What impact do discrimination and exclusion have on income inequality between indigenous and non-indigenous workers in Peru? What policies could help to reduce this inter-ethnic inequality? This paper from Economia finds that exclusion plays a greater role than discrimination in contributing to Peru’s inter-ethnic inequality.
Studies of ethnic discrimination in Peru’s labour markets generally find that discrimination is too low to explain inequalities of the magnitude of those in Peru. However, the literature has not addressed the contribution of exclusion – understood as discrimination in access – to inter-ethnic inequality. Performing simulations with indices of income inequality shows that exclusion seems to play a greater role than discrimination in explaining inter-ethnic income inequality in Peru. With the same returns to determinants of income for indigenous and non-indigenous workers (that is, no discrimination), the Gini coefficient decreases from 0.64 to 0.51. With different returns but the same access to determinants of income (that is, no exclusion), meanwhile, the Gini coefficient decreases to 0.46.
Further findings on income inequality in Peru include the following:
- The mean income for the non-indigenous population is twice the mean income for the indigenous. Despite being only one third of the total population, Peru’s non-indigenous have almost one half of aggregate income.
- The net present value of the expected flow of lifetime income for an average 14 year-old indigenous is around US$31,000. This compares to US$72,000 for the non-indigenous.
- There is a gap between the non-indigenous and indigenous in years of education, with the non-indigenous having a greater number of years of education.
- Within-group inequality accounts for over 90 per cent of overall inequality. Between-group inequality accounts for around 9 per cent. This is worrying, since if one randomly splits the population into two groups, between-group inequality should be non-existent.
- Non-indigenous have higher returns to education on annualised income than indigenous. The significance of this difference varies depending on the econometric specification used. The gap between returns shrinks with an increase in education.
Exclusion seems to be a more important source of Peru’s inter-ethnic income gap than discrimination and therefore more important to tackle. Policy implications include the following:
- Partial reductions in access to education would reduce inequality as much as the complete elimination of discrimination. Increases of one or two years of schooling can reduce income inequality by as much as 15 to 20 per cent.
- Targeting issues must be considered. Positive discrimination can also be dangerous. Many non-indigenous people also need assistance from the state and cannot be left aside.
- Policies directed at tackling exclusion tend to be expensive both politically and economically. The government lacks incentives to allocate resources to tackling exclusion, since giving gifts is politically more profitable than granting rights.
