Social Trends in Latin America: Time to Move Beyond Growth?                                           George Gray Molina1L...
playing an enabling role?5 In addition, are policy interventions in the labor market, such as formalizationor minimum wage...
transformation in the region can be described as one in which employees are leaving low-skilled, lowproductivity and poorl...
that are, perhaps, only incipient today (increased global migration, climate change patterns,changing demographic composit...
Note: Authors elaboration based on calculations using micro data from 214 household surveys(for the years 2007 and 2008) b...
behaviors (eg. drugs, alcohol, distance to school, teen pregnancy, violence, the number ofsiblings in the household or str...
Figure 4. Labor force, female (% of total labor force) 66.0                                                               ...
47.0                                                                                     With secondary              43.7 ...
decade. The current composition of service sectors tends to weigh heavily in favor of low-skilled, low-pay labor markets.G...
Figure 7. Share of employment within Figure 8. Share of employment within thePrimary activities                   service ...
5000                                                                        Services Monthly     4500                     ...
and Mexico, a large share of revenue mobilization occurs at the subnational level and/or isearmarked to subnational spendi...
transcends fiscal revenue pressure. This is an issue that is likely to dominate future discussions ofsocial policy because...
supply chains.23 We also know from time-use surveys that the gap between male and femalelabor participation will not chang...
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Social trendsgeorgegrayfinal 1

  1. 1. Social Trends in Latin America: Time to Move Beyond Growth? George Gray Molina1Latin America is into its tenth year of sustained economic growth. Since 2002, poverty has dropped byabout 51 million people, (31 percent of the population is poor using national poverty lines, and 28 percentis poor using the $US 4/day international poverty line).2 Inequality has also dropped in 14 of 17 countries,led by improvements in labor income and better educational returns at the bottom of the incomedistribution.3 Despite the good news, the region continues to face structural challenges hindering furtherprogress. This is a good time to take stock of the growth-poverty linkages, and ask what lessons can belearned from the Latin American track record.An important question is whether further social gains can be expected from economic growth –or whethergains are slowing down. The evidence on this question is, so far, mixed. On the one hand, most povertyand inequality reduction can be explained by rapid and sizeable increases in labor income, followed bythe effect of public (CCTs or non-contributive pensions) and private transfers (remittances and the like).4The rapid rise in labor incomes tends to support the view that most achievements are growth-led.On the other hand, not enough is known about how labor markets translate firm-level growth into broad-based income generation. Rather than trickle-down via good jobs in high-productivity sectors, most recentgrowth is occurring in service sectors fueled by consumer demand. Can current gains be accounted for bywhat is happening solely in the labor markets or are the long run effects of educational and health policies1 George Gray Molina, United Nations Development Programme (UNDP), Regional Bureau for Latin American andthe Caribbean. Email: george.gray.molina@undp.org. All opinions are personal, and do not reflect the institutionalposition of UNDP. Many thanks to Susana Martinez for permission to use research from Martinez, Susana andGeorge Gray Molina, 2012, “The High Hanging Fruit of Latin America Progress”, Human Development ResearchBrief 01/2012, New York, UNDP.2 World Bank, 2011, On the Edge of Uncertainty: Poverty Reduction in Latin America and the Caribbean during theGreat Recession and Beyond, Washington DC: The World Bank, CEPAL 2011, Panorama Social de AmericaLatina, Santiago: CEPAL.3 Lopez-Calva, Luis Felipe and Nora Lustig (editors), 2010, Declining Inequality in Latin America: A Decade ofProgress?, Washington: Brookings Institution and UNDP. 2009, Gasparini, Leonardo and Nora Lustig, 2011, “TheRise and Fall of Income Inequality in Latin America”, La Plata: CEDLAS.4 World Bank, 2011, op. cit. 1
