Education, Labor, and Inequality in Ecuador, 2006–2016

Abstract

Orthodox postulates hold that, in a free market, agents are rewarded according to their productivity and that productivity is a function of an endowment provided by nature. Then, undermining market freedom would also mean discouraging job creation. The chapter examines how education and labor policies affect the income structure. It focuses on Ecuador, one of the region’s countries that most reduced inequality during the “Progressive Governments” emergence. The Ecuadorian project implemented a vigorous package of heterodox reforms to ensure public education and fair working conditions. The results show that the skilled workers’ share significantly increased, especially within the poorest deciles. Simultaneously, formal employment and job stability expanded—particularly among unskilled workers—which in turn allowed the minimum wage increase to be more effective. These factors played a crucial role in promoting upward wage convergence. Estimates suggest that a decline in wage disparities between skilled and unskilled workers explains almost 50% of reducing earnings inequality. Contrary to neoclassical claims, the labor market intervention did not depress employment or growth. The “Return of the State” seems to foster wages closer to workers’ productivity, while encouraging that inheritance does not determine educational and labor outcomes. Inequality is therefore imposed by people, not by nature.