The graph is from the interesting paper "Educational Upgrading and Returns to Skills in Latin America: Evidence from a Supply-Demand Framework, 1990-2010"by Gasparini et al. The papers explores the causes of the reduction in income inequality in the region that has taken place during the 2000s. The authors do not find a clear explanation. In the conclusions they argue:
This paper studied the evolution of wage differentials and trends in the supply and demand of workers by skill level (as proxied by educational attainment) for 16 Latin American countries over the decades of the 1990s and the 2000s. All countries in the region experienced a noticeable increase in average educational attainment, although the changes were not uniform across countries and socioeconomic groups. Wage skill premia and income inequality, on the other hand, started to fall consistently in the 2000s in almost all Latin American countries, reversing a two-decade increasing trend marked by the macroeconomic crises of the 1980s and the market oriented reforms of the 1990s.
This paper disentangled the relative contribution of supply and demand factors in explaining wage premia evolution. In a context of constant increase in the relative supply of skilled and semi-skilled workers, Tinbergen’s framework suggests that differential evolution indicates a strong shift in demand towards skilled labor in the 1990s and a deceleration of this relative demand in the second period. This interpretation of the evidence is consistent with some country-specific studies which highlight the importance of privatizations, trade openness and other structural reforms during the 1990s in facilitating skill biased technical change and, more generally, spurring the demand for skilled labor.
Overall, his study shows that rising supply of educated workers can only explain a fraction of the observed movements in wage premia, and only for the case of high-school graduates. Changes in labor regulations, such as legal minimum wages, also exhibit limited explanatory power. In terms of demand-side factors, while there is significant heterogeneity in individual country experiences, for the case of tertiary educated workers (“skilled”) the shift can partially be attributed to the recent boom in commodity prices, although the patterns of employment by sector suggest a significant role for other forces.
I was not aware of the reduction in income inequality in the region - or at least in the 16 countries that the authors include in the analysis.