  2. 2. playing an enabling role?5 In addition, are policy interventions in the labor market, such as formalizationor minimum wage floors, also playing a role?6 If so, inequality-reducing actions set the stage for currentpoverty reduction.This brief is organized in three parts. The first part describes the existing pattern of poverty reduction.Where did most of it happen? Who missed out and why? The second part describes microtrends thatdiverge from country averages, and may set the stage for a future wave of social progress: idle youth,female labor participation, service sector changes and growth of intermediate cities. The third partconsiders policy challenges. What to do?The High-hanging Fruit of Latin American ProgressThe recent track record is non-random –i.e. labor income gains concentrate mostly in the service sectorsof LAC economies, favoring male workers more than women, and largely bypassing youth employment.Labor income was also tempered cyclically, as labor shares improved during crises, and public transfersweighed most at the peak of the economic crisis in 2009. This pattern reveals a number of interestingstylized facts that run counter to the conventional wisdom.First, rises in labor income account for an estimated 45 percent of the total poverty reduction effect,followed by social transfers (16 percent) and pensions (10 percent) and an increase in the number ofworking age individuals (9 percent).7 While the regional proportions vary from country to country, withBrazil and Chile showing more of an impact from transfers and pensions, and Mexico showing a largerimpact from labor income, the overall figures are significant, if only because they provide an order ofmagnitude on what matters. Wages are rising in Latin America, like they haven’t for close to two decades.Second, the mechanisms that secured poverty reduction are also different from either the Chinese orAsian patterns of growth. In contrast to economies that are driven by strong manufacturing/export sectorsthat create jobs in non tradeable sectors –transportation, logistics, processing, and export-orientedservices--LAC economies seem to be growing primarily on the basis of domestic consumption driven bycommodity exports, but not by improvements in manufacturing or technological upgrading. Easy andavailable credit fueled consumer growth that made its way to construction and low-skilled services –thisis the heart of new job creation and rising wages.Third, if the low-hanging fruit is exhausted –if labor markets are tightening for low-skilled service sectorjobs, mostly male, mostly for 25 to 49 year olds —we will need to focus on those left-out or excludedfrom the dynamic labor markets the high-hanging fruit of Latin American social progress: youthemployment, female labor participation, non-agricultural rural markets and manufacturing and knowledgeintensive sectors. This maps out a potential policy agenda for the future. The ongoing economic5 UNDP 2010, Human Development Report 2010: The Real Wealth of Nations: Pathways to Human Development,New York, UNDP, Gray Molina, George and Mark Purser, 2010, “Human Development Trends since 1970: ASocial Convergence Story”, Working Paper 02/2010, Kenny, Charles, 2011, Getting Better: Why GlobalDevelopment Is Succeeding--And How We Can Improve the World Even More, New York: Basic Books.6 Saúl N. Keifman and Roxana Maurizio, 2012, Changes in Labour Market Conditions and Policies: Their Impact onWage Inequality during the Last Decade, Helsinki: UNU-Wider.7 Azevedo, Joao Pedro, Gabriela Inchauste and Vivian Sanfelice, 2012, “Decomposing the Decline in IncomeInequality in Latin America”, paper presented at the Network for Inequality and Poverty (NIP) Conference, April,Columbia University, New York, NY. 2
  3. 3. transformation in the region can be described as one in which employees are leaving low-skilled, lowproductivity and poorly paid jobs in agriculture or the manufacturing sector, moving to low-skill servicessuch as retail trade and personal services, mostly in the informal sector (domestic service, street vendorsor beauty parlor owners).According to the recent regional data, 177 million people still live under the poverty line in Latin Americaand the Caribbean –70 million under the indigence line.8 Can further gains in poverty reduction beachieved by a longer growth spell? Yes, because there are still gains to be made with further growth inlabor income and by expanding coverage of existing fiscal and social protection programs. But, no,because much of the remaining poverty is concentrated in non-random pockets of the population , sectorsand geographic areas, that have either hit declining returns upon more of the same, or are simply excludedfrom the dynamic sectors of the economy and/or existing social safety nets.Two general trends are salient. First, labor participation and wages have increased since 1995. Males havebenefited to a greater extent from the increase in wages and labor participation. The second trend is thatthe share of labor participation in the service sector accounts for more than 60 percent of totalemployment and --with the exception of Peru-- has increased since 1995. The manufacturing sector andprimary sectors have also shrunk since 1995 with the exception of Brazil in manufacturing and Peru inprimary activities.Microtrends that Point