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Latin American countries have some of the highest levels of income inequality in the world. However, earnings inequality have significantly changed over time, increasing during the 1980s and 1990s, declining sharply in the 2000s, and stagnating or even increasing in some countries since 2015. Macroeconomic instability in the region in the 1980s and early 1990s, as well as the introduction of structural reforms like trade, capital, and financial liberalization, affected the patterns of relative demand and relative earnings across skill-demographic groups in the 1990s, increasing inequality. Significant gains in educational attainment, the demographic transition, and rising female labor force participation changed the skill-demographic composition of labor supply, pushing the education and experience premiums downward, but this was not enough to counteract demand-side trends. At the turn of the 21st century, improved external conditions, driven by China’s massive increase in demand for commodities, boosted economies across Latin America, which began to grow rapidly. Growth was accompanied by a positive shift in the relative demand for less-educated workers, stronger labor institutions, rising minimum wages, and declining labor informality, a confluence of factors that reduced earnings inequality. In the aftermath of the global financial crisis, particularly after the end of the commodities price boom in 2014, economic growth decelerated, and the pace of inequality decline stagnated. There is extensive literature documenting and trying to explain the causes of recent earnings inequality dynamics in Latin America. This literature is examined in terms of themes, methodological approaches, and key findings. The focus is on earnings inequality and how developments in labor markets have shaped it.

Trade policy is one determining factor of 19th-century globalization, alongside transport and communication innovations and broader institutional changes that made worldwide commodity and factor flows possible. Four broad periods, or trade policy regimes, can be discerned at the European level. The first starts at the end of the French Revolutionary and Napoleonic wars that had led to many disruptions in trade relations. Governments tried to recover from the financial impact of the wars and to mitigate the adjustment shocks to domestic producers that came with the end of the wars. Very restrictive trade policies were thus adopted in most places and only slowly dismantled over the following decades as some of the welfare costs of, for example, agricultural protection became evident. The second period dated from the mid-1840s, which saw the liberalization of protective grain tariffs in many European countries, to the mid-1870s, when trade liberalization reached its maximum. This period witnessed unilateral trade liberalizations, but is most famous for the spread of a network of bilateral trade agreements across Europe in the wake of the Cobden–Chevalier treaty between France and the United Kingdom in 1860. From the 1870s, industrial and commercial crises and falling prices in agriculture due to global market integration led governments to search for solutions to these policy challenges. Many European countries thus increased protection for agriculture and manufactured goods in which domestic import-competing producers struggled. At the same time, demands for renegotiations threatened the treaty network, and lapsing agreements were only provisionally prolonged. From the late 1880s, the struggle between protection for import-competing producers and market access abroad for export-oriented producers led to internal and external conflicts over trade policy in many countries, including trade (or tariff) “wars.” A renewed network of less ambitious trade treaties than those of the 1860s restored a fragile equilibrium from the early 1890s, to be renewed and renegotiated roughly every 12 years as treaties approached their expiration date. When looking at the country and commodity level it can easily be appreciated that the more or less common shifts during these periods at the European level were more pronounced in some countries than in others. For example, the United Kingdom, the Netherlands, Switzerland, and Belgium shifted more decisively to free trade and remained there, while liberalization was much less pronounced and more decisively undone in Portugal, Spain, Russia, and the Habsburg monarchy. The experiences of the Scandinavian countries, Germany, and France lie somewhere in between. Turkey and the countries that gained independence from the Ottoman Empire in the 19th century started as (forced) free traders and from the 1880s increased their duties, in part to meet growing fiscal demands. At the commodity level, tariffs on raw materials remained generally low and did not follow the protectionist backlash that affected foodstuffs. One exception was (initially) “tropical” goods such as sugar, coffee, tea, and tobacco, where many countries levied high tariffs to extract fiscal revenue. For manufactured goods, liberalization and protectionist backlash were milder than in agriculture, although there are many exceptions to this rule.