an Eldis Resource
Changes in earnings in Brazil, Chile and Mexico: disentangling the forces behind pro-poor change in labour markets
Earning one's way out of poverty? Labour earnings in Brazil, Chile and Mexico since the early 1990s
Authors:
E. Zepeda; D. Alarcon; F.V. Soares
Publisher:
International Policy Centre for Inclusive Growth, 2009
After several years of recession and deteriorating living conditions in Latin America, economic growth started to recover in the 1990s. But growth was insufficient to counter rising rates of unemployment, and poverty and inequality remained high. A new report brought out by UNDP’s International Policy Centre for Inclusive Growth now examines the relationship between labour earnings and poverty and inequality in Latin America from the early 1990s to the 2000s, looking in particular at Brazil, Chile and Mexico.
Sustained poverty reduction relies on a process of job creation in which the poor are the main beneficiaries. A change in earnings is pro-poor when the mean change of poor workers is larger than the mean change for the entire workforce. Using household survey data, the report compares changes in the labour income of the 20 per cent of workers with the lowest earnings – defined as the poor - to changes in the mean income of all workers during the study period.
Changes in earnings per worker are broken down into
- changes in the demographic and socio-occupational characteristics of workers: age, education, gender, rural or urban residency, sector and nature of employment
- changes in the returns (prices) to such characteristics
- changes in unobservable factors
The report finds that on an average, the earnings of the bottom 20 per cent of workers performed better than mean earnings in all countries during this time. Changes in returns were the main contributor to both the rise and fall of mean earnings and was generally pro-poor. In particular, workers fared better when they moved from low-paid to high-paid sectors, mainly from agriculture to services. Changes in the formal/ informal composition of employment had a less noticeable distributional impact, perhaps because the contribution of formal/informal shifts in employment was generally small.
The contribution of changes in workers’ characteristics was generally positive but not pro-poor. Earnings were most significantly affected by increases in workers’ levels of education. Changes in unobservable factors were the least important, but they often favoured low-earning workers.
The report underscores the need to close the educational gap among workers in the three countries, and improve the quality of education received by poor people. Policies that ensure that low-earning workers have more upward mobility across sectors, particularly during periods of rapid earnings growth, will also be necessary to more significantly poverty and inequality.
