The evolution of the earnings distribution in a volatile economy: Evidence from Argentina

Abstract

This paper studies earnings inequality and dynamics in Argentina between 1996 and 2015. Following the 2001–2002 crisis, the Argentine economy transitioned from a low- to a high-inflation regime, while collective bargaining and the minimum wage gained influence. This transition was associated with a persistent decrease in earnings dispersion and cyclical movements in higher-order moments of the distribution of earnings changes. To shed light on the changing nature of wage rigidity during this period, we develop a new method to estimate regular-wage processes. As the Argentine economy transitioned from low to high inflation, the monthly frequency of regular-wage changes almost doubled, while the distribution of regular-wage changes morphed from having a mode around zero and positive skewness to having a positive mode and more symmetric tails.