The Decline in Inequality in Latin America: How Much, Since When and Why (original) (raw)

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The recent decline of inequality in Latin America: Argentina, Brazil, Mexico and Peru

2009

Between 2000 and 2006, the Gini coefficient declined in 12 of the 17 Latin American countries for which data are available. Why has inequality declined? Have the changes in inequality been driven by market forces such as the demand and supply for labor with different skills? Or have governments become more redistributive than they used to be, and if so, why? This paper attempts to answer these questions by focusing on the determinants of inequality in four countries: Argentina, Brazil, Mexico and Peru. The analysis suggests that the decline in inequality is accounted for by two main factors: (i) a fall in the earnings gap between skilled and low-skilled workers (through both quantity and price effects); and (ii) more progressive government transfers (monetary and in-kind transfers). Demographic factors, such as a change in the proportion of adults (and working adults) per household, have been equalizing but the magnitude of their contribution has been small by comparison. In Brazil, Mexico and Peru, the fall in earnings gap, in turn, is mainly the result of the expansion of basic education over the last couple of decades, which reduced inequality in attainment and made the returns to education curve less steep. It also results from the petering out of the unequalizing effect of skill-biased technical change in the 1990s associated with the opening up of trade and investment. In Argentina, the decline in earnings inequality seems to be associated with government policies that without the windfall of high commodity prices will be hard to sustain. 3 change, macroeconomic conditions or stronger labor unions? Do changes in the coverage and distribution of government transfers account for a significant part of the decline in income inequality? What has been the role of socio-demographic factors such as changes in dependency ratios and labor force participation rates for women? This paper attempts to answer these questions by focusing on the determinants of changes in income inequality in four countries: Argentina, Brazil, Mexico and Peru. 6 The analysis is based on a variety of parametric and non-parametric methods to decompose the changes in household income inequality in its proximate factors. This empirical analysis is combined with indirect evidence and historical narratives to delve into the more fundamental determinants of inequality. The analysis suggests that the decline in inequality is accounted for by two main factors: (i) a fall in the earnings gap between skilled and low-skilled workers (through both quantity and price effects); and (ii) more progressive government transfers (monetary and inkind transfers). Demographic factors, such as a change in the proportion of adults (and working adults) per household, have been equalizing but the magnitude of their contribution has been, in general, relatively smaller. In Brazil, Mexico and Peru, the fall in earnings gap, in turn, is mainly the result of the expansion of basic education over the last couple of decades, which reduced inequality in attainment and made the returns to education curve less steep. It also results from the petering out of the unequalizing effect of skill-biased technical change in the 1990s associated with the opening up of trade and investment. In the case of Argentina, the decline in inequality seems to be driven by a pro-union stance on the part of the government and redistributive fiscal policy based on the windfall of high commodity prices.

Deconstructing the Decline in Inequality in Latin America

Policy Research Working Papers, 2013

Inequality in Latin America unambiguously declined in the 2000s. The Gini coefficient fell in 14 of the 17 countries where there is comparable data, and the change was statistically significant for all of them. Existing studies point to two main explanations for the decline in inequality: a reduction in hourly labor income inequality, and more robust and progressive government transfers. Available evidence suggests that it is the skill premium -or, more precisely, the returns to primary, secondary and tertiary education vs. no schooling or incomplete primary schooling-that drives the decline in hourly labor income inequality. The causes behind the decline in returns to schooling, however, have not been unambiguously established. Some studies find that returns fell because of an increase in the supply of workers with more educational attainment; others, because of a shift in demand away from skilled-labor.

Exploring the Determinants of Inequality Changes in Latin America Along the Last Decade

I apply a variant of the microeconometric decomposition methodology proposed in Gasparini et al. (2000) and rst approached by Bourguignon et al. (1998), to assess the relevance of various factors a ecting inequality in the period 2003-2012 in some Latin American countries. Between 2003 and 2012, Argentina, Brazil, Ecuador, Peru and Uruguay had an average GDP annual growth of 5.26%, far above the historical average of these economies. Economic growth was accompanied by signi cant improvements in the labor market: the unemployment rate decreased about 3% and real wages increased around 30% (on average). This has helped to signi cantly reduce poverty and improve income distribution. The Gini coecient decreased on average 15%. The results obtained lead me to believe that most equalizing e ects were associated with the relative wage gains of low-skilled workers, and operated mainly through the reduction of returns to education and experience of high-skilled workers. Contrary to popular belief, the increases in employment and educational levels do not appear to be factors that improved income distribution. All these facts are consistent with two assumptions: (i) an increase in the relative demand for unskilled labor; (ii) a strengthening of labor institutions for low-skilled and/or informal workers.

Inequality Trends and Their Determinants: Latin America over the Period 1990–2010*

Policy Changes and Lessons, 2014

The paper reviews the steady and widespread decline in income inequality which has taken place in most of Latin America over 2002-10 and which--if continued for another 2-3 years--would reduce the average regional income inequality to pre-liberalization levels. The paper then focuses on the factors, which may explain such inequality decline. A review of the literature and an econometric test indicate that a few complementary factors played an important role in this regard, including a drop in the skill premium following a rapid expansion of secondary education, and the adoption of a new development model by a growing number of left-of-centre governments which emphasizes fiscally-prudent but more equitable macroeconomic, tax, social expenditure and labour policies. For the region as a whole, improvements in terms of trade, migrant remittances, FDI and world growth played a less important role than expected although their impact was perceptible in countries where such transactions were sizeable.

Inequality Trends and their Determinants: Latin America over 1990-2010

2012

The paper reviews the steady and widespread decline in income inequality which has taken place in most of Latin America over 2002-10 and which--if continued for another 2-3 years--would reduce the average regional income inequality to pre-liberalization levels. The paper then focuses on the factors, which may explain such inequality decline. A review of the literature and an econometric test indicate that a few complementary factors played an important role in this regard, including a drop in the skill premium following a rapid expansion of secondary education, and the adoption of a new development model by a growing number of left-of-centre governments which emphasizes fiscally-prudent but more equitable macroeconomic, tax, social expenditure and labour policies. For the region as a whole, improvements in terms of trade, migrant remittances, FDI and world growth played a less important role than expected although their impact was perceptible in countries where such transactions were sizeable.

Declining inequality in Latin America: a decade of progress?

Choice Reviews Online, 2011

Review: Constantin Groll ♦ In debating income inequality in Latin America, most of the scholars are searching for explanations for the roots and causes of the persistence of this phenomenon. Nora Lustig and Luis F. López-Calva, two economists from Tulane University and UNDP, try it the other way around. In their edited volume Declining Inequalities in Latin America: A Decade of Progress? they focus on the rather unusual period in the Latin American history of declining income inequality between the years 2000 to 2007. Via country studies of Argentina, Brazil, Mexico and Peru they and their collaborators try to identify "proximate factors" which can explain the decline in the region, where out of 17 countries, 12 (Ecuador,

Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico

World Development, 2013

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Rise and Fall of Income Inequality in Latin America

Oxford Handbooks Online, 2011

One of the most prominent features of Latin American countries is their high and persistent levels of socioeconomic inequalities. All nations in the region are characterized by large disparities among their citizens in income and consumption, access to education, land, ...