Wage Inequality in Colombia

January 26, 2016

Authors: Andres Gomez-Lievano, Juan Tellez and Eduardo Lora

The search for the determinants of inequality is usually focused on factors like gender, education, or institutions, and typically done at the level of countries. In this paper we provide an alternative study of wage inequality in Colombia that focuses on cities and uses their industrial composition instead. The industrial structure as a contributing factor to wage inequality has been the subject of study in other countries such as the United States, Mexico and Argentina. For our study we use the 2010-2014 Colombian Social Security data.

We started by making a descriptive analysis of Gini indices across cities and industries in separate. Then we evaluated the role of the inequality of industries on the inequality of cities. Our results showed that while cities have Ginis within a narrow range of values, industries differ widely in their Ginis.  Activities related to manufacturing tended to have the lowest inequality, as opposed to finance and natural resource extraction, which showed the highest inequality values. We found that industrial composition explains 40 percent of the variability in city Ginis. This suggests that inequality is strongly driven by the type of economic activity, a factor that had not been studied in Colombia before.

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