Education, Labor Earnings and the Decline of Income Inequality in Brazil

Brazil is well known for its high and persistent levels of income inequality. Throughout its recent economic history, under different conditions regarding policies and politics, income inequality remained high, and well above Latin American standarts. However, since 1997 inequality has been declining at a rate of 0.8 per cent per year, accelerating the pace after 2001 to 1.07 percent per year, when measured by the Gini coefficient, converging to the region's average.
It is often argued that the main source of Brazilian income inequality is the underlying inequality in the distribution of education. Based on empirical evidence from the National Household Survey, this paper shows how in recent years education has influenced labor income in two ways: first, via increased schooling; from 2001 on, via the reduction of inequality of schooling among workers. As a consequence, the wage gap of workers with differnt levels of schooling was reduced. From 1997 to 2009, reduced labor income inequality accounted for 2/3 of reduced total inequality. The fact that returns to education still remain high by international standarts shows the potential of education to further reduce income inequality, as well as income poverty in Brazil.