to New ChallengesMicrotrends, group-specific trends that deviate from country averages, help describe the speedand direction of ongoing social and economic change. For example, increased access toeducation will, in the absence of technological upgrading, erode returns to education;urbanization, which improved access to services in large cities in the past, will tend to reachscale diseconomies; and the demographic dividend, which delivered a decline in labordependency ratios, will eventually stretch labor markets and start to age.9 Some microtrends havegained demographic traction in the past and describe the trends of today. Others have simplydisappeared or become less relevant over time.There are some advantages to describing microtrends in systematic fashion. First, there is insightto be gained from disaggregating demographic, social and labor data by age, geographic location,sex, ethnic group and so on. Disaggregation points to existing and enduring disparities, togrowing or shrinking gaps. Second, by pinpointing microtrends for certain groups –womenparticipating in the formal labor market or youth entering the labor force for the first time, forexample—we are able to focus more tightly on hypotheses and mechanisms that might have alarge impact over future trends (human capital, skills premium, labor productivity, wage shares,etc). Third, by describing microtrends we may foresee important future policy opportunities andchallenges. If the past three decades were mostly marked by urbanization, drops in fertility rateand increased access to female education, the next decade is likely to be marked by processes8 CEPAL, 2011, op cit.9 The term “microtrend” comes from Mark Penn, 2007, Microtrends: The Small Forces Behind Tomorrow’s BigChanges (New York: Twelve), who constructs an insightful map and toolkit for grassroots political organizing. 3
  4. 4. that are, perhaps, only incipient today (increased global migration, climate change patterns,changing demographic composition of the household, adoption of new communicationtechnologies, crime and violence). In this section I describe four microtrends that might have animpact in the future.Idle Youth, as labor markets are boomingOne of the paradoxes of economic growth in Latin America is that despite greater educationaland labor opportunities, there is a large number of young individuals who do not study and donot work. This is a phenomenon known as “idle youth”10 or NINIs, referring to those that “niestudian, ni trabajan.”Currently, 18.5 percent of Latin American youth between the ages of 15 and 18 (9.4 million) donot work and do not study. The interesting thing is that the highest rates observed for these agegroups are in countries with very different economic and cultural trajectories: By 2009, itrepresented 28 percent of the age group of 15 to 18 in Honduras (237.000), 25.3 percent inGuatemala (237.000), 26.1 percent in Peru (754.000), 20.5 percent in Chile (304.000), and 20.4percent in Colombia (865.000)11. Figure 1, reveals that except for the cases of Peru, Bolivia andthe Dominican Republic, between 50 to 60 percent of idle youth is concentrated in the lowestincome quintiles (Quintiles 1 and 2).Figure 1. Idle youth by Income Quintiles LAC12 (Age Group 15 to 18) Quintile 5 100% (Highest) 80% Quintile 4 60% Quintile 3 40% Quintile 2 20% Quintile 1 0% (Lowest)10 World Bank, 2011, op. cit.11 Cardenas, M., de Hoyos, R., Szekely, M. (2011), Idle Youth in Latin America: A Persistent Problem in a Decadeof Prosperity. In Latin America Initiative at Brookings. 4
  5. 5. Note: Authors elaboration based on calculations using micro data from 214 household surveys(for the years 2007 and 2008) by Cardenas et al (2011).How to explain this phenomenon, in such diverse countries and in a context of sustainedeconomic growth in the region since 2002? Figure 2, shows a snap shot of the Brazilian case. Weobserve several trends: first, there is increasing secondary school enrollment, with decreasingemployment for the young population. This could suggest that greater educational opportunitiesare driving the young population out of the labor market. Nevertheless, we also observe thatunemployment has increased by 5 percent since 1995. This trend suggests that although a lowerpercentage of young individuals are working, many are looking for a job and not finding one.This could explain why we also observe a steady trend of idle youth since 1995. Taking intoconsideration demographic growth, a 2 percent reduction of idle young would still imply that thesame amount of young individuals are not studying and not working.Figure 2. Jobs, Schooling and Idle Youth in Brazil from 1995 to 2009 School enrollment, 80.0 secondary (% Net), 82.0 70.0 65.8 Employment ages 60.0 58.0 15-24, total (%), 52.5 50.0 40.0 30.0 Idle Youth (15-24), 20.7 18.6 20.0 11.4 Unemployment 10.0 (%15-24), 17.8 1995 2000 2005 2009Note: Author’s own elaboration using SEDLAC – World Bank Data and the World DevelopmentIndicators.Young individuals do not seem to be benefiting to the same extent as adults from increasingeconomic growth and labor opportunities. Indeed, recent studies suggest that idleness isassociated with factors such as extreme poverty and youth long term unemployment. Moreresearch needs to examine the role of other determinants that include the consumption of risky 5
