- Inequality in Latin America is high but has been declining significantly since around 2000. This decline has contributed to reductions in poverty and growth of the middle class. - The decline in inequality is seen across most Latin American countries, regardless of political ideology or economic growth levels. It has been driven mostly by declining inequality of wages and more progressive social transfers. - On average, about 40% of the reduction in poverty across Latin America between 2001-2010 can be attributed to the decline in inequality rather than solely economic growth.

1. Declining
Inequality
in
La0n
America
Nora
Lus)g
Tulane
University
Nonresident
Fellow
CGD
and
IAD
CEPAL-­‐OECD
Paris
–
May
21,
2014

2. Inequality
in
La0n
America
is
high…
…but
has
been
declining
since
around
2000
• Decline
is
pervasive
and
significant
• Larger
than
the
rise
in
inequality
in
1990s
• Important
contribu)on
to
the
decline
in
poverty
• Contributed
to
the
rise
of
the
middle-­‐class
• In
countries
with
high
growth
&
low
growth
• In
countries
with
leQ
and
nonleQ
governments
• In
commodity
exporters
and
commodity
importers
2

3. LATAM
IS
THE
MOST
UNEQUAL
REGION
IN
THE
WORLD
Gini
Coefficient
by
Region
(in
%),
2004
coefficient
38.9 38.9 39.1
Gini 33.6
32.2
and the
Caribbean 44.7
53.2
60.0
55.0
50.0
45.0
40.0
35.0
30.0
25.0
20.0
High Income Europe and
Central Asia
South Asia North Africa
and the
Middle East
East Asia and
the Pacific
Sub-Saharan
Africa
Latin America
Ferreira
and
Ravallion,
2008.
3

4. Inequality
declined
during
the
2000’s
La)n
America:
Declining
income
inequality
by
country:
2000-­‐2011
(Annual
Change
of
Gini
in
%)
4
-2.64
-2.05 -1.99
-1.30 -1.24 -1.17 -1.07 -1.03 -0.91 -0.79 -0.74 -0.72
-0.47 -0.39
-0.20 -0.10
0.61
-0.95
2.12
0.82 0.77
0.40
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00
Nicaragua
Bolivia
Ecuador
Argentina
El Salvador
Mexico
Venezuela
Brazil
Peru
Dom. Rep.
Panama
Chile
Costa Rica
Paraguay
Uruguay
Guatemala
Honduras
LAC-17
China
South Africa
India
USA

5. The
decline
of
income
inequality
in
the
2000s
has
been
higher
that
the
rise
in
the
1990s
(Annual
average
change
in
Gini
in
%)
8.2$
%10.1$
1.8$
Change$in$Gini$coefficient,$expressed$in$percentage$points$ Average$of$increase$ Average$of$decrease$
%4.2$
4.1$
%5.4$
0.8$
%3.5$
0.1$
%4.8$
2.9$
%7.0$
3.1$
%6.8$
1.5$
%4.6$
0.2$
%4.5$
0.4$
%7.0$
4.9$
2.5$
%6.1$
%8.7$
10.0$
5.0$
0.0$
%5.0$
%10.0$
%15.0$
1992%2002$
2002%2011$
1997%2002$
2002%2008$
1985%1998$
1998%2009$
1992%1998$
1998%2009$
2000%2003$
2003%2010$
1995%2001$
2001%2010$
1989%1996$
1996%2010$
1989%2001$
2001%2010$
1997%2003$
2003%2010$
1997%2003$
2003%2010$
1989%2002$
2002%2010$
Argen3na$ Bolivia$ Brazil$ Chile$ Dominican$
Rep.$
El$Salvador$ Mexico$ Panama$ Paraguay$ Peru$ Venezuela$

6. On
average,
40
percent
of
the
reduc0on
in
poverty
was
due
to
the
decline
in
inequality
c.
2001-­‐2010
6
10
5
0
-5
-10
-15
-20
-25
-30
-35
130%
110%
90%
70%
50%
30%
10%
-10%
-30%
Nicaragua
Mexico
El Salvador
Argentina
Dom. Rep.
Bolivia
Chile
Ecuador
Peru
LAC-18
Brazil
Panama
Paraguay
Venezuela
Uruguay
Honduras
Costa Rica
Guatemala
Colombia
Change in poverty (percentage points)
% contribution of each effect
Growth effect Redistribution effect Change in poverty ($4 a day) in percentage points
Lopez-­‐Calva,
L.F.,
N.
Lus)g,
E.
Or)z-­‐Juarez.
2014.
“Inequality,
Mobility
and
Middle
Classes
in
La)n
America.”
Mimeo,
May.

