Abstract:
This paper argues that the assumption of a homogeneous workforce, which is implicitly invoked in the decomposition analysis of changes in welfare indicators, hides the role that schooling and its returns may have on the understanding of these changes. Using cross-sectional data for a period of ten years and counterfactual simulations, this paper finds that changes in the labor earnings has been the main factor that contributed to poverty reduction in recent years, and that the role of these changes has been less important in reducing income inequality. The main driving force of this reduction has been the fall in returns to education, which at the same time has been one of the important factors that constrained the most remarkable progress in reducing poverty and rising middle-class.