  6. 6. behaviors (eg. drugs, alcohol, distance to school, teen pregnancy, violence, the number ofsiblings in the household or structure of the household).1220 to 50 Million Women Missing from Formal Labor MarketsAnother interesting microtrend, that has become a macrotrend in recent years, is the growingshare of women in the formal labor force. The magnitude of this change is enormous. Over thirtyyears, participation rates moved by 10 to 15 percentage points in most countries. However, ifLAC female participation rates converged with respect to female participation rates in OECDcountries, 19 million more women would be employed in formal labor markets. If participationrates between men and women converged in Latin America, 50 million more women would join.Given the current structure of income generation and poverty reduction, the massive inclusion ofwomen in formal labor markets is a must for future gains.The literature on female labor participation points to economic, cultural and technologicalobstacles to further expansions (Goldin 1997; Gutierrez 2009 and Katz and Goldin 2008).Beyond averages, however, there are particular stories that merit closer scrutiny. The keyquestion is whether and how policy interventions can change incentives for increasedparticipation. If they can, such policies are critical to move millions more out of poverty.Figure 3. Female labor participation LAC 70.0 Argentina Bolivia 65.0 Brazil Chile 60.0 Colombia Costa Rica 55.0 Dominican Rep. 50.0 Ecuador El Salvador 45.0 Grenada Guatemala 40.0 Guyana Honduras 35.0 Jamaica Mexico 30.0 Nicaragua Panama 25.0 Paraguay Peru 20.0 Trinidad and Tobago 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Uruguay Venezuela12 For evidence about Brazil’s idle youth see: Susana Martinez-Restrepo, “The Economics of Adolescents’ TimeAllocation: Evidence from the Young Agent Project in Brazil” (PhD diss., Columbia University, 2012). Forevidence about Mexico See: Arceo-Gómez, Eva; Campos Vasquez-Raymundo (2011). ¿Quienes son los NiNis enMéxico? 6
  7. 7. Figure 4. Labor force, female (% of total labor force) 66.0 LAC 61.0 56.0 Brazil all >15 51.0 Brazil (25-64) 46.0 41.0 Brazil (15-24) 36.0 Brazil Lowest 31.0 Income Quintile 26.0 Brazil Highest 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Income QuintileNote: Author’s own elaboration based on the Socio-Economic Database for Latin America andthe Caribbean (CEDLAS and The World Bank)Two microtrends stand side by side in Figure 4. First, the richest 20 percent of the femalepopulation in Brazil is moving in the direction of greater female labor participation and higherincomes. Secondly, the poorest 20 percent of the female population is moving in the oppositedirection of declining labor participation. When we zoom in on age groups, we observe thatfemale labor participation rates have plateaued for 15 to 24 year olds since the 1990s. What isgoing on behind this trend? More educational opportunities? More barriers to youthemployment?Another interesting microtrend is the case of the Dominican Republic. Despite the overalleducational upgrade, the labor market seems to be benefiting low-skilled males in the informalsector. Figure 5 shows a change in the education attainment of unemployed individuals. In 2005,most unemployed males+ and females were those with primary (or less) education. Today, theunemployed individuals with tertiary (higher) education have increased 3 percent and those withsecondary education, around 7 percent since 2005. The gender gap closed for the unemployedwith secondary education but increased for those with primary education, benefiting morefemales than males.Figure 5. Share of unemployment by education level and gender 7
  8. 8. 47.0 With secondary 43.7 education, female, 42.4 42.0 41.1 With secondary 37.4 education, male, 42.0 37.0 36.1 With primary education, male, 35.6 32.0 With primary 27.0 education, female, 29.4 22.0 With tertiary education, female, 20.6 17.0 17.0 With tertiary education, 15.6 male, 18.0 12.0 2005 2006 2007 2008 2009 2010Source: Authors’ elaboration based on data from the World Development Indicators.Recent evidence suggests that the fall in the skill premia affects both employment and wages.13In a 2006 study, Levy and Murnane, argue that middle-skilled jobs are most vulnerable to anincreasingly global labor market. They suggest that while low-skilled service jobs must be doneon-site, (eg. janitors, security guards, restaurant helpers, nursing home, construction workers,cleaning personnel), middle-skilled