Sergio Firpo and Alysson Portella. Decline in Wage Inequality in Brazil: A Survey graduates in Brazil, the observed decline in experience premium was 26.6 log points, whereas the predicted drop based only on changes in supply results in -6.9 log points. These figures are similar for Argentina and Chile. These results point out to a prominent role of changes in relative demand in explaining changes in the return to experience.

A complementary explanation to the observed reduction in the premium to skills in Latin America is that the increase in the supply of workers with higher education was followed by a reduction in the quality of education received by the new generations. Based on this “degraded tertiary hypothesis”, the lower quality of schooling is the reason behind skilled workers’ lower relative remuneration, since they are less productive than their previous counterpart (Messina and Silva, 2017). If such hypothesis is correct, we should expect the skill premium for younger generations to be smaller than for older generations, holding constant potential experience.

The evidence on this hypothesis is mixed for Latin America. Rodr ́ıguez et al. (2016) find evidence of heterogeneous returns for post-secondary education in Chile, with some individuals facing negative returns to their first-best choice compared to their second-best choice, depending of their unobserved ability. Camacho et al. (2017) use administrative data from Colombia and find that once selection based on ability and socio-demographic characteristics by the end of high school is accounted for, the penalty for attending a recently created post-secondary program instead of an existing one disappears. Bassi et al. (2012) use data from Brazil, Argentina, and Chile to compare what are the skills demanded by firms in these countries with what schools teach students. They find that firms not only demand academic skills, but also behavioral and socioemotional skills, with the great majority of firms reporting that these skills are in short supply. Wang (2015) tries to explicitly test for the hypothesis of degraded tertiary using Brazilian data, by comparing the college premia of younger and older cohorts, while controlling for the increase in supply. He finds evidence supporting the hypothesis since between 1995 and 2013 there was a reduction in the skill premium for younger workers.

Another possible cause put forth for the reduction in skill premium is “skill obsolescence” (Campos-Vazquez et al., 2016). Under this hypothesis, skills learned in the past may become depreciated due to rapid technological changes. This hypothesis is closely linked with the idea of age-biased technological changes (Behaghel and Greenan, 2010). The implication is symmetrically opposed to that of the degraded tertiary hypothesis, since we expected that older workers would be more harmed by the obsolescence of their skills. This hypothesis could also help account for the observed decline in experience premium. Campos-Vazquez et al. (2016) find that in Mexico, between 2000 and 2015, the wages of the oldest cohort declined, whereas the wages of the youngest cohort observed a modest gain. Messina and Silva (2017) replicate their analysis for other Latin American 10