Declining Inequality in La0n America Nora Lus)g Tulane University

Transcription

1 Declining Inequality in La0n America Nora Lus)g Tulane University and Nonresident Fellow CGD and IAD SAIS Washington, DC, September 17, 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 leo and nonleo governments In commodity exporters and commodity importers 2

3 LATAM IS THE MOST UNEQUAL REGION IN THE WORLD Gini Coefficient by Region (in %), Gini coefficient High Incom e Europe and Central Asia South Asia North Africa and the Middle East Eas t As ia and the Pacific Sub-Saharan Africa Latin America and the Caribbean Ferreira and Ravallion,

4 3.00 Inequality declined during the 2000 s La)n America: Declining income inequality by country: (Annual Change of Gini in %) 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 4

5 The decline of income inequality in the 2000s has been higher that the rise in the 1990s (Annual average change in Gini in %) Change$in$Gini$coefficient,$expressed$in$percentage$points$ Average$of$increase$ Average$of$decrease$ 10.0$ 8.2$ 5.0$ 0.0$ 1.8$ 4.1$ 0.8$ 0.1$ 2.9$ 3.1$ 1.5$ 0.2$ 0.4$ 4.9$ 2.5$ %5.0$ %4.2$ %5.4$ %3.5$ %4.8$ %7.0$ %6.8$ %4.6$ %4.5$ %7.0$ %6.1$ %10.0$ %10.1$ %8.7$ %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, 39 percent of the reduc0on in poverty was due to the decline in inequality c Growth effect Redistribution effect Change in poverty ($4 a day) in percentage points 130% 10 % contribution of each effect 110% 90% 70% 50% 30% 10% -10% % -35 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) Lopez- Calva, L.F., N. Lus)g, E. Or)z- Juarez Inequality, Mobility and Middle Classes in La)n America. Mimeo, 6 May.

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

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

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 Decomposing Decline in Inequality Labor (red); Transfers (Green); Demog 100%% (Blue) (Azevedo et al. 2012) 80%% 60%% 40%% 20%% 0%%!20%% Argen/na% Brazil% Chile% Colombia% Costa%Rica% Dominican%Rep.% Ecuador% El%Salvador% Honduras% Mexico% Panama% Paraguay% Peru% Uruguay% LAC!14%!40%%!60%%!80%% 10

11 Determinants of declining inequality in hourly labor earnings: Decline in returns to post- secondary educa)on (aka. skill premium) Supply Demand Labor Market Ins)tu)ons Declining quality in workers with ter)ary degree 11

12 Zooming in Brazil 12

13 Zooming in Brazil: Decline in Inequality (Gini) Fig.1: Evolution of Household Per Capita Income Gini Data: SEDLAC Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 13

14 Zooming in: Brazil Low growth during most of the period Decomposi)on of change in wage inequality: Change in Rela)ve Wages => Effect Equalizing Change in Composi)on for Educa)on and Experience =>Slightly Unequalizing (Bourguignon et al., 2005) paradox of progress) 14

15 Zooming in: Brazil Rela)ve Wages 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? 15

16 Brazil: Decline in Wage Inequality Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 16

17 .4 Fig.10: RIF Decomposition: Male Brazil ( ): quantile Log Wage Difference Wage Structure Effect Composition Effect Rela)ve Wages => Equalizing Composi)on Educa)on & Experience =>Slightly Unequalizing Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 17

18 Brazil: Decline in rela0ve returns to educa0on Fig.8: Relative Return to Education Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 18

19 Brazil: Decline in skill premium coincides with the expansion of the rela)ve supply of workers with post secondary educa)on Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 19

20 Brazil: Rising minimum wage 400 Fig.13: Minimum Wage in Reais: 2002 Price Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 20

21 Brazil: Decline in real wages for workers with ter0ary Fig. 6: Average Hourly Wage of Tertiary Group: Male Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper 21

22 Zooming in Mexico 22

23 Zooming in Mexico Decline in Inequality (Gini) Campos, R., G. Esquivel and N. Lus)g The Rise and Fall of Income Inequality in Mexico, , Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in La/n America: Policy Changes and Lesssons, WIDER Studies in Development Economics, Oxford University Press, 23