jobs (call centers, office assistants) can be outsourcedoffshore. These studies use evidence from the United States and OECD countries, so should betaken with caution14. The observation, however, does seem to apply to certain sectors of theDominican Republic economy. The tourist industry in the Dominican Republic produces manydirect and indirect jobs, most of which are low-skilled and low-paid jobs. Recent evidencereveals a drop in male and female participation in manufacturing industries that employ middle-skilled workers. Males present minor but increasing labor participation in activities intransportation and commerce. Job informality remains very high and constant since 2000 in theDominican Republic among both males (48 percent) and females (47 percent).The Lop-Sided Service SectorsRecent growth has led to a growing share of employment in the service sectors, and a decreasingshare in manufacturing and primary activities. Numbers of workers in the commerce,construction, and educational and health services have been particularly important throughout the13 Gasparini, et al., Educational Upgrading and Return to Skills in Latin America Evidence from a Supply-DemandFramework, 1990–2010. Policy Research Working Paper 5921, Washington, DC: The World Bank, 2012.14 Frank Levy, and Richard J. Murnane, For now, middle-skilled jobs are the most vulnerable,CESifo Forum, IfoInstitute for Economic Research at the University of Munich, vol. 7(2), pages 38-38, 07 . http://www.cesifo-group.de/portal/pls/portal/docs/1/1191752.PDF 8
  9. 9. decade. The current composition of service sectors tends to weigh heavily in favor of low-skilled, low-pay labor markets.Graph 6. Service sector as % of occupied labor force 80.0 Argentina, 76.1 75.0 Uruguay, 70.5 70.0 Dominic Rep., 68.2 65.0 Panama, 62.7 60.0 Brazil , 61.3 55.0 Paraguay, 53.6 50.0 45.0 Bolivia, 43.5 Honduras, 42.9 40.0 35.0 Peru, 34.1 30.0 1995 2000 2005 2009Note: Author’s own elaboration based on the Socio-Economic Database for Latin America andthe Caribbean (CEDLAS and The World Bank)The Peruvian case, however, suggests a different story. Although the service sector represents 56percent of total jobs in Peru, it is the only country --among those studied in this brief-- where theshare of the service sector has decreased and where the share of primary activities has increased.Figures 7 and 8 below show the share of employment from 1995 to 2009 in Peru within theprimary activities and within the service sector. Most job creation since 1995 has been inagriculture related jobs and mining in primary activities. Despite a general decrease of the shareof the overall service sector in the economy, industries such as commerce, transportation andcommunications, health and social services have also increased their share since 1995. Thestrong economic growth in Peru since 2003 is mainly a result of a booming tourism sector, thedevelopment of agriculture and agro-business, extractive industry sector (mining), andinfrastructure development. 9
  10. 10. Figure 7. Share of employment within Figure 8. Share of employment within thePrimary activities service sector Domestic servants45.0 60.0 Other services 3.2 3.140.0 3.5 3.2 1.4 0.9 5.8 Mining & 2.0 2.2 3.6 Health and social 50.0 3.5 7.3 0.6 0.6 1.1 quarrying 4.8 5.2 services35.0 1.6 0.7 0.7 3.5 3.0 4.7 5.3 Teaching30.0 40.0 3.7 3.2 3.3 0.9 0.8 1.0 0.6 Agriculture, 5.4 5.9 3.1 6.3 Public25.0 Fishing 30.0 4.5 5.6 5.6 0.8 administration20.0 5.2 Business services 36.2 34.5 31.0 31.6 Agriculture, 20.015.0 21.4 21.9 23.2 Finance hunting & 18.510.0 forestry 10.0 Transportation& 4.5 4.1 4.9 communications 5.0 3.3 Restaurants & 0.0 0.0 Circa Circa Circa Circa hotels Commerce Circa 1995Circa 2000Circa 2005Circa 2009 1995 2000 2005 2009Note: Author’s own elaboration using aggregates of national household surveys calculated bySEDLAC – World Bank.Despite a greater share of the primary sector in overall employment, the service andmanufacturing sectors have seen a greater increase in monthly wages since 1995. Wages in mainactivities in the service sector went from US$3,638 in 1995 to US$4,973 in 2009. In themanufacturing sector they went from US$ 962 to US$1402. They also increased in the primarysector but at a lower rate, from US$231 to US$ 353. This data suggests that it is workers in theservice sector that are benefiting the most from Peru’s recent economic growth and increased inlabor income.With increasing wages, there is a large share of service-sector and primary-sector jobs (such asagro-business, mining and commodities) that are also low-productivity and low-wage. Informaljobs accounted in 2009 for 63 percent of total workers in the labor market . Despite a smallreduction of 1.5 percent in comparison to 1995, it remains the highest share among selectedcountries.Figure 9. Distribution of Services, Manufacturing and Primary Activity wages (USD) 10
