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#LACfeaturegraph blog contest winner: In Latin America, education is not closing the income gap

Joaquín Muñoz's picture
Also available in: Español | Portuguese

Editor’s Note: In May, the LAC Team for Statistical Development launched the #LACfeaturegraph blog contest, where participants were asked to use poverty, inequality or other welfare data from the LAC Equity Lab to come up with an original analysis and integrate it with a data visualization. We received numerous blog submissions and after carefully reading each blog, we have picked the winner. Here is the winning entry from Joaquín Muñoz from Chile.

Education has long been considered fundamental in paving a country’s road to development. It is an International Human Right, one of the eight Millennium Development Goals and seventeen Sustainable Development Goals, and a critical player in reducing poverty. Thus, government officials and development partners have renewed efforts to ensure access to primary and secondary education worldwide.

In Latin America and the Caribbean, a region that faces stark levels of inequality, educational programs have been designed and funded with the aim of guaranteeing equal opportunities to school access. For instance, while in 1990 primary school enrollment in the region was about 89.9 percent, by 2010 it had increased to 94.2 percent. In the same period, literacy rates progressed as well, increasing from 87.5 percent to 92.6 percent (The World Bank, 2017). Even though the difficulty of achieving universal access to education is daunting, the numbers show that the region is on the right track.

However, the figure below shows that even though there has been a significant increase in the total years of education between 2004 and 2014 among the region’s population, the top 60 percent and the bottom 40 percent have experienced unequal income gains. While both groups experienced an increase in years spent in school, the data suggest that the top 60 percent, which was already wealthier and longer-schooled, saw a greater increase in their median daily per capita income than the bottom 40 percent. This finding is consistent with other evidence that suggests that income returns to schooling differ across the wage distribution (Harmon, Oosterbeek and Walker, 2000).

Source: Author's graph using LAC Equity Lab tabulations of SEDLAC (CEDLAS and the World Bank).

Introducing #LACfeaturegraph blog contest - A chance to voice your views on poverty & inequality

Oscar Calvo-González's picture
Also available in: Español | Français | Portuguese

Are you a student or a young professional passionate about development and data? Do you care about poverty and inequality in Latin America and the Caribbean (LAC)? Then this blog contest is for you.

LACfeaturegraph Blog Contest

Regular readers of this space will know by now that we have run a periodic blog series - #LACfeaturegraph – that highlighted a particular data point from our LAC Equity Lab data portal and analyzed critical development issues across the region. Now this is your chance to be a part of this effort. You, too, can use the data from the LAC Equity Lab and come up with a blog entry that addresses some of these issues. Through the contest, we are looking for original, well-written posts whereby participants can share their perspective on poverty and equity issues in the LAC region and also recommend plausible public policy interventions.

The winner of this blog contest will get his or her entry published as part of the #LACfeaturegraph series. The winner will also have the opportunity to visit the World Bank Group headquarters in Washington D.C. at a later date to participate in a poverty event. Blog entries will be accepted for a month – from May 15, 2017 to June 15, 2017.

Non-tradable sector wages track high-skilled tradable sector wages

Oscar Calvo-González's picture
Also available in: Español | Portuguese

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.[1] 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.
 

Graph showing trends in non-tradable wages in Latin America

Source: World Bank's LAC Equity Lab
 

How level is the playing field between countries in Latin America and the Caribbean?

Oscar Calvo-González's picture
Also available in: Español | Portuguese

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.

Children nearly twice more likely to be poor than adults in Latin America

Oscar Calvo-González's picture
Also available in: Español | Portuguese

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.
 

Headwinds for all

Oscar Calvo-González's picture
Also available in: Español | Portuguese
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.
 

Economic slowdown puts the brakes on middle class growth in Latin America

Oscar Calvo-González's picture
Also available in: Español | Portuguese

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

Why are Indigenous Peoples more likely to be poor?

Oscar Calvo-González's picture
Also available in: Español | Portuguese

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.

Source: SEDLAC (World Bank and CEDLAS). Note: the bars represent the percentage of people living on less than US$4 per day 2005 PPP for indigenous peoples and the rest of the population. The poverty rates are calculated using late-2000s weighted average for Bolivia, Ecuador, Guatemala, Mexico and Peru.
*Variables include characteristics of the head of the household (education, age, and gender), family composition (number of non-working members), geographical characteristics (country of residence, rural status) and employment characteristics of the head (sector of employment and occupation).

(Almost) middle class

Oscar Calvo-González's picture
Also available in: Español | Portuguese | 中文

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.

Source: SEDLAC (World Bank and CEDLAS). Note: The curves report the kernel density estimate of the logarithm of family per capita income. They 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. 

A tale of two regions?

Oscar Calvo-González's picture
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"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.

Note: We group countries as having experienced a 'commodity boom' if their terms of trade increased by an average of 2 percent or more per year over 2003-2013.

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.

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