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How middle class is Latin America
 

How middle class is Latin America

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    How middle class is Latin America How middle class is Latin America Presentation Transcript

    • How middle-class is Latin America? Latin American Economic Outlook 2011Mario PezziniOECD Development CentreBrasilia, 8th August 2011
    • Significant impact of the crisis on Latin America GDP growth in previous three years 2009 GDP growth 10.0 8.0 6.0 Annual growth percentage 4.0 2.0 0.0 Argentina Venezuela Peru Ecuador Colombia Uruguay Chile Brazil Mexico OECD Costa Rica -2.0 -4.0 -6.0 -8.0 Source: OECD (2010), based on data from ECLAC and OECD.
    • Outline1 Latin America’s middle classes2 Avoiding downward mobility: social protection3 Fostering upward mobility: education4 Middle classes and fiscal policy: a new social contract?
    • The “middle sectors” in Latin America Middle sectors: Proportion of the population earning between 50% and 150% of median income 100 Disadvantaged Middle sectors Affluent 90 80 70 60 50 40 30 20 10 0 Peru Bolivia Uruguay Brazil Colombia Argentina Mexico Italy Costa Rica Chile EcuadorSource: Castellani and Parent (2010) , based on national household surveys.
    • The middle sectors and the poor Proportion of the population below the middle-sector cut-off, compared with moderate and extreme poverty rates 50 Moderate poverty headcount 45 40 Percentage of total population 35 30 Disadvantaged 25 20 15 10 Extreme poverty headcount 5 0 Argentina Brazil Chile Colombia Costa Rica Mexico Peru Dominican Rep.Source: OECD (2010), based on data from the SEDLAC database, accessed in August 2010.Notes: Poverty headcount figures refer to the number of individuals below the respective national poverty line, according to official statistics.The square refers to the percentage of disadvantaged population as per the 50-150 definition.
    • Possibilities of moving up… and down Indices of “mobility potential” DMP Middle sectors size… RES Middle sectors size… MSMP0.80 60 0.49 Middle sectors size (right axis) 60 0.51 600.70 0.50 0.48 50 50 500.60 0.49 0.47 40 40 400.50 0.48 0.460.40 30 30 30 0.47 0.450.30 20 20 20 0.46 0.440.20 10 0.45 10 100.10 0.430.00 0 0.44 0 Costa… Costa… 0.42 0 Costa… Brazil Mexico Peru Colombia Chile Ecuador Bolivia Argentina Uruguay Chile Mexico Brazil Peru Bolivia Ecuador Colombia Argentina Uruguay Mexico Brazil Peru Bolivia Chile Ecuador Colombia Uruguay Argentina Potential to move up Middle Sectors Potential to move up out into the middle sectors Resilience of the middle sectors Notes: DMP,RES and MSMP are defined in Box 1.2. Source: OECD (2010), based on 2006 National Household Surveys analysed in Castellani and Parent (2010).
    • •Outline 1 Some characteristics of Latin America’s middle classes 2 Avoiding downward mobility: social protection 3 Fostering upward mobility: education 4 Middle classes and fiscal policy: a new social contract?
    • Middle income workers: mostly informal Middle-sector workers by employment category Formal employees Self Employed (with tertiary education completed) Non Agricultural Self-employed Non Agricultural Informal Employees Agricultural Self-employed Agricultural informal employees 1.0 Percentage 0.8 0.6 0.4 0.2 0.0 2002 BOL 2006 BRA 2006 CHL 2006 MEX Note: Percentage of total middle sectors’ workers (0.5 – 1.5 median household adjusted income) Source: OECD (2010), based on household survey data.
    • Pension Coverage & income level Formal Workers Informal Workers BOL 2002 BRA 2006 CHL 2006 MEX 2006 BOL 2002 BRA 2006 CHL 2006 MEX 2006 3510090 3080 257060 2050 154030 1020 510 0 0 Disadvantaged Middle Sectors Affluent Disadvantaged Middle Sectors Affluent Percentage of workers covered
    • Informality reduces severely pension coverage Middle sectors„ workers pension coverage rate BOL 2002 BRA 2006 CHL 2006 MEX 2006 100 90 80 70 60 50 40 30 20 10 0 Formal Informal Note: Percentage of affiliates (Bolivia and Mexico) or contributors (Brazil and Chile), over middle-sectors’ workers (14-64 years)
    • Informal workers are heterogeneous Pension coverage rate of the informal middle sectors BOL 2002 BRA 2006 CHL 2006 MEX 2006 45 40 35 30 25 20 15 10 5 0 Self Employed (with Non Agricultural Non Agricultural self- Agricultural self- Agricultural informal tertiary education informal employees employed employed employees completed) Note: Percentage of affiliates (Bolivia and Mexico) or contributors (Brazil and Chile), over middle-sectors workers (14-64 years)
    • Policy recommendations: contents (ex post and ex ante) Minimum pensions: old affiliates, agricultural informal Universality vs. Looser eligibility Affiliation: Independents with tertiary education Compulsory for independent workers vs. Opt-out Flexibility (contributions, withdrawals) Public co-funding: Middle-sectors informal workers with savings Matching defined contributions
    • Outline1 Some characteristics of Latin America’s middle classes2 Avoiding downward mobility: social protection3 Fostering upward mobility: education4 Middle classes and fiscal policy: a new social contract?
    • 0.10 0.30 0.60 0.00 0.20 0.40 0.50 0.70 Peru Ecuador Panama Chile BrazilSource: Hertz el at. (2007) Colombia Nicaragua Indonesia Italy LAC Slovenia Egypt Hungary Sri Lanka Pakistan USA Switzerland Ireland South Africa Poland Vietnam Philippines Belgium OECD (excl. Mexico and Chile) Estonia Sweden Ghana Ukraine East Timor Bangladesh Slovakia Czech Republic Netherlands Norway Nepal New Zealand Intergenerational mobility in Latin America is low Developing countries Finland Northern Ireland Great Britain Malaysia Denmark Kyrgyzstan
