstract
This paper analyzes the factors that influenced the decline of wage inequality in
Ecuador from 2010-2015. Recent literature suggest that firms have an important role
in wage determination and therefore on total income (Barth
et al.
, 2016; Card
et
al.
, 2013; Song
et al.
, 2016). Following this literature, we use administrative linked
employee-employer data to measure the contribution of workplace heterogeneity, indi-
vidual heterogeneity, time variant covariates and its correlation on the decline of wage
inequality. We divide the period 2010-2015 into three overlapped intervals and esti-
mate linear models with additive worker and firm fixed effects, following Abowd
et al.
(1999). Then we compare the estimates of each component between the three intervals
to analyze how did they evolve over time and how much did they contribute to the
decline of wage inequality. Our results show that the reduction of wage inequality
was mainly driven by reduction of worker’s individual heterogeneity, which account for
65% of the total decline; and 45% was accounted by reduction of firms’ heterogene-
ity. Nonetheless, this equalizing pattern that together add up to more than 100%, is
mitigated by an increase of inequality due to the covariance of these two components,
which reflects evidence of sorting of workers into high wage paying firms.
Keywords:
Wage inequality, fixed effects models.
Clasificador JEL:
J00, J31, D22