Francisco H. G. Ferreira

Inequality in Latin America : breaking with history?

With the exception of Sub-Saharan Africa, Latin America and the Caribbean has been one of the regions of the world with the greatest inequality. This report explores why the region suffers from such persistent inequality, identifies how it hampers development, and suggests ways to achieve greater equity in the distribution of wealth, incomes and opportunities. The study draws on data from 20 countries based on household surveys covering 3.6 million people, and reviews extensive economic, sociological and political science studies on inequality in Latin America. To address the deep historical roots of inequality in Latin America, and the powerful contemporary economic, political and social mechanisms that sustain it, Inequality in Latin America and the Caribbean outlines four broad areas for action by governments and civil society groups to break this destructive pattern: 1) Build more open political and social institutions, that allow the poor and historically subordinate groups to gain a greater share of agency, voice and power in society. 2) Ensure that economic institutions and policies seek greater equity, through sound macroeconomic management and equitable, efficient crisis resolution institutions, that avoid the large regressive redistributions that occur during crises, and that allow for saving in good times to enhance access by the poor to social safety nets in bad times. 3) Increase access by the poor to high-quality public services, especially education, health, water and electricity, as well as access to farmland and the rural services. Protect and enforce the property rights of the urban poor. 4) Reform income transfer programs so that they reach the poorest families.

Inequality of Opportunity in Brazil

This paper proposes a method to decompose earnings inequality into a component due to unequal opportunities and a residual term. Drawing on the distinction between ‘circumstance’ and ‘effort’ variables in John Roemer’s work on equality of opportunity, we associate inequality of opportunities with the inequality attributable to circumstances which lie beyond the control of the individual – such as her family background, her race and the region where she was born. We interpret the decomposition as establishing a lower bound on the contribution of opportunities to earnings inequality. We further decompose the effect of opportunities into a direct effect on earnings and an indirect component which works through the “effort” variables. The decomposition is applied to the distributions of male and female earnings in Brazil, in 1996. While the residual term is large, observed circumstances nevertheless account for around a quarter of the value of the Theil index. Parental education is by far the most important circumstance affecting earnings, dwarfing the effects of race and place of birth.

Measuring inequality of opportunities in Latin America and the Caribbean

Over the past decade, faster growth and smarter social policy have reversed the trend in Latin Americas poverty. Too slowly and insufficiently, but undeniably, the percentage of Latinos who are poor has at long last begun to fall. This has shifted the political and policy debates from poverty toward inequality, something to be expected in a region that exhibits the worlds most regressive distribution of development outcomes such as income, land ownership, and educational achievement. This book is a breakthrough in the measurement of human opportunity. It builds sophisticated formulas to answer a rather simple question: how much influence do personal circumstances have on the access that children get to the basic services that are necessary for a productive life? Needless to say, producing a methodology to measure human opportunity, and applying it across countries in one region, is just a first step. On the one hand, technical discussions and scientific vetting will continue, and refinements will surely follow. On the other, applying the new tool to a single country will allow for adjustments that make the findings much more useful to its policy realities. And fascinating comparative lessons could be learned by measuring human opportunity in developed countries across, say, the states of the United States or the nations of Europe. But the main message this book delivers remains a powerful one: it is possible to make equity a central purpose, if not the very definition, of development. That is, perhaps, its most important contribution.

The Microeconomics of Income Distribution Dynamics in East Asia and Latin America

This volume presents a collection of studies on the dynamics of income inequality based on micro data. Using a simple but powerful empirical methodology, the authors analyze the roles of prices, occupational choice, and educational choice in accounting for household income and its contribution to inequality. It casts doubt on the grand theories of growth and income inequality that have dominated discussions in development economics. It paves the way for a full-blown, micro-based general equilibrium theory of income determination and income inequality.

Securing our future in a global economy

In the 1990s Latin America and the Caribbean (LAC) began to resurface from the lost decade of the 1980s after a sustained reform effort by the countries to enhance the role of market forces and increase the regions real and financial integration into the global economy. In spite of this, perceptions of economic insecurity run high in the region. This report assesses the extent, causes, and effects of economic insecurity in LAC and identifies policies and institutions that can help reduce the degree of insecurity faced by workers and households in the region, while allowing them to take advantage of the enhanced economic opportunities brought about by the recent reforms. After stating the facts concerning economic insecurity in Chapter 2, the report then sets out a general analytical framework to help organize the various options available to individuals and governments for dealing with economic insecurity (Chapter 3). With this framework, the remaining chapters focus on measures to deal with risks. First, they suggest the causes of macroeconomic or aggregate volatility and some remedies (Chapter 4). Then this report examines how these risks affect individuals and households, and their responses to economic shocks (Chapter 5). Next the report discusses the risk of becoming unemployed, and the public responses to help workers deal with this risk (Chapter 6). Appropriate social insurance and social protection is considered in the final chapter.

