This study aims to analyse the contribution of the expansion and diversification of higher education to Chile's increase in wage inequality from 1992 to 2000 and its subsequent decrease from 2000 to 2013.
The wage equation for each year is estimated using data from the national household survey, Encuesta de Caracterización Socioeconómica Nacional (CASEN). Using the method proposed by Firpo et al. (2009), the evolution of wage changes is decomposed into composition and wage structure effects of each explanatory variable at different points of the wage distribution.
The results show that the positive composition effect of higher education, derived from the increasing share of both workers with university degrees and those with vocational degrees, is substantially larger at the upper quantiles and exceeds the negative wage structure effect, thereby contributing to increasing wage inequality from 1992 to 2000. By contrast, the negative wage structure effect of higher education, primarily derived from the decreasing return to university degrees, is substantially larger at the upper quantiles and exceeds the positive composition effect, thereby contributing to decreasing wage inequality from 2000 to 2013.
This study contributes to the literature by showing that the expansion of higher education increased inequality in the 1990s and decreased it in the 2000s while the increasing supply of workers with vocational degrees decreased wage premiums for university degrees in the latter period.
The authors are very grateful to the editor and an anonymous referee for their valuable comments that greatly contributed to improving this paper. The authors are deeply grateful to Gonzalo Véliz Marín, Nobuaki Hamaguchi, and Takahiro Sato for their insightful comments and constructive suggestions in the early stage of this work. The authors are also grateful to Masahiro Ikeda for assisting the research. This work was supported by JSPS KAKENHI Grant Number 17K17877. Any remaining errors are the authors’ own.
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