1. NS4540 Winter Term 2019 Latin America: Income Distribution
Reyes and Sawyer, Second Edition chapter 1

2. Overview
Oxford Analytica, “Latin America: Income Distribution Gains Will Slow”, October 5, 2016
Between 2003 and 2013 income inequality declined across Latin America, although the income share of the wealthy remained high.
Contributing to these results:
positive labor market outcomes and
Inclusive social policies
Since 2013 however, the gains have slowed, and inequality has again increased in some countries.

3. Analysis/Impacts I
Improvements in the Gini coefficient are slowing across the region – in Bolivia and Mexico inequality has risen
Further deterioration of public services and increasing segmentation in both social delivery and labor market outcomes appears likely
Shift to the center-right and fiscal constraints may reduce efforts to implement progressive income taxes or protect labor rights
At a time when many other countries income gaps expanded, Latin America’s contracted
The regional Gini coefficient decreased to 0.47 in 2012 from in 2003
The improvement took place across the region with Costa Rica and Honduras the only exceptions

4. Analysis/Impacts II
The poorest 20% of the population expanded their share of total income more than any other group in all countries
Honduras and Peru exceptions
In some countries – El Salvador the bottom 20% more than doubled their shares
This contributed to a rapid reduction of poverty – people below the national poverty line decreased to 28% in 2013 from 44% in 2002
Improvements in income distribution were particularly impressive in
Argentina
Brazil
Ecuador
El Salvador, and
Peru

5. Factors Behind Trend I
Creation of Formal Employment – between the early 2000s and the early 2010s unemployment decreased significantly
El Salvador fell to 4% from 13%
Uruguay from 17% to 7%
Chile to 7% from 10% and
Brazil to 6% from 9%
Most new jobs created in the formal sector
Reduction in the Skill Premium – unlike the 1990s, wages of low-skilled workers increased faster than those of skilled workers, particularly in commodity exporting countries
Demand for unskilled workers particularly in services expanded particularly fast

6. Factors Behind Trend II
Expansion of non-contributory programs – governments across the region focused on the poor
Policy innovations went well beyond conditional cash transfers programs.
Creation of new health care programs for low income groups and rapid growth of non-contributory pensions were more relevant
Electoral competition contributed significantly to promoting inclusionary social programs
Social spending increased in countries where left not in power such as Colombia and Mexico

7. Inequality at the Top I
According to household surveys, share of the top decile fell significantly during the 2000s
However these surveys cannot adequately capture the income of the very rich
These groups tend to be under-represented and
Their answers regarding capital income are often inaccurate.
Recent years have seen attempts at measuring top 1% through other means
Tax receipts and
Estimations based on the national accounts

8. Inequality at the Top II
Using these methods, the share of the top 1% (and as a result that of the top 10%) is higher than previously estimated (2009) ranging from:
Uruguay 14%
Brazil 25%, and
Chile more than 30%
These shares substantially higher than in U.S. and all OECD countries, where this has become a political issue.
Based on the new data
Latin America inequality is much higher in Columbia
The share of the top1% did not decline

9. Inequality at the Top III
Means the very rich have succeeded in protecting their economic power despite economic and political transformations – reasons:
Dominance of oligopolistic markets
The concentration of capital and land in few hands and
Low effective income tax rates
However this does not mean that progressive redistribution between the upper middle class and the poor did not take pace during the 2000s.

10. Recent Slowdown
End of the commodity boom and subsequent reduction of economic growth has contributed to the slowing of income equality
Job creation has stagnated and likely to affect unskilled workers disproportionally
Maintaining the expansion of minimum wages in countries such as Argentina, Brazil or Ecuador will be hard – negative implications for labor income
Growth of non-contributory pensions faces severe fiscal constraints, particularly in Brazil and Ecuador.
To improve health and education, governments would need to implement reforms opposed by powerful interest groups
Trade unions will try to block any attempts to expanding working hours and implement

11. Assessment
Further improvements in income distribution face economic and political obstacles
Deteriorating economic conditions
The weakening of the center-left, and
The difficulty of reforming health care and education
Still anti poverty policy will remain popular due to their low cost and the electoral support they generate among some sectors.