Lifetime inequality measures for an emerging economy: The case of Chile

• Published in: Labour economics Vol. 42; pp. 1 - 15
• Main Author: Tejada, Mauricio M.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-10-2016
• Subjects: Inequality; Lifetime welfare; Maximum likelihood estimation; On-the-job search; Search models; Maximum likelihood estimation; Search models; On-the-job search; Lifetime welfare; Inequality
• ISSN: 0927-5371; 1879-1034
• DOI: 10.1016/j.labeco.2016.06.002

Even though the Chilean economy has experienced a sustained economic growth and made enormous progress in reducing poverty in the last 25years, its income inequality continues to be among the highest in the world. Given its importance, the literature has paid considerable attention to income inequality in Chile. Nevertheless, all of the existing studies use a cross-section distribution of earnings when analyzing inequality. Cross-section and lifetime measures of inequality are different. While the latter reflects long run resources available to individuals, the former does not. This emphasizes the dynamic dimension of inequality. This paper focuses on the analysis of income inequality from a lifetime perspective for the Chilean economy using a search-theoretic framework. The model, which is structurally estimated with Chilean data, captures the dynamic of the labor market of male workers actively participating in the market and is used to simulate careers to construct lifetime measures of inequality. The results indicate that inequality is not only high in a cross-section perspective, but also in a lifetime perspective; and that low mobility is the main source of lifetime inequality in the Chilean labor market. Hence, regulation of the labor market matters because it affects the degree of mobility in the market.
•In the Chilean economy, lifetime inequality is as high as cross-section inequality.•High lifetime inequality is due to lack of mobility in skilled and unskilled workers.•Lifetime welfare is higher for skilled workers compared with unskilled workers.