Accounting for Changing Inequality in Costa Rica, 1980-1999

Abstract

After declining from the mid-1970s to the mid-1980s, earnings inequality in Costa Rica stabilized from 1987 to 1992 and then increased from 1992 to 1999. In this paper we use recently-developed techniques to measure the extent to which these changes in earnings inequality were the result of changes associated with the distributions (or .quantities.) of personal and work place characteristics of workers, and the earnings differences (or .prices.) associated with those characteristics. We present evidence that the most important cause of the fall in inequality prior to 1987 was a decline in returns to education, which in turn was caused by an increase in the supply of more-educated workers. We find that the most important causes of rising inequality in the 1990s were the end of this decline in returns to education and increases in the variance of hours worked among workers. Inequality in hours worked increased because of an increase in the proportion of workers working a non-standard work week (part-time or over-time)inequality, Latin America, labor