Patterns of Wage Inequality in Costa Rica during the Structural Change, 1976-2004 By Juan Carlos Obando
[email protected] The University of Texas Inequality Project Lyndon B. Johnson School of Public Affairs The University of Texas at Austin Austin, Texas 78713 UTIP Working Paper No. 36 March 3, 2006 Abstract This paper presents new measures of inequality for Costa Rica for each year from 1976 to 2004, using data on payroll and number of salaried workers by sector and province, provided by the insurance records of the country’s social security offices. Overall, after a long period of decreasing inequality from 1976 to 1985, wage inequality in Costa Rica has been more volatile during the last two decades. The behavior of inequality and real wages during the period 1976-1985 reflects the wage policies of the time before the application of the free market model. Reforms in the financial and health sector seem to be among the important factors influencing wage inequality since that time. Unionization in activities controlled by the state, and electoral cycles are also apparently important. Finally, the successful attraction of high technology firms to Costa Rica has been a key factor accounting for increasing average wages in manufacturing industries in the last decade. 1 Introduction The main goal of this paper is to identify labor market characteristics, patterns of wage inequality, and the forces accounting for those patterns in Costa Rica during the last three decades. This period is particularly interesting because it is characterized by the implementation of what is perhaps the most comprehensive set of economic reforms implemented in this nation in the last century, reforms known as the structural change.