McGill University, Montreal
May 30, 2013
Inequality and social protection
in Latin America
Leonardo Gasparini
Significant fall in income inequality
54
53
52
51
50
49
48
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Gini coefficient – Household per capita income. Unweighted average.
Source: CEDLAS (2013).
2006
2007
2008
2009
2010
2011
Significant fall in income inequality
54
53
52
– Widespread across countries
– Sustained over time (10 years)
– Relatively large
– Contrast with past two decades
– Contrast with rest of the world
51
50
49
48
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Why inequality fell in the 2000s?
• Falling wage premium
• Higher employment
• Demographic factors
• Increase in public transfers
Heterogeneous changes in the wage premium
Annual change in skilled/unskilled conditional wage gap
Latin America (16 countries)
8
6
4
1990s
2
0
Wage premium
-2
2000s
-4
Source: Gasparini, Galiani, Cruces and Acosta (2012).
Not a supply-side story…
Annual change in skilled/unskilled conditional wage gap
Latin America (16 countries)
8
6
1990s
4
2000s
1990s
2
0
Wage premium
Relative supply
-2
2000s
-4
Source: Gasparini, Galiani, Cruces and Acosta (2012).
Some driving factors

The reforms

Change in relative prices

More active labor policies

Increase in employment

Crises and rebounds
The reforms

1990s: Large reforms: trade and financial liberalization,
privatizations, deregulations, opening up to FDI.

2000s: Small changes (reversals in some countries).

Evidence on the unequalizing impact of the reforms.

Also, probably an “overshooting”: the unequalizing impact
of the reforms loses strength over time.
Change in relative prices

Increase in relative price of commodities  change in
structure of production and employment  change in
wage structure

1990s: production changes toward skill-intensive sectors

2000s: more neutral changes
-.3
-.2
-.1
0
.1
.2
Relative demand shifters
1990
1995
Source: Gasparini et al. (2012).
2000
2005
2010
More active labor policies

Minimum wage, unions, income policies
100
80
60
40
20
0
DOM MEX PRY BOL CRI SVD PAN PER COL VEN GUA CHL HND ECU BRA NIC URY ARG
-20
Change in real value of minimum wage (2002-2010).
Source: ECLAC (2012).
Increase in employment
61
60
59
58
57
56
55
Employment rate. Latin America. Unweighted average.
Source: CEDLAS (2013).
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
54
Drop in inequality in Argentina, Ecuador, Paraguay,
Uruguay and Venezuela from the early to the mid 2000s
can be at least partially attributed to the recoveries from
severe macroeconomic crises.
0.55
0.50
0.45
0.40
0.35
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
0.30
74

Crises and rebounds
Demographic factors
• Reduction in the number of children in poor households
0.6
0.5
0.4
0.3
0.2
1986 1987 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011
Brazil: difference in number of children per household between bottom and top parental
income quintiles.
Expansion in social protection
• The substantial expansion in social protection
accounts for a significant share of the fall in
inequality
• Lustig et al. (2010, 2013), Azevedo et al. (2012), Paes de
Barro et al. (2012) Gasparini et al. (2011).
• The increase in the impact of social policy on
inequality in the 2000s is due to several
factors:
Strong increase in social spending
350
300
250
200
150
100
50
0
1992
1994
1996
1998
2000
2002
Latin America: Social spending per capita. 1992=100.
Source: own calculations based on ECLAC (2012).
2004
2006
2008
2010
More pro-poor programs
Argentina - AUH
Brasil-Bolsa Familia
Chile - Subsidio familiar
60
60
60
50
50
50
40
40
40
30
30
30
20
20
20
10
10
10
0
0
1
2
3
4
5
Ecuador - BDH
0
1
2
3
4
5
Mexico - Oportunidades
60
60
50
50
40
40
30
30
20
20
10
10
0
0
1
2
3
4
5
3
4
5
3
4
5
Panama - Red de oportunidades
80
70
60
50
40
30
20
1
2
3
4
5
Paraguay -Tekopora
10
0
1
2
3
4
5
Peru - Juntos
1
Uruguay - Asignación familiar
60
60
60
50
50
50
40
40
40
30
30
30
20
20
20
10
10
10
0
0
1
2
3
4
Fuente: Cruces y Gasparini (2012).
5
2
0
1
2
3
4
5
1
2
Expansion in social protection
• The increase in the impact of social policy on
inequality in the 2000s is also due to the fact that:
• Main expansion was in cash transfers
• Cash transfer programs show up fully in the income
statistics.
The agenda forward
The agenda forward
Understanding changes in poverty and inequality

What are the relative contributions of the different
driving factors?

What are the key factors behind the direct
determinants: politics, external conditions or other
factors?

What was the role of the commodity price boom?

What was the role of the market reforms?

What was the role of the demographic changes?
The agenda forward
Assessing policy impact

What is the impact of active labor policies?

Which labor interventions are more effective?

What is the contribution of CCTs and noncontributory pensions?

What is the best design? How to improve it?
The agenda forward
Some concerns for the future
•
Are the social gains sustainable under different external
conditions?
•
Are we affecting growth (and hence redistribution) in the long-
run? (incentives)
•
How worrying are the issues of education quality and school
segregation?
•
Is the expansion in social spending fiscally ustainable?
•
How to promote gains in productivity?
Are we prepared?

Need more and better data.

Need more research efforts.

Need to build capacity.

Need more dialogue with political actors.