Sergio Firpo and Alysson Portella. Decline in Wage Inequality in Brazil: A Survey the elasticity of substitution between skill groups, apart from simultaneous changes in demand that may enhance or counter-act these underlying supply trends. Manacorda et al. (2010) and Gasparini et al. (2011) are among the first to estimate these elasticities for Brazil and other Latin American countries. Fern ́andez and Messina (2018) upgrade the work of Manacorda et al. (2010) for the 2000s, by estimating elasticities of substitution between skilled and unskilled workers and workers with secondary and primary school, as well as elasticities of substitution across experience groups within these education groups. This is one of the departures from Manacorda et al. (2010), as they assumed a constant elasticity of substitution across these education groups. Moreover, they extend the previous framework by allowing for differential demand trends across experience groups. This turns out to be significant, since all changes in the experience premium were accounted for by changes in relative supply in the previous framework.

Concerning the substitution between skilled and unskilled workers, Fern ́andez and Messina (2018) estimate the elasticity of substitution between workers with high school and primary school to be 2.3, but only 1.25 between college-educated and unskilled workers. This means that skilled and unskilled labor are not easily replaced, especially college-educated workers. Based on these estimates and the observed changes in relative supply of skilled workers, the predicted changes for the premia for both skill groups are very close to those observed in Brazil, although for Argentina and Chile they are unable to replicate some movements.<sup>5</sup> Therefore, the conclusion is that the changes in relative supply played a much more important role in explaining changes in the returns to education in Brazil than changes in relative demand.

The elasticities of substitution between experience groups estimated by Fern ́andez and Messina (2018) are larger than the elasticities between educational groups. Among unskilled workers (high school or less), the estimated elasticity was 3.6, while for skilled workers (college) it was 5.5.<sup>6</sup> Hence, experienced workers are more easily replaceable among the more skilled workers. In Brazil, observed changes in the relative supply of experience groups account for only a 11.3 log points reduction in experience premium<sup>7</sup> for unskilled workers, compared to an observed reduction of 26.6. Meanwhile, for college-

> 5In Brazil, the predicted change in the high school premium due to labor supply changes is -68.4 log points, quite close to the observed reduction of -71.9. For Argentina these figures were -12.7 and -31.9, while in Chile they were -31.1 and -51.1. With respect to the college premium, the observed decline in Brazil was -56.6 log points, whereas the reduction predicted by changes in labor supply was -67.1 log points. For Argentina and Chile the observed decline was -46.8 and -32.8 log points, while the predicted decline was -35.1 and -23.1.

> 6It is important to notice that the results for elasticity among skilled groups may be biased by the Brazilian pension system, as argued by Fern ́andez and Messina (2018). Early retirement is somewhat common in Brazil, particularly among highly educated workers. Therefore, the experience premium is probably overstated for college graduates with 30 years or more of experience.

> 7Here we are considering estimations for the experience premium for workers with 20-29 years of experience over the workers with only 0-9 years.

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