with lower dispersion of earnings. The minimum wage coverage
was f o u n d t o b e more far reaching than t h e neoclassical
theory would predict, as the minimum wage was found to lift wages
in both the formal and informal sectors. Indeed, though the
minimum wage is not binding in the informal sector, the study
found that, in 14 of the 19 countries analyzed, the wage distribution
in this sector was also enhanced.
Average wages rose even more slowly (ibid) and, despite their
recent hike, remained generally below their 2000 level, with the
exception of Chile. Such wage restraint policy may reflect the
greater concern of policy makers for creating jobs over improving
earnings. It also reflects the recognition that, unless backed by
increases in productivity, nominal wage raises may fuel inflation
with little effect on real wages. The emphasis placed on this
approach is confirmed by the rapid decline in unemployment in
both LOC and NO-LOC countries and a faster rise in wage
employment than in self-employment (Table 2), suggesting that
the policy of ‘formalizing employment’ produced some results.
Finally, in several countries, there is evidence that the wage
premium declined due to a growing supply of educated workers
(section 3.3) and a shift in production towards the unskilled
labor-intensive tradable sector. Overall, the labor market outcomes
support the view that LOC regimes paid greater attention to equity
issues.
Rising public so cial expenditure and redistribution
Public social expenditure started rising in the early-to-mid 1990s and
continued growing in the 2000s in most of the region (Table 6).
Most of the rise concerned social security, social assistance and
education (ibid). The rise was nearly universal and, of the 21
countries in the region, only Ecuador had in 2005 a social
expenditure/GDP ratio lower than in 1990 (CEPAL 2005). While
there still is a huge intra-regional variation
in social expenditure
(^52) ,
it appears that political orientation influenced the extent of the
(^52) In 2006, Cuba, Uruguay, Brazil, Argentina, Bolivia, Costa Rica, and
Panama had social expenditure/GDP ratios in the 15-20% b r a c k e t , w h i l e
i n most Central American and Andean countries they were below 10 %.