Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

The first relevant factor is the evolution of the returns to human capital. Figure 13
illustrates the changes in the returns to education in the context of multivariate wage
regressions for the years 1980, 1986, 1992, 1998 and 2006. 17 These results are based
on relatively stable years, to isolate the impact of crises and to focus on the impact of
these factors on the trend in inequality. The results in Figure 13 indicate that the gap
between primary school and secondary school graduates did not change much over
time. However, the gap between college graduates and the rest fell over the 1980s, but
then strongly increased in the 1990s. This is confirmed by Gasparini and Cruces
(2008) based on a microsimulation approach, who find that inequality in hourly wages
and earnings diminished in the 1980s (ignoring the macro crisis of the late 1980s),
driven by a fall in the returns to education in terms of hourly wages. Conversely,
during the 1990s the returns to education became highly unequalizing. According to
the microsimulation results, the overall effect of returns to education accounts for 4.6
points out of the 8.4 point-increase in the Gini for the equivalized household income
distribution. These results suggest that unskilled workers lost in terms of hourly
wages and hours of work during the 1990s, and that these changes had a very
significant role in shaping the distribution of hourly wages, earnings, and household
income. The discussion of the determinants of inequality changes below pays
particular attention to this phenomenon.
The second stylized fact is the evolution of the relative supply of skilled workers. The
simplest explanation for the change in the wage gap between the skilled and the
unskilled relies on changes in the relative supply and demand for both types of
workers. Specifically, the skill premium may widen if the relative supply of skilled
labor falls. The evidence for Argentina, in fact, reveals a strong increase in the
relative supply of semi-skilled (high school graduates) and skilled (college graduates)
workers, to the detriment of those with lower levels of skills (those with less than a
high school degree). Gasparini and Cruces (2008) show that 78.6 percent of adults
aged 20 to 65 were unskilled in GBA in 1974, but that their share fell significantly to
47.1 percent in 2006. For the semi-skilled, the share rose from 17.6 percent to 37
percent, and for the skilled from 3.8 percent to 15.9 percent. These patterns are even
more pronounced when considering the share in employment or in aggregate labor.
The strong increase in the relative supply of college graduates would have driven
down the wage skill premium if factor demands had not changed. This appears to
have happened in the 1980s, but not in the 1990s. Instead, in the decade of 1990 the
college wage premium rose sharply, which suggests an increase in the demand for
17 For an analysis of the earlier part of the 20th century, see the chapter by Campante and Glaeser in this
volume, which presents a comparative study of education and returns to skills in Chicago and Buenos
Aires.