Ethnic and gender wage differences remain significant in Latin America despite recent economic growth and policies aimed at reducing inequality, according to a newly-released study by the Inter-American Development Bank (IDB).
According to the findings, Afro-descendants and indigenous people earn 28 per cent less than their white peers; males earn 17 per cent more than females when both have the same age and level of education; and education is key to reducing ethnic wage inequalities in the region.
In an unprecedented analysis of household data from 18 nations in Latin America, the study found that women and ethnic minorities are clearly at a disadvantage, an IDB news release said.
Females earn less
Females in the region earn less than their male counterparts even though they are more educated. A simple comparison of average wages indicates that men earn 10 per cent more than women. But once economists compare males and females with the same age and level of education, the wage gap between men and women is 17 per cent.
For seven countries where ethnic data is available, the study found that indigenous and Afro-descendant minorities earn on average 28 per cent less than the white population in the region, when individuals have the same age, gender and level of education. It considered “minorities” people who declared themselves in household surveys as indigenous, black or brown, or speakers of an indigenous language. Despite being the majority in some countries of the study, these groups are considered “minorities”.
The paper provides evidence that the region still faces major challenges in eradicating disadvantages in labour markets based on characteristics like gender or ethnicity.
“Polices aimed at reducing these inequalities are still lacking. This is more than just a moral necessity. It is an essential strategy to reduce poverty in the region,” said IDB economist Hugo Ñopo, the lead author of the study.
The study concludes that increased levels of education for ethnic minorities in Latin America could significantly reduce the difference in wages. Better levels of education could help reduce the average wage difference by nearly a quarter between minorities and non-minorities in the region.
The findings are part of a series of studies that look into wage gaps in several countries in Latin America. The working paper “New Century, Old Disparities: Gender and Ethnic Wage Gaps in Latin America” written by IDB economists Ñopo, Juan Pablo Atal and Natalia Winder summarizes the findings for the entire region.
The paper, according to the release, is a groundbreaking and comprehensive empirical study on wage differences with a novel methodology that allows more accurate measurements of the wage gaps.
The study compares wages among individuals with the same demographic and job-related characteristics such as age, level of education, place of residence and type of employment, among others.
The economists break down the analysis of wage gaps into two parts. On the one hand, they ask to what extent workers with the same characteristics earn different wages on the basis of their gender, or ethnicity. On the other hand, they explore to what extent females and ethnic minorities fail to gain access to certain combinations of characteristics that would allow them to be better paid in labour markets.
The new methodology allowed IDB researchers to better measure the role of individual characteristics in explaining wage differences in the region.
“By comparing individuals with the same background, we are providing a more accurate measurement of possible causes for wage differences,” Ñopo said. “Previous methodologies tended to exaggerate the role of discrimination and other non-specified characteristics in explaining wage differentials.”
Gender wage gaps
The study found that men earn more than women at any age, for each level of education, in any type of employment (self-employed, em-ployers and employees) and in both large and small firms. Only females in rural areas are found to earn on average the same as their male counterparts.
Gender wage gaps vary widely among the 18 countries. In general, the smallest gender wage gap is found among younger people with a college degree. One possible explanation is that more educated women fill positions in firms where there is less room for discretionary wage settings.
This hypothesis is supported by the fact that the wage gap is found to be lower among formal workers and higher among those working in small firms. The biggest gaps are found among workers with lower incomes, with an incomplete secondary education and living in rural areas.
The gender wage gap increases with age, according to the study. This could possibly be explained by a “cohort effect”: wage gaps are narrowing through time.
Another possible explanation could be the effect of some unobservable characteristics, like work experience, for which gender differences are correlated with age. Differences in accumulated experience could be exacerbated as women age and have children. Data shows that the gender wage gap is slightly higher among workers with kids.
One possible reason for the difference in work experience could be that women are more likely to be forced out of the labour market after childbirth, Ñopo said. Policies allowing them to return to work, such as a better supply of child care services, can contribute to reduce wage differentials, he said.
Meanwhile, the gender wage gap is also higher among the self-employed when compared with those employed by companies. The finding contradicts the common view that gender wage gaps are most likely to be found due to employer-based discrimination.
Still, even after accounting for differences in individual and job-related characteristics, a substantial wage gap between males and females remains unexplained.
On average, a fifth of the total gender wage gap cannot be explained on the basis of differences in observable individual or job characteristics. That indicates that other factors including discrimination and unobservable characteristics not specified in the study, such as effort and work commitment, are influencing compensation levels and that social scientists should continue to investigate the matter further.
Ethnic wage gaps
The IDB conducted an analysis of the causes for wage differences between minorities and the white population in Brazil, Bolivia, Chile, Ecuador, Guatemala, Peru and Paraguay.
The analysis was limited to those seven countries because they were the only ones with ethnic information available in their household surveys.
A simple average of wages for the seven countries shows that non-minorities earn 38 per cent more than minorities. Once the study controls for age, gender and level of education, the gap drops to 28 per cent.
Brazil is the country with the highest ethnic wage gap while Ecuador is the one with the lowest gap among the sample of seven countries.
The biggest ethnic differences in wages in the region are found among those at both extremes of the earnings distribution: those earning the highest and the lowest wages. Furthermore, the largest gap is found among males, older workers and those living in rural areas.
The level of education accounts for one quarter of the wage difference between whites and minorities. Another 21 per cent of the wage gap is explained by a combination of individual and job characteristics achieved by whites but not by minorities.
The study found that a great number of minorities are employed in low-paying jobs. The type of occupation seems to play a key role in explaining the differences, Ñopo said.
“Ethnic wage gaps are linked to occupational segregation, as minorities are underrepresented in employer occupations, where wages are higher,” Ñopo said. “As in gender gaps, it is difficult to find minorities, for example, employed with the typical profile of a CEO.”
However, even after taking into account education and human capital attributes, about one-third of the wage gap still remains unexplained. Brazil is the country that presents the highest unexplained gap.
The results suggest that other factors not specified in the model could be affecting the wage differences, including discrimination and the fact that minorities earn lower wages than whites in cases in which both have the same level of education. Further investigation is needed, the release stated.
Policy conclusions
Some policy conclusions can be drawn. First, while there have been improvements in the quantity of education, such as expanded enrollment and more years of schooling, the quality and relevance of education represent an ongoing challenge in the region.
”The poor quality of education could help explain why poor minorities get a lower return for their schooling,” Ñopo said.
The study’s results suggest that there might be important segregation and access barriers to certain types of jobs and sectors. Education interventions and policies need to be complemented with other strategies, such as expansion of child-care facilities, very well focused and targeted affirmative action policies and training and re-training programs, to effectively address these gaps, Ñopo said.
Moreover, since ethnic minorities and women are in a disadvantaged position, poverty alleviation policies must give special attention to indigenous girls in the region.
In the meantime, the IDB noted that it is committed to promote gender equality and ethnic inclusion as a tool to improve living conditions of the poorest populations in Latin America and the Caribbean.
The bank’s gender and diversity unit has the mandate to provide strategic direction as well as programmatic and technical assistance for the incorporation of gender and ethnic issues in projects supported by the IDB.
In response to the social needs of the region, the bank has approved in recent years a new Operational Policy on Indigenous Peoples that ensures that IDB-backed projects support the development of indigenous communities while maintaining their identity and safeguarding their rights against adverse impacts and exclusion.
The IDB is currently updating its existing Women in Development policy to strengthen its contributions to gender equality and the empowerment of women in the region, the release concluded.