  11. 11. 5000 Services Monthly 4500 Income, 4973 4000 3638 3500 3000 2500 2000 Manufacture Monthly Income, 1402 1500 962 1000 500 Primary Activities 231 Monthly Income, 353 0 Circa 1995 Circa 2000 Circa 2005 Circa 2009Note: Author’s own elaboration using aggregates of national household surveys calculated bySEDLAC – World Bank. Informality refers to salaried workers in a small firm, a non-professional self-employed, or a zero-income.The aggregate figures do not account for the fact that within each sector, there are different typesof jobs –the mining sector, for example, employs both highly qualified and highly paidindividuals (such as mining managers) and low paid and qualified individuals (such as miners).The individuals in low productivity jobs are the high hanging fruit of current economic growth.The question is then what relevant policies need to address this economic growth that ismaintaining existing structural economic inequalities within internal economic transformations.Will Social Gains Slow Down?Fiscal constraints slow parts of the expansionDespite the additional fiscal space gained since the 2008/9 crisis, most Latin Americaneconomies –excluding Brazil, Uruguay and Argentina—face serious obstacles to raise taxrevenue levels.15 Current revenues are about half the OECD rates and lead to a very constrainedset of spending priorities. Most new spending --beyond inertial public sector allocations-- haveeither focused on the expansion of social transfers, or on expanding public sector employment.With close to 113 million social transfer recipients (25 percent of the population) in everycountry in the region, it is worth considering whether transfers will expand or target increasinglyexcluded groups.There are at least three aspects to the fiscal constraint question. The first concerns the sources offiscal expansion. The region currently raises revenues from value added taxes and social securitycontributions, followed by specific consumption taxes. Corporate and income taxes still lag withrespect to the OECD and other middle economies.16 In federal countries like Brazil, Argentina15 IMF, 2012, World Economic Outlook (April 2012), Washington, DC: IMF.16 OECD, ECLAC and CIAT, 2012, Revenue Statistics in Latin America, Santiago: CEPAL. 11
  12. 12. and Mexico, a large share of revenue mobilization occurs at the subnational level and/or isearmarked to subnational spending or investment priorities. There are few sources for additionalrevenues beyond raising income taxes that already grate against middle class preferences. A newfiscal pact will need to focus on the structural demands of a growing population.Second, the pro-poor impact of fiscal transfers is still low or moderate. The evidence suggests,barring Chile, Brazil and perhaps Argentina, that most poor households in the region do notbenefit from a significant change between their pre- and post-fiscal income –meaning that CCTsand other non-conditional transfers are not having much of a dent on poverty or incomeinequality.17 One problem is that transfers are typically too small to make up for large povertygaps at the bottom of the distribution. An additional problem is that transfers typically show a lotof leakage from poor to non-poor households. The targeting question continues to dampen theoverall impact.Finally, beyond the immediate monetary impact of transfers, most CCTs are not meant to bringhouseholds out of poverty but to provide demand incentives for human capital accumulation –toallow children to go to school and use public health services.18 The supply side is frequentlymissing in social services, and this deficit, which is both material and human resource-based,will take decades to fulfill. The supply-side constraint is particularly important for countries withlarge rural populations, and for rapidly growing urban centers that haven’t caught up withdemand in the 2000s.A bridge from CCTs to a universal safety net is neededBeyond fiscal constraints, the move from targeted transfers to a universal basic income or servicesafety net is riddled with other challenges. The most important has to do with female laborparticipation and youth employment –both of which constrain the rate of broad-based progressbecause of their size. A welfare regime perspective is useful to gauge the magnitude of thisshift.19 A large hidden cost to household decision-making is borne by women. While mostOECD economies are underwritten by either market-led or state-provided safety nets, pensionsor insurance from risk, most Latin American households are “familistic” in their labor andincome strategies. The double burden faced by millions of women acts as a hidden subsidy onthe rest of society, markets and state. It undergirds the current welfare regime in Latin America,and is among other things, blatantly unfair.The cost of transitioning millions of youth or women into the labor force –thus sustaining therhythm of poverty reduction over the next decade --will require a new type of social compact that17 Lustig, Nora et al, 2011, “Fiscal Policy and Income Redistribution in Latin America: Challenging theConventional Wisdom”, New Orleans: Tulane University and Inter-American Dialogue.18 Cecchini, Simone and Aldo Madariaga, 2011, Programas de Transferencias Condicionadas: Balance de laexperiencia reciente de América Latina y el Caribe, Santiago: CEPAL.19 Martinez, Juliana, 2008, “Welfare Regimes in Latin America: Capturing Constellations of Markets, Families andPolicies” (Latin American Politics and Society, vol. 50, 2: 67-100). 12
