Omar Arias

Poverty reduction and growth : virtuous and vicious circles

Poverty Reduction and Growth is about the existence of these vicious circles in Latin America and the Caribbean about the ways and means to convert them into virtuous circles in which poverty reduction and high growth reinforce each other. This publication is organized as follows: Chapter 1: From vicious to virtuous circle; Chapter 2: Dimensions of well-being, channels to growth; Chapter 3: How did we get here? Chapter 4: The relative roles of growth and inequality for poverty reduction; Chapter 5: Pro-poor growth in Latin America; Chapter 6: Does poverty matter for growth? Chapter 7: Subnational dimensions of growth and poverty; Chapter 8: Microdeterminants of incomes: labor markets, poverty, and traps?; and Chapter 9: Breaking the cycle of underinvestment in human capital in Latin America.

Education, Family Background and Racial Earnings Inequality in Brazil

This study investigates the role of race, family background and education in earnings inequality between whites and the African descendent population in Brazil. It uses quantile Mincer earnings regressions to go beyond the usual decomposition of average earnings gaps. Differences in human capital, including parental education and education quality, and in its returns, account for most but not all of the racial earnings gaps. There appears to be greater pay discrimination at the higher salary jobs for any skill level. Returns to education vary with the gradient of skin color. While returns are similar for white and mixed race workers at the top of the adjusted wage scale, mixed race workers at the bottom are rewarded similar to blacks. Thus, while equalizing access to quality education is key to reduce racial earnings inequality in Brazil, specific policies are also needed to facilitate equal access of non‐whites to good quality jobs.

Back to work : growing with jobs in Europe and Central Asia

Creating more and better jobs is perhaps the most critical challenge to boosting shared prosperity in Europe and Central Asia (ECA). This report examines the role of reforms, firms, skills, incentives and barriers to work, and labor mobility through the lens of two contextual factors: the legacy of centralized planned economies and the mounting demographic pressures associated with rapid aging in some countries and soaring numbers of youth entering the workforce in others. The main findings of the report are: 1) market reforms pay off in terms of jobs and productivity, although with a lag; 2) a small fraction of superstar high-growth firms, largely young, account for most of new jobs created in the region; 3) skills gaps hinder employment prospects, especially of youth and older workers, due to the inadequate response of the education and training systems to changes in the demand for skills; 4) employment is hindered by high implicit taxes on work for those transitioning to formal jobs from inactivity or unemployment and barriers that affect especially women, minorities, youth, and older workers; and 5) low internal labor mobility prevents labor relocation to places with greater job creation potential.

Pending Issues in Protection, Productivity Growth, and Poverty Reduction

This paper selectively synthesizes much of the research on Latin American and Caribbean labor markets in recent years. Several themes emerge that are particularly relevant to ongoing policy dialogues. First, labor legislation matters, but markets may be less segmented than previously thought. The impetus to voluntary informality, which appears to be a substantial fraction of the sector, implies that the design of social safety nets and labor legislation needs to take a more integrated view of the labor market, taking into account the cost-benefit analysis workers and firms make about whether to interact with formal institutions. Second, the impact of labor market institutions on productivity growth has probably been underemphasized. Draconian firing restrictions increase litigation and uncertainty surrounding worker separations, reduce turnover and job creation, and poorly protect workers. But theory and anecdotal evidence also suggest that they, and other related state or union induced rigidities, may have an even greater disincentive effect on technological adoption, which accounts for half of economic growth. Finally, institutions can affect poverty and equity, although the effects seem generally small and channels are not always clear. Overall, the present constellation of labor regulations serves workers and firms poorly and both could benefit from substantial reform.

Are Men Benefiting from the New Economy? Male Economic Marginalization in Argentina, Brazil, and Costa Rica

The economies of Latin America have undergone extensive reforms, raising concerns about how these changes have affected the labor market. But there is also increasing concern that the reforms may have deeper social ramifications as the new economies strain the ability of certain groups of men to work and to earn good wages, fulfilling their traditional role as providers. Using household surveys broadly covering the period 1988-97 in urban areas of Argentina, Brazil, and Costa Rica, Arias examines the patterns of unemployment and real wage growth for distinct groups of male workers to see whether there is evidence of a deterioration in mens ability to be economically self-sufficient. He finds no general trend of male economic marginalization. The incidence and duration of unemployment have increased the most for the typically vulnerable group-young, less educated, informal sector workers-but the increased duration of unemployment hasalso affected older and more educated men. With respect to wages, density and quantile regression analysis indicates that the usual stories of wage marginalization of vulnerable workers can hardly explain the observed variety of wage growth patterns in the three countries. The positive wage performance has been concentrated mainly in the higher quantiles of the conditional wage distribution. This suggests that differences in unobservable worker characteristics, such as industriousness, labor market connections, and quality of schooling, have been key determinants of the ability of male workers in the region to adapt to economic restructuring. These results suggest that assistance should be targeted to some groups so that frustrations in asserting an economic identity do not lead to aggressive behavior. But they also show that we must look elsewhere for the roots of the increase in socially dysfunctional behavior.

Higher education decisions in Peru: on the role of financial constraints, skills, and family background

This paper analyzes the relative importance of short-term financial constraints vis-a-vis skills and other background factors when explaining higher education access in Peru. We focus on the disparities in university enrollment between rich and poor households. We use a novel household survey that includes special tests to measure cognitive and socio-emotional skills of the urban population age 14–50. These are complemented with retrospective data on basic education and family socioeconomic conditions in a multinomial model. We find that the strong correlation between university enrollment and family income in urban Peru is not only explained by short-term credit constraints, but also by poor cognitive skills and by family and educational backgrounds affecting tastes and aptitudes for formal education. Family income explains, at most, half of the university access gap between poor and non-poor households. The other half is related to differences in parental education, educational backgrounds, and cognitive skills. Our results indicate that credit or scholarship schemes alone will not suffice to change the regressive nature of higher education enrollment in Peru, and that such programs will face strong equity–efficiency trade-offs.