Declining Inequality in L.A.Comments

Juan Mauricio Ramírez - Fedesarrollo

ECLAC - OECDSantiago de Chile, November 14, 2013

Main results of Nora Lustig´s presentation:

• Declining inequality in L.A. everywhere, despite differences of growth rates, political orientation, export characteristics, etc.

• Due to (in decreasing order):– Declining inequality of hourly labor income– Larger and more progressive transfers– Lower dependency ratios

Declining inequality of labor income

• Larger supply of post-secondary education• Lower demand of post-secondary education

(larger demand for non-skilled labor)• Lower quality of post-secondary education

Decline in skill premium

Declining inequality in labor incomes: some questions

• What is the story behind these results from the point of view of the dynamic of the productive sector?– “Re- primarization”– Deindustrialization– Expansion or (urban) non-skilled, low-productivity

services?

Declining inequality in labor incomes: some questions

• What is the story behind these results from the point of view of the rural – urban dynamics?– In Colombia:• Gini (National): 0.538• Gini (Rural): 0.465 – the largest decrease btw 2002 and

2012• Gini (13 M.A.): 0.499 – the second largest decrease

Gini Coefficient

Declining inequality in labor incomes: some questions

• What is the story behind these results from the point of view of formal – informal sector dynamics?– In Colombia:

• Gini of labor incomes in formal sector: 0.48

The main source of labor income inequality is between formal and informal sector

Formality is the most important characteristic to differentiate between poor and non-poor households

Minimum wage and Formalization2010

20 40 60 80 100 120 140 0

10

20

30

40

50

60

70

R² = 0.614033694308673

Minimum wage/ GDP per cápita , %

Form

aliza

tion

rate

, %

Source: Own Calculations based on DANE.

Declining inequality in labor incomes: some questions

• What does this result of declining inequality of labor income tell us about the agenda of structural transformation in L. A.?

Labor productivity19

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

60

80

100

120

140

160

180

200

Promedio OCDE ColombiaOCDE Mitad más baja América Latina

Índi

ce 1

990=

100

Fuente: OECD, OECD Colombia Economic Survey 2013.

The necessity of a structural transformation in L.A.

Colombia: balanza comercial industrial cada vez más deficitaria

*incluye ganadería, caza y silvicultura.Nota: La balanza comercial es calculada de acuerdo a la clasificación CIIU Rev. 3 y usando un factor de conversión anual para las importaciones en dólares CIF.Fuente: DANE, Cálculos propios.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

(40,000)

(30,000)

(20,000)

(10,000)

-

10,000

20,000

30,000

40,000

Total

Sector minero-

energético

Sector agropecuario*

Sector industrial

Millo

nes d

e d

óla

res F

OB

A Window of Opportunity for Social Mobility?

2002 2012 2020 2025

16.2

25.3

43.8

59.9

11,6

32,1

Hig

h

Middle Income Classes in Colombia as a % of total population

Millons of peopleFuente: Fedesarrollo calculations bsed on BBVA.

Middle class: people that belong to families with a monthly income between COP$ 2 and 8 millon.

2002 2012 2020 2025

16.2

25.3

37.3

46.3

11,6

24,7

Low