Varieties of functional income inequality in Latin America: Chile and Mexico compared

Giorgos Gouzoulis,Collin Constantine

doi:10.1093/ser/mwab045

Giorgos Gouzoulis, Collin Constantine

Open Access

https://doi.org/10.1093/ser/mwab045

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Abstract

Abstract Contributing to a better understanding of the varying inequality patterns within Latin America, this article examines the drivers of the private sector labour shares of Chile and Mexico between 1980 and 2011. Over this period, Chile’s labour share has declined, similar to many advanced economies, while Mexico’s labour share has remained relatively stable. Our historical and econometric analysis suggests that in Chile high private indebtedness has undermined wage demands and induced wage cuts, while policies of small government have also contributed to the decline in its wage share. Chile’s natural resource exports have benefited from Latin America’s commodity boom and exhibited some limited positive effects on its wage share. Contrariwise, we find that Mexico, as a more capital-intensive economy, has experienced significant substitution effects, which have undermined its wage share. Yet, high government spending has counterbalanced the negative effects of globalization. These comparative results challenge popular narratives around hyper-globalization and policy homogenization.

Highlights

The discussion on the distribution of income has been one of the core debates in social sciences since the times of classical political economists
Contrariwise, we find that Mexico, as a more capital-intensive economy, has experienced significant substitution effects, which have undermined its wage share
What are the stylized facts of the functional distribution of income from 1980 to 2011? Which factors have driven the dynamics of the functional income distribution over this period? We explore these questions through a Varieties of functional income inequality in Latin America comparative-historical and econometric method

Summary

Introduction

The discussion on the distribution of income has been one of the core debates in social sciences since the times of classical political economists. An increase in the labour share will have a negative impact on investment and a positive effect on consumption, as wages are both a source of demand and a production cost It is the size of the relative effects that determine the growth effects of changes in the functional distribution of income (Lavoie and Stockhammer, 2013). We find varied effects of globalization on the respective wage shares: trade openness indicators exhibit positive and negative effects on the Chilean and Mexican wage shares, respectively These country-specific results demonstrate the importance of national political configuration in explaining varied distributional outcomes.

The political economy of income distribution: theory and evidence

Comparing the Chilean and Mexican VoC

Empirical design

Econometric results

Findings

Conclusion and discussion