Abstract

The chapter examines the drivers of inequality change in Honduras between 1991-2007, trying to understand why inequality increased in Honduras until 2005, while it was falling in most other Latin American countries. Using annual household surveys rising inequality between 1991-2005 is documented, followed by falling inequality thereafter. It is shown that the extraordinary labour earnings disequalization is mainly the result of a widening wage gap between the tradable and non-tradable sectors and occupations, combined with highly segmented labour markets and poor overall educational progress. Between 2005-07 the inequality reduction was a result of equalizing trends in labour and non-labour incomes. The commodity boom promoting the tradable sector and remittances (in this order) played a significant role here, with government transfers playing a small supporting role. The decline in inequality is largely driven by international factors, thus it is not sure whether it will continue.