Curves, curves and more curves: Who earns more?

Curves, curves and more curves: Who earns more?

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“El micro”, “la micro”, “la guagua”, “el camión”, “el taxi”, “el trufi”, “el expreso”… well, no matter the country, public transport throughout our region shares many things. One of them concerns the hilarious messages often attached inside or outside the vehicle: “you see me and cry”; “beware of your pocket”; “close carefully”; “If you came late, is not driver’s fault “; “what beautiful curves and me without brakes.” Anyway, these messages took more than one smile from us especially when we were students specially those like the last ones… the “curves” ones. Ah! curves, economists deal with curves in a daily basis because my dear friends, life is far from linear.

Now I want to share with you the results of two studies we did in Bolivia (with very good friends) after two tenders from PIEB institution. Generally when the results of both studies are mentioned in public forums, with press, with friends or family, we only talk about main messages. However, there are many fun and collateral results, that I want to share with you. In this occasion I will discuss the study (later published in a book) called “Generation, distribution and use of hydrocarbons rents in Bolivia”.

Returning to curves, one of the most well know facts in labor economics is the relationship between income level and age. It is generally accepted that such relationship is like an inverted “U”, when you are young your income level is low, as time goes on that income goes up and finally, after “reaching the top”, this income begins to decline. Therefore, the recommendation of our parents is entirely reasonable “save my dear son now that you can”. Of course they could also follow the advice of a good friend of mine (now a Phd professor in USA), “Mauri, the strategy is to live from dads, until you can live from your children”… of course, he was joking.

This inverted “U” curve is not the same for all of us and it is precisely what I want to comment on this occasion. To study the Bolivian economy we built a general equilibrium model (micro-macro type) merging household surveys with macroeconomic accounts avoiding the problem of the representative agent and also leave aside optimization issues from individuals. Sorry for this paragraph, was addressed because my fellow economists always ask me “about methodology.”

We compared salaries and age dividing the sample by economic sector. What? I separated people according their main production activity. In the following figure that depending of the sector people reach maximum salary at different ages. In rural sector at 40; construction industry, 50 years; formal services, 60 years; food sector, 30 years; it’s interesting to know for example that, in food sector if your are young maybe your salary will be bigger than older people, but if you work in public sector (formal sector) your salary will grow until you retire.

And things don’t end here, we also did a sensitivity using gender. See the following figure, when the bar is positive means that men earn more than women (performing the same activity), in this sense, which is the most ” macho” activity? certainly mining, followed by agroindustry, manufacturing, construction services and farmers; however, there is one activity where women are more likely to earn a higher salary, this is the food sector, interesting and intuitive isn’t?

I believe the first step to decide about different options for public policies is to understand our economy, I hope that these fun graphics will get you attention, for now, I want to thank to PIEB institution for the opportunity to study our reality and getting paid for that!

Mauricio Medinaceli Monroy

La Paz, July 9, 2012

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