Association for Public Policy Analysis & Management

This paper uses a Blinder-Oaxaca decomposition to analyze the wage gap of white/mestizo and indigenous workers between coefficients and demographic characteristics in Ecuador for every year from 2007 to 2016. Essentially, the paper constructs counterfactuals of what the hourly income of indigenous workers would be if they had the demographic characteristics of white/mestizo workers. The explained and unexplained portions of the wage gap can be determined by comparing the observed incomes of white/mestizos and indigenas from national household surveys to these counterfactuals. During the last decade, Ecuador has seen an important growth in income per capita, from US $8040(ppp) in 2007 to US $11190(ppp) in 2015, and a reduction in the GINI coefficient, from 0.54 in 2007 to 0.45 in 2014. While these numbers indicate that Ecuador’s growth has been accompanied by a decrease in inequality, they do not show whether there has been a differential improvement for white/mestizo or indigenous workers. Historically, Ecuadorian indigenous peoples have experienced exclusion and discrimination. Furthermore, a recent World Bank study titled Indigenous Latin America in the Twenty-First Century shows that Indigenous Peoples have not benefitted from the economic growth in the region during the last decade in the same way as their white/mestizo counterparts. This study seeks to contribute to the literature by understanding how the wage gap between white/mestizo and indigenous workers has evolved over the last decade, including how much of it can be attributed to demographic characteristics, how much is unexplained and could be attributed to direct or indirect discrimination, and how these differences change along the income distribution. Preliminary results indicate that while the wage gap between the two groups has narrowed on average, it has broadened for the bottom of the income distribution. Nevertheless, the unexplained portion of such a gap has decreased significantly at the bottom and increased at the top. This indicates that poor indigenous workers could earn almost as much as their white/mestizo counterparts if they had the same demographic characteristics. The story at the top of the distribution is the opposite as changes in demographic characteristics would not significantly increase the wages of indigenous workers.