Document Type

Working Paper

Publication Date

9-2017

Working Paper Number

2017-01

Abstract

This paper investigates the evolution of Sri Lanka’s wage distribution during 1992-2014, a period of robust economic growth following the adoption of liberal economic policies. Using unconditional quantile regression, the analysis reveals wages grew across the distribution and more strongly at lower quantiles, causing inequality to fall. The decline in inequality came almost entirely from changes to wage returns consistent with rising relative demand for less- skilled labor. However, changes in workforce composition widened income gaps, most notably through educational and occupational upgrading. The study further demonstrates selection bias

overestimates average incomes and underestimates inequality in a given year, while also mis- measuring changes in those variables over time. The study discusses the negative implications of

persistent inequities along education, occupation and gender divisions, and recommends policies to address them.

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