Recent data on hourly wages in Latin America and the Caribbean (LAC) reveal that Latin Americans working in the non-tradable sector (as in construction, transportation, hotels, or education) earn much more than workers in low-skill tradable sectors such as agriculture or low-tech manufacturing, and closer to high-skill workers in the tradable sector such as high-tech manufacturing or finance. Despite slight variations across countries, in 11 out of 17 countries studied, the difference between wages in low-skill tradable and non-tradable sectors has grown over the last ten years. In most of these countries, hourly wages display a distinct trend: positive growth for high-skill tradable and non-tradable wages, and stagnating, or even declining for low-skill tradable wages.
In less than a generation the Latin America and the Caribbean (LAC) region has made great progress in expanding the basic public services that are necessary for children to succeed later in life. The skills, knowledge and health accumulated by individuals by the time they reach adulthood are essential to get jobs, accelerate economic mobility, and reduce inequality in the long-run. The progress observed in LAC ranges from increased access to healthcare and schools to running water and electricity. But progress has also been uneven, both across countries and for different types of basic services.
Today, the playing field in Latin America is most level in access to electricity, where we have seen gaps in coverage narrow the most. Figure 1 below shows how the typical performance in the region (the median) compares with the country in the region with the highest level of coverage (labeled “best in class”) in three basic services for children. The focus on children makes it possible to determine that any difference in access would be mostly due to circumstances out of their control. In the case of access to electricity the regional median has not only converged towards the best performing country but it has now reached a coverage of 99 percent.
Childhood poverty in Latin America has declined steadily but remains much higher than poverty among adults. In 2014 poverty among children stood at 36 percent, almost twice the rate for adults (19 percent - see briefing note). The chart below shows that poverty has decreased for both adults and children, but a closer look at the data reveals that childhood poverty has been declining at a slower pace than among adults.
The ongoing economic slowdown has lowered growth across all segments of the income distribution in Latin America, leaving behind the much different story of the mid-2000s. Back then economic growth was not just high; it also benefited the poor more than the rest of the population. In fact, between 2006 and 2011, Latin America and the Caribbean had the highest growth rate in the world for the incomes of the poorest 40 percent of the population. Since then, however, growth rates have continued to decelerate.
The growth of the middle class has been one of the first casualties of the economic slowdown in the Latin America and the Caribbean region. In 2014, the share of Latin Americans that were middle class was almost the same as in 2013 (35 percent of the population, up from 34.8 percent; see the World Bank’s LAC Equity Lab). This almost negligible increase of the middle class contrasts with the trend that had marked the decade up to 2012. During that golden decade, the middle class grew at a brisk pace and every year over 1 percent of the population moved up to the middle class. It may not sound like much but put it this way: during the ten years before 2012 over ten million Latin Americans joined the ranks of the middle class every year. In 2014, barely a third of that figure –three and a half million– achieved that feat.
Until recently, Latin America was well on its way to becoming a middle class region. Had the trend of the golden decade continued, the middle class would have become the largest group of Latin Americans by next year. Unfortunately, as shown in the chart below, based on current trends it is unclear when such a milestone could be reached. In addition, other social gains have also slowed down. For example, the economic downturn has been accompanied by a lower income growth for the bottom 40 percent of the population—we examine this in the latest Poverty and Inequality brief
Indigenous Peoples face poverty rates that are on average twice as high as for the rest of Latin Americans. This fact is probably not a surprise to most readers of this blog. More intriguing, however, are three additional findings from recent work on the topic.
First, until recently, we did not have as robust quantitative evidence of such poverty gaps as that found in the recent World Bank report Indigenous Latin America in the Twenty-First Century. In fact, not all countries in the region have data on poverty by ethnicity and fewer still have the micro-data needed to understand the stumbling blocks that Indigenous Peoples face on the path out of poverty.
Second, the gap between the poverty rate of Indigenous Peoples and the rest of the population is not getting smaller. In some countries the gap remains stagnant and in others it is actually widening. Why are Indigenous Peoples benefiting less from growth and more likely to be poor? One way to explore these issues is to disentangle how much of the poverty gap between Indigenous and non-Indigenous populations can be explained by factors such as that indigenous peoples tend to live in rural areas, have lower education, etc. The results of such analysis bring us to my final point, illustrated in the chart below.
The group of Latin Americans still vulnerable to fall back into poverty has moved tantalizingly close to middle class status in the past decade. The so-called vulnerable, who have escaped poverty but have not yet made it to the middle class, remain the largest socio-economic group in Latin America. In fact, their share of the population increased slightly (38 percent in 2013, up from 35 percent in 2003). But, importantly, their living conditions improved significantly in the same period. The incomes of the vulnerable are today much closer to those of the middle class – even if their growth in incomes was not enough to cross over to the middle class.
"Did poverty drop in Latin America because of good policies or good luck?" I am often asked this question after I tell people that poverty in the region fell from 40 to 25 percent between 2003 and 2013. The answer is a bit of both.
As the chart below demonstrates, there is no question that the poor living in countries that were favored by high commodity prices benefited more than those in other countries. More to the point, as the chart also highlights, the tremendous rise in revenues coming from the boom in commodity prices led to an increase in labor income that helps explain much of the poverty reduction seen in commodity exporting countries.
To me, however, an interesting story hides behind the line of the non-commodity exporting countries. Even without the benefit of the commodity boom wave, those countries also managed to reduce poverty by a respectable 7 percentage points.
The team behind the World Bank’s LAC Equity Lab is starting this new blog series to showcase our favorite charts and visuals that help tell the story of recent developments in poverty and equity in Latin America and the Caribbean. We welcome your comments and ideas, and invite you to explore our LAC Equity Lab and World Bank Poverty websites to learn more.
In this first installment, we are tackling a pressing issue for the region – income growth and its implications on inequality.
Income growth in Latin America has stopped being pro-poor during the slowdown
Source: SEDLAC (World Bank and CEDLAS). Note: growth incidence curves (GIC) show the annualized growth rate of income for every percentile of the income distribution and are calculated using pooled harmonized data from 17 countries. In order to analyze the same set of countries every year, interpolation was applied when country data were not available for a given year.