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McGill University, Montreal May 30, 2013

McGill University, Montreal May 30, 2013. I nequality and social protection in Latin America. Leonardo Gasparini. Significant fall in income inequality. Gini coefficient – Household per capita income. Unweighted average. Source: CEDLAS (2013). Significant fall in income inequality.

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McGill University, Montreal May 30, 2013

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  1. McGill University, MontrealMay 30, 2013 Inequality and social protection in Latin America Leonardo Gasparini

  2. Significantfall in incomeinequality Gini coefficient – Household per capita income. Unweighted average. Source: CEDLAS (2013).

  3. Significantfall in incomeinequality • Widespread across countries • Sustained over time (10 years) • Relatively large • Contrast with past two decades • Contrast with rest of the world

  4. Why inequality fell in the 2000s? • Falling wage premium • Higher employment • Demographic factors • Increase in public transfers

  5. Heterogeneous changes in the wage premium Annual change in skilled/unskilled conditional wage gap Latin America (16 countries) Source: Gasparini, Galiani, Cruces and Acosta (2012).

  6. Not a supply-side story… Annual change in skilled/unskilled conditional wage gap Latin America (16 countries) Source: Gasparini, Galiani, Cruces and Acosta (2012).

  7. Some driving factors • The reforms • Change in relative prices • More active labor policies • Increase in employment • Crises and rebounds

  8. The reforms • 1990s: Large reforms: trade and financial liberalization, privatizations, deregulations, opening up to FDI. • 2000s: Small changes (reversals in some countries). • Evidence on the unequalizing impact of the reforms. • Also, probably an “overshooting”: the unequalizing impact of the reforms loses strength over time.

  9. Change in relative prices • Increase in relative price of commodities  change in structure of production and employment  change in wage structure • 1990s: production changes toward skill-intensive sectors • 2000s: more neutral changes

  10. Relative demand shifters Source: Gasparini et al. (2012).

  11. More active labor policies • Minimum wage, unions, income policies Change in real value of minimum wage (2002-2010). Source: ECLAC (2012).

  12. Increase in employment Employment rate. Latin America. Unweighted average. Source: CEDLAS (2013).

  13. Crises and rebounds • Drop in inequality in Argentina, Ecuador, Paraguay, Uruguay and Venezuela from the early to the mid 2000s can be at least partially attributed to the recoveries from severe macroeconomic crises.

  14. Demographic factors • Reduction in the number of children in poor households Brazil: difference in number of children per household between bottom and top parental income quintiles.

  15. Expansion in social protection • The substantial expansion in social protection accounts for a significant share of the fall in inequality • Lustig et al. (2010, 2013), Azevedo et al. (2012), Paes de Barro et al. (2012) Gasparini et al. (2011). • The increase in the impact of social policy on inequality in the 2000s is due to several factors:

  16. Strong increase in social spending Latin America: Social spending per capita. 1992=100. Source: own calculations based on ECLAC (2012).

  17. More pro-poor programs Fuente: Cruces y Gasparini (2012).

  18. Expansion in social protection • The increase in the impact of social policy on inequality in the 2000s is also due to the fact that: • Main expansion was in cash transfers • Cash transfer programs show up fully in the income statistics.

  19. The agenda forward

  20. The agenda forward • Understanding changes in poverty and inequality • What are the relative contributions of the different driving factors? • What are the key factors behind the direct determinants: politics, external conditions or other factors? • What was the role of the commodity price boom? • What was the role of the market reforms? • What was the role of the demographic changes?

  21. The agenda forward • Assessing policy impact • What is the impact of active labor policies? • Which labor interventions are more effective? • What is the contribution of CCTs and non-contributory pensions? • What is the best design? How to improve it?

  22. The agenda forward • Some concerns for the future • Are the social gains sustainable under different external conditions? • Are we affecting growth (and hence redistribution) in the long-run? (incentives) • How worrying are the issues of education quality and school segregation? • Is the expansion in social spending fiscally ustainable? • How to promote gains in productivity?

  23. Are we prepared? • Need more and better data. • Need more research efforts. • Need to build capacity. • Need more dialogue with political actors.

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