RIEB, Kobe University

Determinants of Wage Equalisation in Chile from 1996 to 2006: Decomposition Approach

In this paper, we analyse the determinants of wage equalisation in Chile during the commodity boom from 1996 to 2006. For this purpose, we take advantage of a methodology recently developed by Firpo, et al. (2009), which enabled us to apply the standard Blinder–Oaxaca type decomposition approach to the quantile regression technique. Our study finds three main channels for the wage equalisation witnessed from 1996 to 2006: (1) the decreasing share of the workers with primary education as well as the increase in their relative wages across the whole wage distribution, (2) the decreasing returns to higher education, especially the university level, at the top of the wage distribution, and (3) the increasing industry wage premiums of the primary commodity sectors such as agriculture and forestry at the bottom of the wage distribution. The findings indicate that the wage equalisation can be explained by the Stolper–Samuelson effect and the increasing relative supply of higher educated workers, both of which dominate the possible upward pressure on the wages of higher educated workers, derived from skill-biased technological changes (SBTCs).