7. Declining
inequality
has
contributed
to
the
expansion
of
the
“middle-­‐class”
Ferreira
et
al.,
2012.
7

8. The
faster
the
decline
in
inequality,
the
faster
the
growth
of
the
middle-­‐class
Lopez-­‐Calva,
L.F.,
N.
Lus)g,
E.
Or)z-­‐Juarez.
2014.
“Inequality,
Mobility
and
Middle
Classes
in
La)n
America.”
Mimeo,8M
ay.

9. Determinants
of
the
decline
in
inequality
• Declining
inequality
of
hourly
labor
income
• Larger
and
more
progressive
transfers
• Lower
dependency
ra)os
&
higher
par)cipa)on
rates
of
adults
9

10. Contribu0on
of
proximate
determinants
to
the
decline
in
inequality
(%)
La)n
America,
c.
2000-­‐2010
10
11 4
2
9 15
10
Occupation share
Adult population
21
Capital
Pensions
Other non-labor income
Transfers
54
Labor income LABOR
17
62
-1
-4
120
100
80
60
40
20
0
-20
TRANSFERS
LABOR
INCOME
INCOME
Non-parametric Parametric
Source:
Non-­‐parametric
decomposi)on
results
from
Azevedo
et
al.
(2013a);
and
parametric
results
provided
by
CEDLAS,
based
on
data
from
SEDLAC
(CEDLAS
and
The
World
Bank).

11. Decomposing
Decline
in
Inequality
Labor
(red);
Transfers
(Green);
Demog
(Blue)
(Azevedo
et
al.
2012)
100%%
80%%
60%%
40%%
20%%
0%%
Argen/na%
!20%%
!40%%
!60%%
Brazil%
Costa%Rica%
Dominican%Rep.%
Chile%
Colombia%
Mexico%
Panama%
Honduras%
El%Salvador%
Ecuador%
Paraguay%
Peru%
Uruguay%
LAC!14%
!80%% 11

12. Determinants
of
declining
inequality
in
hourly
labor
earnings:
Decline
in
return
s
to
post-­‐secondary
educa)on
(aka.
skill
premium)
• Supply
• Demand
• Labor
Market
Ins)tu)ons
• Declining
“quality”
in
workers
with
ter)ary
degree
12

13. Zooming
in:
Brazil
• Low
growth
during
most
of
the
period
• Decomposi)on:
• Wage
Structure
Effect
Equalizing
• Workers’
Characteris)cs
Effect
Slightly
Unequalizing
(Bourguignon
et
al.,
2005)
“paradox
of
progress)
• Wage
structure
effect:
• Increase
in
rela)ve
supply
of
skilled
workers
• Increase
in
rela)ve
demand
of
low-­‐skilled
workers
• Rising
minimum
wages
• Declining
Absolute
real
wages
for
workers
with
ter)ary
=>
degraded
ter)ary?
13

14. Brazil:
Decline
in
Wage
Inequality
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper
14

15. 15
.4
.3
.2
.1
0
-.1
Fig.10: RIF Decomposition: 2002-2011 Male
1 11 21 31 41 51 61 71 81 91 100
quantile
Log Wage Difference Composition Effect
Wage Structure Effect
Brazil
(RIF)
Decomposi)on
(2002-­‐2011):
•
Changes
in
Wage
Structure
Equalizing
• Changes
in
Workers’
Characteris)cs
Slightly
Unequalizing
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper

16. Brazil:
Decline
in
rela0ve
returns
to
educa0on
or
“skill
premium”
16
Fig.8: Relative Return to Education
0 .5 1 1.5 2 4-7 8-10 11-14 15+
2002
2002 2011
2011
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper

17. Brazil:
Decline
in
skill
premium
coincides
with
the
expansion
of
the
rela)ve
supply
of
workers
with
post
secondary
educa)on
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper
17
Rela)ve
Returns
To
Educa)on
Rela)ve
Supply
of
Workers
w/
Post-­‐
secondary

18. Brazil:
Rising
minimum
wage
18
400
350
300
250
200
Minimum Wage in 2002 Reais
Fig.13: Minimum Wage in Reais: 2002 Price
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper

19. Brazil:
Decline
in
absolute
wages
for
workers
with
ter0ary
19
14 15 16 17 18
Fig. 6: Average Hourly Wage of Tertiary Group: 2002-2011 Male
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper

20. “Degraded”
Ter)ary?
Brazil
2002-­‐2011
Wang,
Yang.
2013.
“Decomposing
the
Changes
in
Male
Wage
Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper
20
Kdensity of Log Hourly Wage: Tertiary
0 .1 .2 .3 .4 .5
kdensity log_hwage
0 2 4 6
2002 2011

