The rest of the paper is organized as follows. Section 2 documents trends in wage inequality during 1995–2015. Section 3 describes the evolution of the schooling and experience premiums in the region and the linked changes in labor supply. Section 4 discusses the role of technological change and polarization in relative wages and employment. Section 5 decomposes the changes in wage inequality into between- and within-skill group components and betweenand within-sector occupations. Section 6 examines the role of informality in the evolution of inequality. Sector 7 explores the role of firm heterogeneity in the observed trends, decomposing levels and changes in the wage variance into worker and firm components and betweenand within-firm components among formal workers. Section 8 discusses possible drivers of the observed trends. Section 9 concludes.

# **2. Wage Inequality: New Trends in the New Millennium**

This section presents the evolution of wage inequality in Latin America during 1995–2015. It measures wage inequality and characterizes its evolution using household data for 16 countries harmonized by the Socioeconomic Database for Latin America and the Caribbean (SEDLAC), World Bank and the Center for Distributive, Labor and Social Studies of the Universidad Nacional de La Plata (CEDLAS). The earnings measure this paper uses, unless noted otherwise, is hourly earnings in the main job. This measure was obtained by harmonizing the earnings and hours of work information from the different household surveys.<sup>6</sup> Supplementary online appendix S1.1 provides the details. The sample includes all workers 16 to 65 years-old who are employees or self-employed. Hence, unpaid family workers and employers are excluded from the sample. Sampling weights are used for all the reported statistics. Regional averages are unweighted.<sup>7</sup> The data include more than 14,908,680 observations and represent 87.54 percent of the region’s working-age population in 2015.

Figure 1 depicts the evolution of wage inequality since 1995. Wage dispersion had a very

> 6 Earnings are take-home pay, after social security taxes have been paid. They include bonuses that workers receive on a regular basis (monthly or more frequently), but exclude bonuses paid less frequently than monthly. Hourly wages are total labor income from the main activity divided by hours of work in that activity. Nominal hourly wages are converted into real terms using national consumer price index deflators and expressed in dollars using 2005 purchasing power parity. The 1st and 99th percentiles of real hourly wages in each country-year were trimmed.

> 7Regional averages refer to Argentina, Bolivia, Brazil, Chile, Costa Rica, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, El Salvador, and Uruguay, the countries for which comparable series of wages covering 1995–2015 were available. To avoid averaging across a different number of countries over years, the series were interpolated when a data point was missing. See supplementary online appendix S1.1 available at the _World Bank Economic Review_ for details. The main text reports unweighted regional averages and supplementary online appendix S3 reports regional results weighted by population.

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