Argentina and Bolivia lead ranking in inequality reduction over the past decade
Inequality has dropped sharply in most of Latin America over the past decade, and Argentina stands out as one of the countries that experienced the largest extremes —if rom rapidly growing inequality in the 1990s to a strong decline in the 2000s.
Professor Nora Lustig of Tulane University, Luis López Calva of the World Bank and Eduardo Ortiz Juárez of the United Nations Development Programme used the “Gini Index” — a broad measure of inequality that goes from 0 (absolute equality) to 1 (absolute inequality) — to study 18 countries in the region. In a recently published study, they concluded that income inequality dropped from 0.550 in the early 2000s to 0.496 around 2012.
Argentina’s Gini coefficient rose from 0.450 to 0.533 during the 1992-2002 period, only to decline to 0.442 in 2010, a change that coincided with the steep economic growth of the last decade.
“We were surprised with the results since income inequality had been high and persistent in the region,” Lustig told the Herald. “The factors that led to the change were a reduction in hourly labour income inequality and more progressive government transfers and the pensions moratorium in Argentina.”
Argentina uses about 27 percent of its GDP for social expenditure, a figure that has constantly been growing over the past decade, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The funds have helped to launch programmes like the Universal Child Allowance (AUH) and Progresar, destined to help young people study by giving them a monthly allowance.
At the same time, the federal government’s pensions moratorium allowed much more people to retire as even citizens who hadn’t completed social security contributions. Pension coverage rose from 66.1 percent in 2003 to 93.4 percent in 2013, being one of the highest in Latin America.
The good news, however, must be seen in context.
“The region still has work to do as wage inequality continues to be the highest when compared to other countries in the world,” Lustig said.
The decline was broad, and not confined to a particular style of government as countries with centre-left governments, such as Argentina and Venezuela, experienced a decrease in inequality, as did countries run by market-friendly governments, such as Peru and Mexico.
While economic growth played a role, it hardly tells the full story either because a decline in inequality has been evident both in countries that saw large increases in their GDP and in countries that grew more slowly, such as Brazil and Mexico.
MULTIPLE FACTORS
One of the key players in this decline in inequality were the cash transfer programmes, such as Mexico’s Oportunidades, Brazil’s Bolsa Familia and Argentina’s Asignación Universal, which helped to boost the income of poor families.
These cash transfer programmes were in part made possible by a more progressive fiscal policy as an expansion of progressive export taxes helped finance large anti-poverty programmes.
But the scholars concluded that the government transfers and changes in pension schemes only accounted for 30 percent of the decline in inequality.
The most important factor was the job market, particularly in Argentina, which saw an expansion of employment generated by the economic recovery after the 2001 crisis, the shift toward a more low-skilled labour-intensive sectors and the rise in the influence of labour unions.
“There was a strong growth in wages for workers at the bottom of the income distribution and an increase in hourly earnings,” Lustig said. “Some governments implemented active policies on the job market, such as Brazil and Argentina, by increasing the minimum wage. But this was not the only factor as the minimum wage remains flat in Mexico but wage inequality dropped there too.”
As those in the lower social classes saw their income increase, the middle class also rose from 21.9 percent of the population in 2000 to 34.4 percent in 2012.
The decline in inequality also contributed toward reducing poverty. Since 2000, the incidence of extreme poverty — the percentage of people with incomes of US$2.5 or less per day — has dropped from 25 to 12.3 percent, representing roughly 49 million people. The incidence of total poverty — those earning below US$4 per day — fell from 42 to 25.3 percent, a reduction of roughly 57 million people. Argentina’s decline in inequality accounted for more than 40 percent of its poverty reduction.
“Market forces have been complemented with state action. A pro-union and pro-disenfranchised government has been distributing the windfall from very favourable terms of trade both through active labour market policies and cash transfers,” Lustig, López-Calva and Ortiz Juárez concluded in their research.
Continuing with that decline though will be challenging, particularly when faced with a scenario of dropping commodity prices.
“Argentina experienced high economic growth for many years,” Lustig said, “but that will be difficult to maintain in a complex international scenario that is likely to lead to a drop in demand for low-skilled workers.”
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