Miguel Székely

Economics Reform and Wage Differentials in Latin America

This paper develops and applies a new approach to the estimation of the impact of economy-wide reforms on wage differentials, using a new high-quality data set on wage differentials by schooling level for 18 Latin American countries for the period 1980-1998. The results indicate that reform overall has had a short-run disequalizing effect of expanding wage differentials, although this effect tends to fade over time. This disequalizing effect is due to the strong impact of domestic financial market reform, capital account liberalization and tax reform. On the other hand, privatization contributed to narrowing wage differentials, and trade openness had no effect on wage differentials. Technological progress, rather than trade flows, appears to be a channel through which reforms are affecting inequality. The paper also explores the effects of reforms on wage levels; tentative results suggest that reforms have had a positive effect on real average wages, but a negative effect on the wages of less-schooled workers. Keywords: reform, inequality, wages, trade, distribution

Bootstraps Not Band-Aids: Poverty, Equity and Social Policy

After a decade of economic reforms that dramatically altered the structure of economies in Latin America, making them more open and more competitive, and a decade of substantial increases in public spending on education, health and other social programs in virtually all countries, poverty and high inequality remain deeply entrenched. In this paper we ask the question whether some fundamentally different approach to what we call “social policy” in Latin America could make a difference – both in increasing growth and in directly reducing poverty. We define social policy broadly to include economy-wide (“macro” and employment and other structural) policies that affect poverty and social justice in foreseeable ways, as well as social investment programs such as health and education and social protection programs including cash and other transfers targeted to the poor and others vulnerable to economic and other shocks. Section 1 contains a brief review of what is known about the links among poverty, inequality and growth in the region and elsewhere. We emphasize the relevance of empirical work showing that income poverty combined with inequality in access to credit and to such assets as land and education contributes to low growth and directly to low income growth of the poor. In Section 2 we focus on the effects of the market reforms of the last 10-15 years on poverty and inequality in the region, based on empirical studies using household data. We emphasize the finding that the reforms have not contributed to reducing poverty and inequality. Though reforms have not particularly worsened the situation of the poor, they have not addressed the underlying structural causes of high poverty, i.e. the poor’s lack of access to credit and to productivity-enhancing assets. In Section 3 we describe briefly four stages of social policy in the region over the last four decades. In Section 4 we propose a more explicitly “bootstraps”-style social policy, focused on enhancing productivity via better distribution of assets. We set out how this broader social policy could address the underlying causes and not just the symptoms of the region’s unhappy combination of high poverty and inequality with low growth. Length: 32 pages

Household Savings and Income Distribution in Mexico

Following the 1994 financial crisis, the rate of saving of the Mexican economy fell from 21.7 percent to 19.8 percent of GDP. The decline was associated with a reduction in the rate of external saving from 6.9 to 0.5 percent between 1994 and 1995. The overall reduction was not more dramatic because it was almost fully compensated by an increase in private saving from 11.3 percent to 15 percent of GDP during these years.

Household Saving in Developing Countries - Inequality, Demographics and All That: How Different are Latin America and South East Asia?

East Asia and Latin America have diverged in several dimensions in the past three decades. This paper compares household saving behavior in two countries in each region, using synthetic cohort techniques, to shed light over some of their differences. The counties analyzed are Mexico, Peru, Thailand and Taiwan. The paper compares savings at the micro level for these two regions. The authors desegregate the population into education groups to determine whether there are differences in saving behavior along the distribution of income. The evidence for Latin America provides insights about the evolution of savings and the capacity of different groups to smooth out shocks during crisis, which is of relevance for policies aimed at protecting vulnerable groups during crisis such as the recent years in East Asia. The authors provide evidence about the usefulness of the life-cycle theory for explaining the facts, and present some forecasts that inform on whether future demographic changes will bridge or intensify the differences in household saving between these two regions.