Latin American countries are generally characterized as exhibiting both high wage and earnings inequality<sup>1</sup> —and significant gender,<sup>2</sup> racial, and ethnic-related inequality.<sup>3</sup> Hence an interesting question to ask is: To what extent are these two features interrelated?

In this paper we address this question by considering how greater equality by gender and race/ethnicity in distribution of labor earnings would affect overall labor earnings inequality. Using household survey data from four Latin American countries for which it is possible to calculate earnings separately by race (Brazil and Guyana) or ethnicity (Bolivia and Guatemala), we calculate a number of inequality indexes, both overall and separately by race/ethnicity and gender. We show that there is significant gender and intraracial/ethnic group earnings inequality as well as substantial overall earnings inequality.

We then recalculate the overall labor earnings inequality index under a series of assumptions that increasingly treat members of the worse-off gender and/or racial/ethnic group as if they were members of the better-off group. We show, using a relatively new empirical methodology developed by Bourgignon, Ferreira and Lustig (1998),<sup>4</sup> that these steps do not have a large effect in reducing overall inequality measures, and indeed can increase inequality measures in some cases. This is not surprising, given the high levels of intragroup inequality that we have shown and the many unobservable factors that affect wages. However, this may be surprising to those who have not seen these intragroup measures previously.

> 1 There are many overall inequality studies that consider all or part of the Latin American and Caribbean region (LAC), and some also compare LAC to all or part of the rest of the world. See Psacharopoulos et al. (1995), Londoño and Székely (1997), Inter-American Development Bank (1998), Morley (2001), Székely and Hilgert (1999, 2007), De Ferranti et al. (2004) World Bank (2004), and Medrano, Sanhueza, and Contreras (2006) for overviews of the inequality discussion in Latin America, and Deininger and Squire (1996) for the world comparison. Studies that consider the intergenerational transmission of inequality in LAC include Behrman, Gaviria and Székely (2001), which finds that LA is less mobile than the US and that mobility is associated with education; and Barros and Lam (1993) and Lam (1999), both of which consider intergenerational transmission of educational inequality in Brazil.

> 2 In terms of gender analysis in the LAC region, Tzannatos and Psacharopoulos (1992) find that across the region, women’s earnings and labor force participation are consistently lower than men’s. Also see Saavedra (2001), who looks at female wage inequality in LAC, Brown, Pagga, and Oreggia (1999), on Mexico, Esquivel and Paz (2003) on Argentina, and Pagan (2002) on Guatemala.

> 3 LAC studies on race and/or ethnicity are scarce, with country-level studies of Brazil comprising the bulk of the research. Notable studies on indigenous groups include Psacharopoulos and Patrinos (1994) and Hall and Patrinos (2006), both of which conclude that indigenous peoples are systematically pooer than non-indigenous peoples.

> 4 Other studies using this type of methodology include Bouillon, Legovini, and Lustig (1998), Ferreira and Paes de Barros (1999), Bravo, Contreras, Rau, and Urzua (2000), Bourguignon, Fournier, and Gurgand (2001), Bourgignon, Ferreira, and Leite (2002), Ferreira and Leite (2005), and Gasparini, Marchionni, and Escudero (2005). Bourguignon and Spadaro (2006) discuss the use of this methodology to evaluate social policies.

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