    • Low mobility in the middle Probability of achieving a higher level of education than one’s parents, given parental educational achievement Women Men 0.9 0.8 0.7Probability 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Illiterate Incomplete Complete Incomplete Complete Incomplete Complete primary primary secondary secondary tertiary tertiary Parents’ level of education Source: OECD ( 2010), based on survey data from Latinobarómetro (2008).
    • Equity and performance: No trade-off necessary Social inclusion & PISA science test performance Note: Blue lines indicate OECD averages. Inclusion index measures proportion of variance of economic, social and cultural variance within schools. Source: OECD ( 2010), based on survey data from 2006 round of PISA
    • Policies to enhance upward mobility • Expand early childhood development programs • More and better secondary education: focus on schools and teachers • Better social mix within schools • Financing tertiary education: grants and scholarships • Redistributive policies and income support
    • Outline1 Some characteristics of Latin America’s middle classes2 Avoiding downward mobility: social protection3 Fostering upward mobility: education4 Middle classes and fiscal policy: a new social contract?
    • Democracy: supportive but satisfied Satisfaction with functioning of democracy Support of democratic systems 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Venezuela Peru Bolivia Mexico Costa Rica Ecuador Guatemala Argentina Brazil Colombia Nicaragua Chile Dominican Republic Uruguay Honduras Panama Paraguay El SalvadorSource: Based on Latinobarómetro 2008.
    • Middle sectors: supporters of democracy, politically moderate Attitudes towards democracy Distribution of political preferencesAttitudes towards democracy (0 extreme left, 1 extreme right)(% support and satisfaction) Q1 Q2-Q4 Q5 Support for democracy Satisfaction with functioning of democracy 40.0%80% 35.0%70% 30.0%60%50% 25.0% Frequency40% 20.0%30% 15.0%20% 10.0%10% 5.0%0% 1 2 3 4 5 Perceived Income Quintile 0.0% 0 1 2 3 4 5 6 7 8 9 10 Left - Right self-reported preferences Source: OECD ( 2010), based on survey data from Latinobarómetro (2007-8).
    • 0 2 4 6 8 10 12 14 16 18 0 2 4 6 8 10 12 14 16 Colombia Guatemala Peru Dominican Rep. El Salvador El Salvador Costa Rica Dominican Rep. Mexico Costa Rica Uruguay Chile Venezuela, Bolivarian Rep. Uruguay Colombia Mexico Peru Indirect Taxes Direct Taxes Brazil Argentina Argentina Chile Brazil Selected LAC Selected LAC OECD (33) OECD (33) 0 1 3 4 5 6 8 9 2 7 10 6 8 0 2 4 10 12 14 16 18 Chile El Salvador Peru Direct Taxes Tax revenue as percentage of GDP Guatemala Colombia Mexico Argentina Indirect Taxes Uruguay Costa Rica Social Security Brazil Social Security Selected LAC Brazil OECD (33) OECD (33) Selected LACSource: Revenue Statistics in Latin America (OECD, ECLAC, CIAT, 2011, forthcoming)
    • Searching Better Taxation Tax revenue, as percentage of total taxationSource: Revenue Statistics in Latin America (OECD, ECLAC, CIAT, 2011, forthcoming)
    • Taxation – Brazil Tax revenue, as percentage of total taxationSource: Revenue Statistics in Latin America (OECD, ECLAC, CIAT, 2011, forthcoming)
    • Taxation and satisfaction with public services "Good Citizens pay their taxes" "Taxes are too high" (percentage of respondents who agree) (percentage of respondents who agree)60 5055 4550 4045 3540 303530 25 Q1 Q2 Q3 Q4 Q5 Q1 Q2 Q3 Q4 Q5 Satisfaction with health services Satisfied "Tax evasion is never justified" (percentage of respondents) Not Satisfied (percentage of respondents who agree) No Access3735 10033 8031 6029 40 2027 -25 Q1 Q2 Q3 Q4 Q5 Q1 Q2 Q3 Q4 Q5Source: OECD ( 2010), based on survey data from Latinobarómetro (2007-8).
    • Middle sectors: players in a renewed social contract? Effective net receipt of benefits by household income deciles in percentage of decile mean disposable income CHILE MEXICO 120% 120% Taxes Social spending Net transfers Taxes Social spending Net transfers 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% -20% -20% -40% -40% I II III IV V VI VII VIII IX X I II III IV V VI VII VIII IX XSource: OECD (2010), based on national household surveys.
    • Main Messages The middle sectors in Latin America are economically vulnerable Labour informality – and low social protection coverage – are particularly prevalent among the middle sectors Education is a powerful motor of intergenerational social mobility: but one that isn’t working particularly well in Latin America The middle sectors might be disposed to pay taxes – if they receive public goods of reasonable quality in exchange.
    • Policy Recommendations Flexible social protection policies must be put in place to arrest downward social mobility and an increase in inequality Early childhood education, as well as better quantity and quality of secondary education would bolster the role of human capital as a means of climbing the social ladder Tax reform must be accompanied -- or preceded -- by improvements in the quality of public spending
    • How middle-class is Latin America? Latin American Economic Outlook 2011Mario Pezzini, DirectorOECD Development Centrewww.latameconomy.orgwww.oecd.org/dev