Macroeconomic regime, trade openness,
unemployment and inequality. The
Argentine Experience.
Roxana Maurizio
Universidad Nacional de General Sarmiento
Argentina
IDEAs Conference on Policy Perspective on Growth, Economic Structure
and Poverty Reduction, Beijing, 2007
MOTIVATION
• On the one hand, Argentina is one of the Latin
American countries that experienced the most
dramatic long-term changes with respect to income
inequality and welfare.
• On the other hand, the experience of Argentina
indicates that it is possible to verify significant
increments of the domestic product together with a
very strong worsening of the personal and household
income distribution.
OBJECTIVE
Analyze the Argentine experience focusing
on the interactions among macroeconomic
regime, labour performance, income
distribution and poverty incidence.
LONG-TERM PERSPECTIVE
Graph 1
Evolution of Real Wages. Index 1970=1
1.3
1970/74
1.2
1960
1.1
1975/79
1990
1950
1
2000
0.9
1940
0.8
0.7
1980
0.6
19
40
19
43
19
46
19
49
19
52
19
55
19
58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
0.5
LONG-TERM PERSPECTIVE
REGIONAL PERSPECTIVE
Gini Index of Per Capita Household Income
Selected Latin American Countries
Poverty Index. Individuals.
Selected Latin American Countries
0.65
0.6
60
50
40
30
20
10
0
0.55
0.5
0.45
0.4
0.35
1990
2000
Br
as
il
Ch
i le
Bo
l iv
ia
o
M
éx
ic
Ar
ge
nt
in
a
Ri
ca
Co
st
a
a
Ve
ne
zu
el
Ur
ug
ua
y
0.3
Uruguay Argentina
Costa
Chile
Rica
1990 2000
Brasil
México
Macroeconomic regime and labour
market during the nineties
• Convertibility Plan from 1991 to 2001 (Currency
board regime)
• Trade openness and financial liberalization
• Structural reforms (Washington Consensus)
-Privatization
-State reforms
-Labour flexibilization
Convertibility Plan: phases and final crisis
• 1991-1994: vigorous inflow of foreign capital,
very high economic growth and sharp reduction in
inflation rates. Real appreciation.
• 1995: “Tequila Crisis”
• 1996-1998: new flows of external capital and
economic recovery
• 1998-2001: new contractionary phase and collapse
of fixed exchange rate.
Graph 7
Real income of the employed and active population
GBA
(in constant 1999 prices)
900
20%
850
800
17%
3%
750
700
650
-9%
600
550
M91
M92
M93
M94
M95
M96
M97
Employed
Graph 10
Poverty indexes
GBA
40
35
30
25
20
15
Households
Individuals
ay
-0
1
M
ay
-0
0
M
ay
-9
9
M
ay
-9
8
M
ay
-9
7
M
ay
-9
6
M
ay
-9
5
M
ay
-9
4
M
ay
-9
3
M
ay
-9
2
M
M
ay
-9
1
10
M98
M99
M00
Active population
M01
Graph 5
Unemployment rate
GBA
25.0
20.0
15.0
10.0
5.0
1991
1992
1993
1994
1995
1997
1998
1999
Oct
Oct
2000
May
May
Oct
May
Oct
May
Oct
May
Oct
1996
2001
Graph 9
Per Capita Family Income. Rrelationship between fifth and first quintile
GBA
Graph 8
Gini index of employed and active population
GBA
0.58
May
Oct
May
Oct
May
Oct
May
Oct
May
Oct
May
0.0
21
20
20
0.56
19
0.54
18
18
0.52
17
17
0.50
0.48
15
15
0.46
16
16
16
15
14
0.44
13
0.42
12
0.40
11
12
ct
-0
1
O
01
M
ay
-
ct
-0
0
O
00
M
ay
-
ct
-9
9
O
99
M
ay
-
98
M
ay
-
94
M
ay
-
91
01
M
00
M
99
M
98
M
97
Active population
10
M
ay
-
Employed
M
96
M
95
M
94
M
93
M
92
M
M
91
11
Assessing the distributional worsening : the role
of the macroeconomic and labour market
Some hypotheses:
• “Unified Theory”. Shifts of different intensity in the
relative demand and supply of labour between skills due
to (1) Trade openness and (2) technological changes.
• Argument based on the idea that macroeconomic
regime determines the global performance of the
labour market and has, through this channel, a direct
impact on the level and distribution of welfare. This
vision emphasizes the role of the aggregate labour
demand over considerations which refer only to the shift
in the composition of labour demand.
Reversion and perdurability after the
macroeconomic regime change
• Macroeconomic and social crisis as a consequence
of the collapse of Convertibility :
-GDP decreased by more than 11%
-Unemployment climbed to 21%
-55% of the population lived in households with
incomes below the poverty line.
• From the second half of 2002 some reversion of
the trends of the labour market indicators but with
different intensities.
