china development research foundation beijing, july 2, 2012 1
TRANSCRIPT
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Declining Inequality in Latin America:
How Much, Since When and Why
Nora Lustig Professor, Tulane University
Nonresident Fellow, CGD and IAD
China Development Research FoundationBeijing, July 2, 2012
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Gini Coefficient by Region (in %), 2004
32.233.6
38.9 38.9 39.1
44.7
53.2
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
High Income Europe andCentral Asia
South Asia North Africaand the
Middle East
East Asia andthe Pacific
Sub-SaharanAfrica
Latin Americaand the
Caribbean
Gin
i co
eff
icie
nt
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Excess Inequality (IDB, 2011)
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Excess Poverty (IDB, 2011)
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Declining Inequality in LA: How Much? Inequality in all Latin American
countries has declined between (circa) 2000 and (circa) 2011
Decline continued through the global financial crisis in 2009
Inequality declined in LA while it rose in other regions
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Inequality in LA: 1980-2010
45
46
47
48
49
50
51
52
53
54
55
1980 1986 1992 1998 2002 2010
Gini coefficient – Household per capita incomeUnweighted averages
Source: own estimates based on SEDLAC (CEDLAS and World Bank).
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A consistent fall in inequality in the 2000s
Gini coefficient – Household per capita incomeUnweighted averages
48
49
50
51
52
53
54
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: own estimates based on SEDLAC (CEDLAS and World Bank).
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Poverty, growth and inequality Latin America, 4 USD PPP international poverty line
Source: own estimates based on SEDLAC (CEDLAS and World Bank).
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GDP Poverty Inequality
The 1990s
The 2000s
Stagnation
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1990s 2000sGrowth effect -4.8 -6.4Distribution effect 0.7 -3.7Total -4.1 -10.1
Decomposition of poverty changes
Source: Gasparini et al. (2012).
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More homogeneity in the 2000s
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0V
enez
uela
El S
alva
dor
Ecu
ador
Arg
entin
a
Per
u
Bra
sil
Pan
ama
Par
agua
y
Mex
ico
Chi
le
Bol
ivia
Hon
dura
s
Dom
inic
an R
.
Col
ombi
a
Uru
guay
Gua
tem
ala
Nic
arag
ua
Cos
ta R
ica
Change in Gini coefficient
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First Year in Which Inequality Started to Decline (Lustig et al, 2011)
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Dominican Republic, Ecuador, Paraguay, Peru
Argentina, Bolivia, Venezuela
El Salvador, Panama
Brazil, Chile
Mexico
Yea
r w
hen
ineq
ualit
y st
arte
d to
dec
line
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The decline in inequality has been widespread
Fast growing countries (Chile and Peru), slow growing countries (Brazil and Mexico) and countries recovering from crisis (Argentina and Venezuela)
Persistently high inequality countries (Brazil) and normally low inequality countries (Argentina)
Countries with left “populist” governments (Argentina), left social-democratic governments (e.g., Brazil, Chile) and center/center-right governments (e.g., Mexico and Peru)
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Driving Factors
Decline in labor income inequality associated with a fall in the so-called premium to skills Decomposition exercises reveal that the
quantity effect was unequalizing in many countries (Paradox of progress in education) but the price effect (change in skill premium) was equalizing
Decline in non-labor income inequality associated with more generous and targeted cash transfers
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What explains decline in skill premium
Not the same in all countries: Relative demand of educated workers rose
more slowly in the 2000’s ( several countries) Relative supply of educated workers rose
faster than demand in the 2000’s (Mexico) Minimum wages, unions (Argentina, Ecuador,
Venezuela) Reduction in unemployment/commodity
boom “Degraded” tertiary (Chile)
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Wage premium: 1990s and 2000sAnnual change in skilled/unskilled conditional wage gapLatin America (16 countries)
-4
-2
0
2
4
6
8
Wage premium
1990s
2000s
Source: Gasparini, Galiani, Cruces and Acosta (2011).
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Relative supplies increasing at similar rates for the average of 16 countries; Mexico, however, supply rose faster in the 2000sAnnual changes in skilled/unskilled wage gap, and relative supplies
Latin America (16 countries)
Source: Gasparini, Galiani, Cruces and Acosta (2011).
-4
-2
0
2
4
6
8
Wage premium Relative supply
1990s
1990s
2000s
2000s
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More active labor policy
Minimum wage, unions, income policies
Increase in real value of minimum wage (2002-2010)
-20
0
20
40
60
80
100
DOM MEX PRY BOL CRI SVD PAN PER COL VEN GUA CHL HND ECU BRA NIC URY ARG
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Employment
Reduction in unemployment
Increase in female labor market participation (especially poor)
Unemployment rate (Latin America)
0
2
4
6
8
10
12
1990 1995 2002 2009
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Taxes, Transfers and Income Redistribution
Ongoing project for 12 countries; results are available for 6
Standard Fiscal Incidence Analysis
Household surveys from around 2008-2011
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Cash Transfers and Inequality (decline in Gini in %)
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Cash Transfer and Decline in Ext Poverty (Change in headcount ratio in %)
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Coverage of Cash Transfers among Extreme Poor (in %)
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Taxes and Cash and in-kind Transfers (Gini)
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References:
Declining Inequality in Latin America: A Decade of Progress? Edited by Luis F. López-Calva and Nora Lustig, Brookings Institution and UNDP, 2010.
“Declining Inequality in Latin America: How Much, Since When and Why?,” Lustig, Lopez-Calva and Ortiz, Working Paper, Tulane University, 2011. http://ideas.repec.org/p/tul/wpaper/1118.html
“The Rise and Fall of Income Inequality in Mexico: 1989-2010,” Campos, Esquivel and Lustig, Working Paper, WIDER, January 2012.http://www.wider.unu.edu/publications/working-papers/2012/en_GB/wp2012-010/
“Recent trends in inequality in LA,” ppt presentation by Leonardo Gasparini, Universidad Carlos III, Madrid, May 2012.
“Taxes, transfers and income redistribution in Latin America,” Lustig, N. (c00rdinator), 2012
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THANK YOU
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