  13. 13. transcends fiscal revenue pressure. This is an issue that is likely to dominate future discussions ofsocial policy because it intersects with economic policymaking –particularly job creation.Santiago Levy has focused on one important aspect of this question by zooming in on thebehavioral impact of social protection policies over labor markets.20 An additional focus hasbeen provided by a burgeoning literature on the economics of care.21 Both strands of research arefocusing on the balance between labor markets and household decision-making.A third strand of work pulls some of these concerns together.22 How to integrate social andeconomic policymaking on job creation in the region? The trend, so far, has been marked by adivision of labor. Economic policymaking has focused on stabilizing welfare in turbulent timesand promoting economic growth in the good times; social policy tends to be compensatoryand/or aimed at long-run human capital accumulation. The key in the future is to focus on theintersection which focuses on job creation with both market and state-led policy levers. This iswhat we turn to next.Are good jobs out of reach?In many respects, this is the best of times for labor markets. Labor participation –as measured byhours worked—is expanding, and labor income –as measured by income per hour—is alsogrowing. At the same time, this is a unique moment to describe the job-creating pattern ofcurrent economic growth, most of it occurring in low-skill service sectors, for male workers from25 to 49 years of age. The level of growth and poverty reduction is significant, but the reach islimited.Two forces move against “good job” creation in the region. The first is macro, linked to thepattern of economic specialization, technology content and export diversification of LatinAmerican economies. Most growth is driven by a surge in commodity demand, and while thishas not been detrimental to growth, it has structured incentives for labor market upgrading in the2000s. The second force is micro, linked to the pattern of female labor participation and youthemployment described earlier in this brief. The sectors that create new jobs are not likely tobreak through to non-participating females and youth, because the incentives are not there. Thewelfare regime that might employ more women in the labor force is largely absent in the regionand shows little signs of materializing. Together, macro and micro incentives create a scissors forfuture poverty alleviation in the Latin America.In theory, we know from existing research that there is an important deficit in building higherproductivity building blocks –service sectors, in particular, are frequently the weak link of global20 Levy, Santiago, 2010, Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth inMexico, Brookings Institution: Washington, DC.21 Esquivel, Valeria, 2012, “La economía del cuidado en América Latina: poniendo a los cuidados en el centro de laagenda”, Area de Practica Genero, PNUD: Panama.22 Martinez, Juliana and Diego Sanchez Ancochea, 2011, “The Productive Bottlenecks of Progressive SocialPolicies: Lessons from Costa Rica and Beyond”. CROP Poverty Brief, Bergen: CROP. 13
  14. 14. supply chains.23 We also know from time-use surveys that the gap between male and femalelabor participation will not change without behavioral changes in the household and incentivesfrom the state. What is holding the region back from moving ahead with reforms that mightreach the “high-hanging fruit” of poverty reduction? Part of the answer seems to be political –linked to the time horizon of structural changes. But part of the answer is managerial: whyengage in gender-equalizing, productivity-enhancing, sustainable development reforms whencutting the cost of doing business in the region is often seen as a more expedient route toenhancing competitiveness.This is a good moment to reflect on the kinds of structural obstacles that prevent future socialand economic progress. Latin America is facing a crossroads. The best of times shows us howthings are when we get our economic-growth wish. This might be the time to focus on our socialwishes to spur future progress.23 IDB, 2010, The Age of Productivity: Transforming LAC Economies from the Bottom-Up, Washington, DC: Inter-American Development Bank. 14

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