This document summarizes Nora Lustig's presentation on declining inequality in Latin America. The main points are: 1) Inequality is declining across Latin America due to falling inequality in hourly wages, larger/more progressive social transfers, and lower dependency ratios. 2) Wage inequality is falling due to greater supply and lower demand for post-secondary education, lowering the skill premium. 3) However, questions remain about the impacts of deindustrialization, rural-urban dynamics, and formal/informal sector changes on falling wage inequality. The results also have implications for the structural transformation agenda in Latin America.

1. Declining Inequality in L.A.
Comments
Juan Mauricio Ramírez - Fedesarrollo
ECLAC - OECD
Santiago de Chile, November 14, 2013

2. Main results of Nora Lustig´s
presentation:
• Declining inequality in L.A. everywhere,
despite differences of growth rates, political
orientation, export characteristics, etc.
• Due to (in decreasing order):
– Declining inequality of hourly labor income
– Larger and more progressive transfers
– Lower dependency ratios

3. Declining inequality of labor income
• Larger supply of post-secondary education
• Lower demand of post-secondary education
(larger demand for non-skilled labor)
• Lower quality of post-secondary education
 Decline in skill premium

4. Declining inequality in labor incomes:
some questions
• What is the story behind these results from
the point of view of the dynamic of the
productive sector?
– “Re- primarization”
– Deindustrialization
– Expansion or (urban) non-skilled, low-productivity
services?

5. Declining inequality in labor incomes:
some questions
• What is the story behind these results from
the point of view of the rural – urban
dynamics?
– In Colombia:
• Gini (National): 0.538
• Gini (Rural): 0.465 – the largest decrease btw 2002 and
2012
• Gini (13 M.A.): 0.499 – the second largest decrease

6. Gini Coefficient

7. Declining inequality in labor incomes:
some questions
• What is the story behind these results from the
point of view of formal – informal sector
dynamics?
– In Colombia:
• Gini of labor incomes in formal sector: 0.48
 The main source of labor income inequality is
between formal and informal sector
 Formality is the most important characteristic to
differentiate between poor and non-poor households

8. Minimum wage and Formalization
2010
BTA
SAN
ANT
VAL
CUN
BOL HUI
BOY
CES
ATL
RIS
CAL
TOL
QUI
GUA
NSAN
MAG
CAU
COR
CHO
NAR
CSUAQC
R² = 0.614
70
60
50
40
30
20
10
0
- 20 40 60 80 100 120 140
Formalization rate, %
Minimum wage/ GDP per cápita , %
Source: Own Calculations based on DANE.

9. Declining inequality in labor incomes:
some questions
• What does this result of declining inequality of
labor income tell us about the agenda of
structural transformation in L. A.?

10. Labor productivity
200
180
160
140
120
100
80
60
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Índice 1990=100
Promedio OCDE Colombia OCDE Mitad más baja América Latina
Fuente: OECD, OECD Colombia Economic Survey 2013.

11. The necessity of a structural transformation in L.A.

12. Colombia: balanza comercial industrial cada vez más
deficitaria
40,000
30,000
20,000
10,000
-
(10,000)
(20,000)
(30,000)
*incluye ganadería, caza y silvicultura.
Nota: La balanza comercial es calculada de acuerdo a la clasificación CIIU Rev. 3 y usando un factor de conversión
anual para las importaciones en dólares CIF.
Fuente: DANE, Cálculos propios.
Sector minero-energético
Total
Sector
agropecuario*
Sector industrial
(40,000)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Millones de dólares FOB

13. A Window of Opportunity for Social
Mobility?
16.2
11,6
25.3
43.8
32,1
59.9
2002 2012 2020 2025
High
Middle Income Classes in Colombia as a % of total population
24,7
Millons of
16.2
11,6
25.3
37.3
Fuente: Fedesarrollo calculations bsed on BBVA. people
Middle class: people that belong to families with a monthly income between COP$ 2 and 8 millon.
46.3
2002 2012 2020 2025
Low