around the trend in earnings inequality in Latin America during the last two decades. To a lesser degree, it also seeks to contrast these trends with those of other middle- and high-income countries in the world. To analyze the trend in labor income inequality, we aim to document changes in the inequality of the earnings structure (relative returns of different skills/attributes). We also analyze the context of these changes in terms of real earnings growth because different movements in real earnings could lead to the same change in relative returns to different attributes, but not to the same conclusions about the underlying causes. Finally, our paper presents a set of stylized facts on the variance in earnings across workers of observable different characteristics (the earnings structure) and the variance across workers with observable equal characteristics, which is defined in the literature as residual earnings inequality and corresponds to the variance that cannot be explained by the differences among workers in a set of observed characteristics. Unlike Azevedo et al. (2013), we are not imposing any assumption about the dynamics of the residual distribution.

By conducting our analysis at the regional level, we enhance the external validity of our results, while obtaining broad estimates of a common underlying trend in the distribution of labor market earnings in the region. In particular, we use data from the SEDLAC database on 17 countries in Latin America, which cover around 90 percent of the population. This allows us to identify underlying factors that are beyond specific country contexts (political, institutional, or economic). In addition, analyzing data since the early 1990s allows us to define whether the factors considered important in the 2000s were also present during the previous decade, when labor market inequality showed a different trend. In other words, by taking a long-term perspective, we can test whether the reverse of previous trends in overall inequality implied a reverse in previous trends in other factors, or a surge in new forces that were previously absent.

Our main finding is that, after a period of modest expansion in wage dispersion, Latin America experienced a trend reversal in labor income inequality after 2002. We find evidence of a parallel movement between total income inequality and labor income inequality, which is no surprise because labor earnings represent about 80 percent of the total household income distribution in any Latin American country.<sup>10</sup> In particular, the unweighted average Gini coefficient of labor income inequality fell from 0.473 in 2002 to 0.410 in 2013. According to our analysis, this significant drop in earnings inequality is robust to the choice of aggregation method,<sup>11</sup> inequality measure,<sup>12</sup> period of analysis, or the selection of countries in the construction of the regional aggregate. This phenomenon of declining labor inequality was observed in 16 of the 17 countries on which we have comparable data for the 2000s. Only Costa Rica experienced an increase in labor income inequality over the last decade.

Our analysis also shows that the decline in labor income inequality was supported by a substantial expansion in real hourly earnings at the bottom of the distribution.<sup>13</sup> In particular, since 2002, the labor incomes associated with relatively low-paying jobs (those in the bottom decile of the earnings distribution) have risen by more than 50 percent in real terms, which is significantly higher than the 15 percent growth among more well paid workers (those in the top decile of the earnings distribution) and also higher than the 32 percent growth rate experienced in the median of the distribution. In contrast, the increase in regional labor income inequality during the 1990s was supported by a reduction in real earnings at the bottom of the distribution, while the rest showed null or slightly positive growth in real earnings.

Our second set of results highlights a steady decline in the education premium in Latin America since the early 2000s that has been driven by larger growth in labor earnings among less well educated workers relative

> task. Moreover, most of these studies only explain the trend in the 2000s, which leads to a bias in their findings because they do not observe a period with different trends—the 1990s—to test their hypotheses. See, for instance, Paz and Urrutia (2015) on Peru; Ariztizabal et al. (2015) on Bolivia, Colombia, and Ecuador. Among these studies, Messina and Fernandez (2016) is the only one that analyzes the long-term trends in Argentina, Brazil, and Chile.

> 10 See, for instance, World Bank (2011) and Cord et al. (2016), which document that labor earnings represent about 80 percent of total household income in most Latin American countries.

> 11 Both the weighted and unweighted regional averages converge qualitatively in the fall of labor income inequality, albeit they report some differences in terms of the trend during the 1990s.

> 12 Our analysis also reaches this conclusion based on the Theil index, the mean log deviation, the Atkinson index, and the 90/10 ratio.

> 13 Labor earnings and wages represent different concepts. Our analysis focuses on labor earnings, which consider the earnings of both wage employees and self-employed workers. Even if we may sometimes use the term wage or wages, our results always refer to labor earnings.

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