24 Zooming in: Mexico Low growth Decomposi)on of change in wage inequality: Change in Rela)ve Wages => Effect Equalizing Change in Composi)on for Educa)on and Experience =>Slightly Unequalizing 24

25 Zooming in: Mexico Change in Rela)ve Wages Increase in rela)ve supply of skilled workers Minimum wages and unioniza)on no effect Degraded ter)ary? 25

26 Log wage effects Quantile Total differential Effects of Characteristics Mexico ( ): Rela)ve Wages => Equalizing Composi)on Educa)on & Experience =>Slightly Unequalizing Effects of Returns Campos, R., G. Esquivel and N. Lus)g The Rise and Fall of Income Inequality in Mexico, , Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in La/n America: Policy Changes and Lesssons, WIDER Studies in Development Economics, Oxford University Press, 26

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

28 Mexico:Changes in Schooling % Schooling Year Less than Primary (0-5) Primary (6-8) Secondary (9-11) High School (12-15) College (16+) Note: Popula)on age 20-65, ENE from and ENOE Representa)ve at the na)onal level. Full sample.

29 In contrast to Brazil, in Mexico minimum wages did not increase at all Real Minimum Wage and Unionization: A. Real Minimum Wage Index (December 2010=100) B. Unionization Rate m1 1992m1 1996m1 2000m1 2004m1 2008m1 2010m12 Year Unionization Rate Year ENIGH ENOE Campos, R., G. Esquivel and N. Lus)g The Rise and Fall of Income Inequality in Mexico, , Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in La/n America: Policy Changes and Lesssons, WIDER Studies in Development Economics, Oxford University Press,

30 Income: educa)on 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q2 2007q2 2008q2 2009q2 2010q2 2011q2 2012q2 2013q2 2014q Year - Quarter Less than Primary (0-5) Primary (6-8) Secondary (9-11) High School (12-15) College (16+) Campos, Lopez- Calva and Lus)g (2014) Note: Popula)on age 20-65, ENE from and ENOE Representa)ve at the na)onal level. Sample restricted to those with valid labor income. All employment: salaried, self- employment and employers. Constant Mexican Pesos 2014:1.

31 Government Transfers 31

32 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) 32

33 33

34 Redistribu0on in the rich and developing countries 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. 34

35 Zooming in (CEQ 14 countries; LA 8 in red) 0.00 Change in Gini: Disposable vs. Market Income (in GINI points) 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. 35

36 Redistribu0on rises with income per capita Change in Gini: Disposable vs Market (decline in Gini points shown in posi0ve quadrant) ZAF ETH SLV BOL IND AMR JOR LKA GTM PER BRA CRI URY MEX GNI/Capita 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. 36

37 . the more unequal, the more redistribu0on Change in Gini: Disposable vs. Market Income (decline in Gini points shown in posi)ve quadrant) ZAF ARM URY BRA 0.03 CRI JOR MEX 0.02 LKA SLV PER 0.01 IND BOL GTM Mkt Income Gini 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. 37

38 Higher inequality is associated with more redistribu0ve effort: spending on transfers/gdp rises with inequality Direct Transfer/GDP Direct Transfers/GDP vs. Mkt Income Gini ETH ARM LKA IND SLV JOR URY BOL PER MEX CRI GUM BRA ZAF Mkt Income Gini 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. 38

39 and so does social spending/gdp Social Spending/GDP Social Spending/GDP vs. Mkt Income Gini CRI BOL URY MEX ETH ARM JOR LKA IND SLV PER ZAF BRA GUM Mkt Income Gini 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. 39

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

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

42 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 % 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 % 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 % 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 The Rise and Fall of Income Inequality in Mexico, , Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in La/n America: Policy Changes and Lesssons, WIDER Studies in Development Economics, Oxford University Press,