Reversion and perdurability after the
macroeconomic regime change
• Positive facts: Labour dynamics. Very high
employment generation, real wage recovery,
unemployment reduction, fall in inequality
and poverty.
• Negative facts: the “stocks”. Still significant
precariousness, high unemployment rate,
inequality and social vulnerability.
Reversion
Table 1
Evolution of employment by category, educational level and sector (%)
28 urban centres. Excludes employment plans
Contribution to employment
growth
Var. 2006/2003
21%
100%
28%
30%
26%
9%
31%
5%
-53%
96%
59%
37%
11%
6%
5%
-7%
Educational level
Primary
Secondary
Tertiary
11%
26%
24%
16%
46%
38%
Sector
Manufacture
Construction
Commerce
Transport
Financial services
Education and health
Other services
30%
50%
17%
9%
30%
19%
9%
20%
17%
20%
3%
14%
19%
7%
TOTAL EMPLOYMENT
Category
Wage-earners
Registered
Non-registered
Non-wage earners
Employers
Own-Account
Workers without wages
Graph 12
Real labour income
28 urban centres. Excludes employent plans
(Index Oct- 01=100)
110
105
100
95
90
85
80
75
70
65
60
Oct.
2000
Mayo
2001
Oct.
Mayo
Oct.
M/ I
Sem.
2002
Semi-annual EPH
II Sem.
2003
I Sem.
II Sem.
2004
Continuous EPH
I Sem.
II Sem.
2005
I Sem.
2006
Graph 13
Gini index of labour income
28 urban centres. Excludes employment plans
0.480
0.470
0.460
0.450
0.440
0.430
0.420
Oct.
2000
Mayo
Oct.
2001
Mayo
Oct.
2002
Semi-annual EPH
M/ I
Sem.
II Sem.
2003
I Sem. II Sem. I Sem.
2004
Continuous EPH
II Sem. I Sem.
2005
2006
Perdurability
Quintile distribution of incomes from main occupation
QUINTILE
1
2
3
4
5
TOTAL
I SEM 2003 II SEM 2003 I SEM 2004 II SEM 2004 I SEM 2005 II SEM 2005 I SEM 2006
3%
4%
4%
4%
4%
4%
4%
9%
9%
10%
10%
10%
10%
10%
15%
14%
15%
15%
15%
15%
15%
22%
22%
21%
22%
22%
22%
22%
51%
51%
51%
49%
49%
50%
48%
100%
100%
100%
100%
100%
102%
100%
Quintile distribución of Per Capita Family Income
QUINTILE
1
2
3
4
5
TOTAL
Average income
fifth Q / first Q
I SEM 2003
II SEM 2003
2%
3%
7%
7%
12%
12%
21%
21%
57%
57%
100%
100%
25
21
I SEM 2004
II SEM 2004
3%
3%
8%
8%
13%
13%
21%
21%
56%
55%
100%
100%
18
17
I SEM 2005
II SEM 2005
3%
3%
8%
8%
13%
13%
21%
21%
54%
54%
100%
100%
16
16
I SEM 2006
3%
8%
14%
22%
53%
100%
15
Graph 17
Poverty and indigence
28 urban centres
70
60
5 7 .5
5 4 .7
5 3 .0
54
4 7 .8
50
4 4 .3
40
4 0 .2
3 8 .3
3 8 .5
3 5 .9
3 3 .8
30
24.8
27.5
26.3
3 1.4
27.7
2 6 .9
20.5
17.0
20
11.6
13.6
15.0
13.6
12.2
11.2
8.7
10
0
M01
O01
M02
O02
M03
1 S 03 2 S 03 1 S 04 2 S 04 1 S 05 2 S 05 1 S 06 2 S 06
Individual poverty
Individual indigence
Decomposition of poverty
variation (households)
Period
Variation (p.p)
Growth
effect
Inflation
effect
Nominal
income
effect
Distribution
effect
Residual
O00-O01
O01-M02
M02-O02
O02-M03
4.7
12.3
4.8
-3.1
70%
98%
72%
85%
-6%
63%
150%
-2%
74%
28%
-63%
89%
30%
10%
9%
18%
2%
-1%
4%
-5%
II S03- IIS04
IIS04-IIS05
-6.7
-5.1
72%
72%
-36%
-66%
97%
133%
29%
22%
9%
10%
-13.4
72%
-61%
116%
27%
18%
IIS03-IS06
CONCLUSIONS
• Macroeconomic regime matters in term of
distributional and living conditions outcomes
There are environments that, in spite of producing
important GDP growths, do not benefit the
employment creation and therefore contribute to
the inequality increase.
• Negative effects that some macroeconomic
configurations have on the labour market and
income distribution persist even after the country
returns to its growth path.
CONCLUSIONS (cont.)
• Argentina has experienced a pattern where
the successive crises worsen the income
distribution as long as the recovery cycles
find boundaries for the complete reversion
of these trends.
• High real exchange rate alone do not solve
all labour and social problems.