21. Zooming
in:
Mexico
• Low
growth
• Decomposi)on:
• Wage
Structure
Effect
Equalizing
• Composi)on
Effect
Slightly
Unequalizing
(Bourguignon
et
al.,
2005)
“paradox
of
progress)
• Wage
structure
effect:
• Increase
in
rela)ve
supply
of
skilled
workers
• Minimum
wages
and
unioniza)on
no
effect
• Degraded
ter)ary?
21

22. Mexico:
Decline
in
Inequality
(Gini)
22
Campos,
R.,
G.
Esquivel
and
N.
Lus)g.
2014.
“The
Rise
and
Fall
of
Income
Inequality
in
Mexico,
1989–2010,”
Chapter
7
in
Giovanni
Andrea
Cornia,
ed.,
Falling
Inequality
in
La3n
America:
Policy
Changes
and
Lesssons,
WIDER
Studies
in
Development
Economics,
Oxford
University
Press,
Hourly
Wage

23. 23
-.5 -.2 .1 .4 .7 1
Log wage effects
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Quantile
Total differential Effects of Characteristics
Effects of Returns
Mexico
(RIF)
Decomposi)on
(1996-­‐2010):
• Changes
in
workers
characteris)cs
• =>
unequalizing
• Wage
Structure
Effect
=>
Equalizing
Campos,
R.,
G.
Esquivel
and
N.
Lus)g.
2014.
“The
Rise
and
Fall
of
Income
Inequality
in
Mexico,
1989–2010,”
Chapter
7
in
Giovanni
Andrea
Cornia,
ed.,
Falling
Inequality
in
La3n
America:
Policy
Changes
and
Lesssons,
WIDER
Studies
in
Development
Economics,
Oxford
University
Press,

24. In
contrast
to
Brazil,
in
Mexico
minimum
wages
did
not
increase
at
all…
Real Minimum Wage and Unionization: 1988-2010
A. Real Minimum Wage Index (December
2010=100)
B. Unionization Rate
100 120 140 160 180 200
1988m1 1992m1 1996m1 2000m1 2004m1 2008m1 2010m12
Year
.1 .12 .14 .16 .18 .2
Unionization Rate
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year
ENIGH ENOE
Campos,
R.,
G.
Esquivel
and
N.
Lus)g.
2014.
“The
Rise
and
Fall
of
Income
Inequality
in
Mexico,
1989–2010,”
Chapter
7
in
Giovanni
Andrea
Cornia,
ed.,
Falling
Inequality
in
La3n
America:
Policy
Changes
and
Lesssons,
WIDER
Studies
in
Development
Economics,
Oxford
University
Press,

25. Mexico: Relative returns and relative supply, 1989-2010
(High school and more vs. secondary or less)
Campos,
R.,
G.
Esquivel
and
N.
Lus)g.
2014.
“The
Rise
and
Fall
of
Income
Inequality
in
Mexico,
1989–2010,”
Chapter
7
in
Giovanni
Andrea
Cornia,
ed.,
Falling
Inequality
in
La3n
America:
Policy
Changes
and
Lesssons,
WIDER
Studies
in
Development
Economics,
Oxford
University
Press,
Mexico:
Decline
in
skill
premium
coincides
with
the
expansion
of
the
rela)ve
supply
of
workers
with
post
secondary
educa)on

26. How
redistribu0ve
are
La0n
American
governments?
• Decomposi)on
of
changes
in
inequality
by
income
source
show
that
transfers
is,
on
average,
the
second
most
important
proximate
determinant
of
decline
in
overall
inequality
• Social
spending
and
tax
incidence
analysis
for
14
countries
(8
from
La)n
America)
• www.commitmentoequity.org
26

27. Redistribu0on
in
the
rich
and
developing
countries
0.00
-­‐0.02
-­‐0.04
-­‐0.06
-­‐0.08
-­‐0.10
-­‐0.12
-­‐0.14
-­‐0.16
Sources:
Immervoll
et
al.
(2009)
for
EU
and
for
CEQ
countries
see
Lus)g
(2014)
and
slides
at
the
end.
Note:
in
these
calcula)ons
contributory
pensions
are
part
of
market
income
and
NOT
treated
as
a
government
transfer.
27
-­‐0.18
Change
in
Gini:
Disposable
vs.
Market
(in
percentage
points)
DEVELOPING
COUNTRIES
RICH
COUNTRIES