The Rise and Fall of Brazilian Inequality: 1981-2004

Measured by the Gini coefficient, income inequality in Brazil rose from 0.57 in 1981 to 0.63 in 1989, before falling back to 0.56 in 2004. This latest figure would lower Brazils world inequality rank from 2nd (in 1989) to 10th (in 2004). Poverty incidence also followed an inverted U-curve over the past quarter century, rising from 0.30 in 1981 to 0.33 in 1993, before falling to 0.22 in 2004. Using standard decomposition techniques, this paper presents a preliminary investigation of the determinants of Brazils distributional reversal over this period. The rise in inequality in the 1980s appears to have been driven by increases in the educational attainment of the population in a context of convex returns, and by high and accelerating inflation. While the secular decline in inequality, which began in 1993, is associated with declining inflation, it also appears to have been driven by four structural and policy changes which have so far not attracted sufficient attention in the literature, namely sharp declines in the returns to education; pronounced rural-urban convergence; increases in social assistance transfers targeted to the poor; and a possible decline in racial inequality. Although poverty dynamics since the Real Plan of 1994 have been driven primarily by economic growth, the decline in inequality has also made a substantial contribution to poverty reduction.

Global Poverty and Inequality: A Review of the Evidence

Drawing on a compilation of data from household surveys representing 130 countries, many over a period of 25 years, this paper reviews the evidence on levels and recent trends in global poverty and income inequality. It documents the negative correlations between both poverty and inequality indices, on the one hand, and mean income per capita on the other. It points to the dominant role of Asia in accounting for the bulk of the worlds poverty reduction since 1981. The evolution of global inequality in the last decades is also described, with special emphasis on the different trends of inequality within and between countries. The statistical relationships between growth, inequality and poverty are discussed, as is the correlation between inequality and the growth elasticity of poverty reduction. Some of the recent literature on the drivers of distributional change in developing countries is also reviewed.

Ex-ante Evaluation of Conditional Cash Transfer Programs: The Case of Bolsa Escola

Cash transfers targeted to poor people, but conditional on some behavior on their part, such as school attendance or regular visits to health care facilities, are being adopted in a growing number of developing countries. Even where ex-post impact evaluations have been conducted, a number of policy-relevant counterfactual questions have remained unanswered. These are questions about the potential impact of changes in program design, such as benefit levels or the choice of the means-test, on both the current welfare and the behavioral response of household members. This paper proposes a method to simulate the effects of those alternative program designs on welfare and behavior, based on microeconometrically estimated models of household behavior. In an application to Brazils recently introduced federal Bolsa Escola program, the authors find a surprisingly strong effect of the conditionality on school attendance, but a muted impact of the transfers on the reduction of current poverty and inequality levels

Rural Nonfarm Activities and Poverty in the Brazilian Northeast

Abstract This paper combines two complementary data sets to present a disaggregated spatial profile of poverty in the Brazilian Northeast, and to investigate the importance of nonagricultural activities for its rural dwellers. We present both univariate and multivariate profiles of nonagricultural employment and discuss its determinants. While the main occupational difference between the rural poor and the rural nonpoor in Brazil seems to be the greater reliance of the former on paid agricultural employment (vis-a-vis own cultivation), rather than access to nonagricultural activities, the evidence nevertheless suggests that diversification into this growing sector provides both an important complement to the budgets of the poor, and possibly a self-insurance mechanism against negative shocks. Despite the substantial heterogeneity of the sector, two general findings are robust: returns to education are comparatively high; and location in relation to urban areas is an important determinant of both employment and earnings in rural nonagricultural activities.

Trade Liberalization, Employment Flows, and Wage Inequality in Brazil

Using nationally representative, economywide data, this paper investigates the relative importance of trade-mandated effects on industry wage premia; industry and economywide skill premia; and employment flows in accounting for changes in the wage distribution in Brazil during the 1988-95 trade liberalization. Unlike in other Latin American countries, trade liberalization appears to have made a significant contribution toward a reduction in wage inequality. These effects have not occurred through changes in industry-specific (wage or skill) premia. Instead, they appear to have been channeled through substantial employment flows across sectors and formality categories. Changes in the economywide skill premium are also important.