43 Thank you! 43

44 References Azevedo, Joao Pedro, Maria Eugenia Dávalos, Carolina Diaz- Bonilla, Bernardo Atuesta, and Raul Andres Castañeda FiOeen Years of Inequality in La)n America: How Have Labor Markets Helped? Policy Research Working Paper 6384, The World Bank. Bourguignon, F., F. Ferreira and N. Lus)g The Microeconomics of Income Distribu/on Dynamics in East Asia and La/n America, Oxford University Press, Washington, DC. Campos, R., G. Esquivel and N. Lus)g The Rise and Fall of Income Inequality in Mexico, , Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in La/n America: Policy Changes and Lesssons, WIDER Studies in Development Economics, Oxford University Press, Oxford, United Kingdom. Ferreira, Francisco H.G, Julian Messina, Jamele Rigolini, Luis F. Lopez- Calva, Maria Ana Lugo and Renos Vakis Economic Mobility and the Rise of the La)n American Middle Class. Washington, D.C: The World Bank. Gasparini, Leonardo, Sebas)an Galiani, Guillermo Cruces, and Pablo Acosta Educa)onal Upgrading and Returns to Skills in La)n America. Evidence from a Supply- Demand Framework, Policy Research Working Paper 5921, The World Bank. Lopez- Calva, L. F. and N. Lus)g Declining Inequality in La/n America: A Decade of Progress?, Brookings Ins)tu)on Press and UNDP. Lopez- Calva, L.F., N. Lus)g, E. Or)z- Juarez Inequality, Mobility and Middle Classes in La)n America. Mimeo, May. Lus)g, N., L. F. Lopez- Calva, E. Or)z- Juarez Deconstruc)ng the Decline in Inequality in La)n America, chapter in Devlin, Machinea, Chavarria (eds.), (published in Spanish) Lus)g, Nora Taxes, Transfers, Inequality and the Poor in the Developing World. Round 1. CEQ Working Paper No. 23, Center for Inter- American Policy and Research and Department of Economics, Tulane University and Inter- American Dialogue Lus)g, N. and C. Pessino Social Spending and Income Redistribu)on in Argen)na in the 2000s: the Rising Role of Noncontributory Pensions, in Public Finance Review, May 2014, Volume 42, Issue 3 Lus)g, N., C. Pessino and J. Scot The Redistribu)ve Impact of Taxes and Social Spending in La)n America. Special Issue. Public Finance Review, May, Volume 42, Issue 3. Wang, Yang Decomposing the Changes in Male Wage Distribu)on in Brazil. Tulane University, Ph.D. field paper. 44

45 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. Armenia (2011; I): Stephen Younger and Artsvi Khachatryan (March 12, 2014; paper) 3. 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 4. Brazil (2009; I): Sean Higgins and Claudiney Pereira (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3 5. Costa Rica (2010; I): Pablo Sauma and Juan Diego Trejos (February 2014; paper) 6. El Salvador (2011; I): Margarita Beneke, Nora Lus)g and Jose Andres Oliva (March 11, 2014) 7. Ethiopia (2010/11; C): Ruth Hill, EyasuTsehaye, Tassew Woldehanna (April 30, 2014) 8. Guatemala (2011; I): Maynor Cabrera, Nora Lus)g and Hilcias E. Moran (April 13, 2014) 9. Indonesia (2012; C) : Jon Jellema and Mathew Wai- Poi (February 18, 2014) 45

46 CEQ Teams (Year of Survey; C=consump0on & I=income)(MWB Version) 10 Jordan (2010; C) : Morad Abdel- Halim, Shamma Adeeb Alam, Yusuf Mansur, Umar Serajuddin, Paolo Verme (April 18, 2014) 11 Mexico (2010; I): John Scot (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3 12 Peru (2009; I): Miguel Jaramillo (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3 13 South Africa (2010; I): Ingrid Woolard, Precious Zikhali, Mashekwa Maboshe, Jon Jellema (May 5, 2014) 14 Sri Lanka (2009/10; C): Nisha Aruna)lake, Gabriela Inchauste and Nora Lus)g (April 8, 2014; paper) 15 United States (2011; I): Sean Higgins, Nora Lus)g, Whitney Ruble and Timothy Smeeding 16 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 46