28. Zooming
in
(CEQ
14
countries;
LA
8
in
red)
0.00
-­‐0.01
-­‐0.02
-­‐0.03
-­‐0.04
-­‐0.05
-­‐0.06
-­‐0.07
Sources:
Lus)g
(2014)
and
slides
at
the
end.
Note:
in
these
calcula)ons
contributory
pensions
are
part
of
market
income
and
NOT
treated
as
a
government
transfer.
28
GUA
ELS
BOL
PER
CRI
MEX
-­‐0.08
Change
in
Gini:
Disposable
vs.
Market
(in
percentage
points)
URY
BRA

29. 29
Argen0na:
Rising
role
of
transfers
Argen/na(Reduc/on%in%Inequality:%Market%(blue)%vs.%
124%%
Redistribu/on%(red)%%
58%%
(24%%
43%%
2003$06& 2006$09&
Redistribu1on&
Market&
Lus)g,
N.
and
C.
Pessino.
2014.

30. 30
Argen-na&Reduc-on$in$Poverty:$Market$(blue)$vs.$
110%$
Redistribu-on$(red)$$
12%$
&10%$
88%$
$
2003$06& 2006$09&
Redistribu1on&
Market&
Lus)g,
N.
and
C.
Pessino.
2014.

31. Mexico:
Rising
role
of
transfers
Mexico: The impact of cash transfers on inequality and poverty, 1996, 2000 and 2010
Net market income Disposable income
1996 Gini 0.522 0.520
% change with respect to net market income –– -0.4%
Headcount index ($2.5 PPP) 30.2% 29.9%
% change wrt net market income –– -1.0%
2000 Gini 0.544 0.539
% change wrt net market income –– -0.9%
Headcount index ($2.5 PPP) 22.1% 21.6%
% change with respect to net market income –– -2.3%
2010 Gini 0.503 0.495
% change wrt net market income –– -1.7%
Headcount index ($2.5 PPP) 13.8% 11%
% change with respect to net market income –– -20.1%
Campos,
R.,
G.
Esquivel
and
N.
Lus)g.
2014.
“The
Rise
and
Fall
of
Income
Inequality
in
Mexico,
1989–2010,”
Chapter
7
in
Giovanni
Andrea
Cornia,
ed.,
Falling
Inequality
in
La3n
America:
Policy
Changes
and
Lesssons,
WIDER
Studies
in
Development
Economics,
Oxford
University
Press,

32. Thank
you!
32

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Chapter
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Andrea
Cornia,
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Falling
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La3n
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Policy
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WIDER
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Distribu)on
in
Brazil.”
Tulane
University,
Ph.D.
field
paper.
33

34. CEQ
Teams
(Year
of
Survey;
C=consump0on
&
I=income)(MWB
Version)
1. Argen0na
(2009,
I):
Nora
Lus)g
and
Carola
Pessino
(CEQ
Web
Dec
2013)
Public
Finance
Review,
May
2014,
Volume
42,
Issue
3
2. Bolivia
(2009;
I):
Veronica
Paz
Arauco,
George
Gray-­‐Molina,
Wilson
Jimenez
and
Ernesto
Yañez
(CEQ
Web
Dec
2013)
Public
Finance
Review,
May
2014,
Volume
42,
Issue
3
3. Brazil
(2009;
I):
Sean
Higgins
and
Claudiney
Pereira
(CEQ
Web
Dec
2013)
Public
Finance
Review,
May
2014,
Volume
42,
Issue
3
4. Costa
Rica
(2010;
I):
Pablo
Sauma
and
Juan
Diego
Trejos
(February
2014;
paper)
5. El
Salvador
(2011;
I):
Margarita
Beneke,
Nora
Lus)g
and
Jose
Andres
Oliva
(March
11,
2014)
6. Guatemala
(2011;
I):
Maynor
Cabrera,
Nora
Lus)g
and
Hilcias
E.
Moran
(April
13,
2014)
34

35. CEQ
Teams
(Year
of
Survey;
C=consump0on
&
I=income)(MWB
Version)
10 Mexico
(2010;
I):
John
Scow
(CEQ
Web
Dec
2013)
Public
Finance
Review,
May
2014,
Volume
42,
Issue
3
11 Peru
(2009;
I):
Miguel
Jaramillo
(CEQ
Web
Dec
2013)
Public
Finance
Review,
May
2014,
Volume
42,
Issue
3
12 United
States
(2011;
I):
Sean
Higgins,
Nora
Lus)g,
Whitney
Ruble
and
Timothy
Smeeding
13 Uruguay
(2009;
I):
Marisa
Bucheli,
Nora
Lus)g,
Maximo
Rossi
and
Florencia
Amabile
(CEQ
Web
Dec
2013)
Public
Finance
Review,
May
2014,
Volume
42,
Issue
3
• Research
Assistant:
Yang
Wang,
Tulane
University
35