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Economic Growth and Wage Stagnation in Peru: 1998–2012
Author(s) -
Paz Peter,
Urrutia Carlos
Publication year - 2015
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12145
Subject(s) - economics , earnings , human capital , wage , wage growth , labour economics , productivity , wage share , efficiency wage , wage inequality , inequality , real wages , earnings growth , demographic economics , macroeconomics , mathematical analysis , mathematics , accounting , economic growth
Abstract From 1998 to 2012, the P eruvian economy exhibited rapid growth. Moreover, the composition of the labor force improved in terms of education and experience, two variables that are typically associated to higher human capital. The average worker in 2012 had a higher level of education and was one and a half years older than in 1998, reflecting the impact of the demographic transition. However, the average real wage was roughly constant. We show that a decline in the wage premium for education, and to a minor extent for experience, is responsible for the lack of growth in the average real wage. Had these two premia remained constant throughout the period of analysis, average labor earnings would have increased by about 2.6% per year, of which 0.7 percentage points are accounted for by the changes in the composition of the labor force in terms of age and education. We explore the role of the relative supply of workers with different levels of human capital as an explanation for the decline in the wage premium for education. Finally, we analyze the implications of these findings for some macroeconomic variables, as earnings and wage inequality, the labor share and total factor productivity.