between-group, and within-group) wage inequality, using harmonized information on wages across household surveys. For comparability, all trends depicted use the same sample of countries and years. Second, the paper provides new evidence on the importance of changes in wage inequality between and within sector-occupation-formality status, using the harmonized household data. Third, it extends the analysis on the role of firms in inequality trends, using longitudinal matched employer-employee administrative data from the formal sector in Brazil, Costa Rica, and Ecuador. Fourth, it provides an assessment of what we know and do not yet know about the potential drivers of the change in wage structure in Latin America, highlighting the most promising avenues for further research.

Our analysis yields three main empirical results. First, it finds that wage inequality started falling in 2002 in all countries in the region in which wages can be consistently measured over time, except Costa Rica. Despite the common trends, the wage inequality dynamics varied markedly across two groups of countries. Countries that benefited from the commodity boom in South America experienced stronger growth and much deeper reduction in inequality during the 2000s. Wages grew across the board, but growth was monotonically decreasing across each countries’ wage distribution. In virtually every country, wage growth was much faster at the bottom 10th percentile than at the median and 90th percentile. Net commodity importers in Central American economies and Mexico displayed more modest reductions. They also experienced a compression in the lower and upper tails of each countries’ wage distributions, but the compression at the top resulted from a combination of slow growth of median wages and virtual stagnation of real hourly wages among earners in the 90th percentile.

Second, the paper shows that these dynamics are associated with declining skill premiums and a reduction in within-group inequality during the 2000s. The college-to-primary earnings premium declined in all countries. By contrast, education premiums increased slightly during the 1990s (Galiani and Sanguinetti 2003; Pavcnik et al. 2004; Robertson 2004).<sup>2</sup> It also finds a secular decline in the experience premium since 1995, likely contributing to the inequality decline.<sup>3</sup> Although the reported changes in the skill premium are important, the analysis shows that two-thirds of the decline in inequality during 2002–15 is explained by changes in the wage structure within skill groups. Residual (within schooling, age, and gender cells) changes in wage inequality trace changes in total inequality remarkably well and are only

> 2The importance of the evolution of the skill premium has been emphasized in the literature. See L ́opezCalva and Lustig (2010), Tavares and Menezes-Filho (2011), Azevedo et al. (2013), Rodr ́ıguez-Castel ́an et al. (2016), Galiani et al. (2017), and Fern ́andez and Messina (2018).

> 3Campos-V ́azquez, L ́opez-Calva, and Lustig (2016) document the decline in the experience premium among college workers in Mexico. Firpo, Ferreira, and Messina (2017) find that the decline in the experience premium was a key factor behind the decline in wage inequality in Brazil.

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