the recent decline in income inequality in brazil and its consequences on poverty ricardo paes de...
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The recent decline in income The recent decline in income inequality in Brazil and its inequality in Brazil and its consequences on povertyconsequences on poverty
Ricardo Paes de Barros (IPEA)
Bogota, October 2007
1. Magnitude1. Magnitude
In 2006, inequality continues to decline at the same rateIn 2006, inequality continues to decline at the same rate
Temporal evolution of the degree of inequality in Brazil over the previous decade: Gini coefficient (1996 - 2006)
0.55
0.56
0.57
0.58
0.59
0.60
0.61
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Gin
i c
oef
icie
nt
Average annual reduction rate : 1,2%
per year
Four reasons why this Four reasons why this decline must be decline must be
celebratedcelebrated
From the average to the lowest level
Evolution of inequality in family per capita income:Brazil (1976-2006), Gini coefficient
0.623
0.604
0.593
0.582
0.589
0.594
0.588
0.596
0.587
0.599
0.615
0.634
0.612
0.580
0.592 0.593
0.587
0.581
0.5690.566
0.623
0.602
0.5990.600
0.600
0.600
0.559
0.55
0.56
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.65
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Gin
i c
oef
fic
ien
t
Minimum
Average
Distribution of countries according to the rate of inequality (Gini coefficient) reduction
-10
-8
-6
-4
-2
0
2
4
6
8
10
0 10 20 30 40 50 60 70 80 90 100
Percentage of countries (%)
An
nu
al v
aria
tio
n i
n G
ini
coef
fici
en
t (%
)
Source: Data from Programa das Nações Unidas para o Desenvolvimento (PNUD) in World Income Inequality Database 2005 (WIID), http://www.wider.unu.edu/wiid/wiid-introduction.htmNote: We considered 74 countries according to the existence of information on the evolution of inequality.
Brazil (77, 1.2)
Few countries have reduced inequality faster than Brazil
Annual reducction in extreme poverty: Latin American countries
-1.1-1.1
-0.8
-0.6
-0.3
-0.2 -0.2
0.0
0.1 0.10.0
0.3
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Mexico Brazil Nicaragua Peru Colombia Chile Guatemala Bolivia Honduras ElSalvador
Costa Rica Venezuela
An
nu
al
red
uc
tio
n (
in p
erc
en
tag
e p
oin
ts)
Source: Estimations produced with Panorama Social da América Latina 2005 - CEPAL and Pesquisa Nacional por Amostra de Domicílios (PNAD)- 2001 and 2005.
Poverty have declined three times faster than required by the first millennium development goal
Brazil did in four years what took 15 years for the Latin Brazil did in four years what took 15 years for the Latin American region to doAmerican region to do
1990 2002 2005 2006 1990-2005 2002-05 2002-06
Latin America 48.3 44.0 39.8 ...... 8.5 4.2 ......
Mexico 47.7 39.4 35.5 ...... 12.2 3.9 ......
Brazil 44.9 38.2 34.1 29.6 10.8 4.1 8.6
Source: Cepal, Panorama Social de 2006 and PNADs 1990, 2002, 2005 e 2006
Extreme poverty (%)Reduction in poverty (percentage points)
Country /region
Evolution of poverty in Brazil, Mexico and Latin America
1990 2002 2005 2006 1990-2005 2002-05 2002-06
Latin America 22.5 13.5 10.3 ...... 0.8 1.1 ......
Mexico 18.7 6.9 5.8 ...... 0.9 0.4 ......
Brazil 22.1 16.4 13.2 10.7 0.6 1.1 1.4
Source: Cepal, Panorama Social de 2006 and PNADs 1990, 2002, 2005 e 2006
Extreme poverty (%)Reduction in extreme poverty - annual
rate (percentage points/year)Country /region
Evolution of extreme poverty in Brazil, Mexico and Latin America
At least one half of the decline in poverty was due to the reduction in inequality
Contribution of growth and inequality reduction for the recent decline in poverty in Brazil
29
30
31
32
33
34
35
36
37
38
39
40
2002-06 2005-06
po
vert
y h
ead
cou
nt
(%)
2006
2002
2005
2006
Contribution of growth
Contribution of growth Contribution of
inequality reduction
Contribution of inequality
48%
52%
71%
29%
Annual growth in per capita income accumulated by the poorest percentiles - Brazil, 2001-2005
8.0
5.9
4.9
4.3
3.73.4
3.0
2.5
1.9
0.9
0
1
2
3
4
5
6
7
8
9
10
First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth
An
nu
al
gro
wth
(%
)
Average income
Source: Estimations produced with Pesquisa Nacional por Amostra de Domicilios (Pnad) - 2001 and 2005.
Distribution of countries according to annual per capita GDP growth rate during 1990 and 2003
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Percentage of countries (%)
An
nu
al
gro
wth
in
pe
r c
ap
ita
GD
P (
19
90
-20
03
)
Source: Estimations produced with Human Development Report (2005) UNDP.Note: We are considering 170 countries according to the existence of information.
Annual growth of Brazilian top 10%
Annual growth of Brazilian bottom 10%
Haiti
China
Ivory Cost
Over the past five years the income of the poor have been growing like the per capita GDP in China
From 2001 to 2006 the per capita income of the bottom 10% From 2001 to 2006 the per capita income of the bottom 10% increased at a Chinese rate (9% per year). It was more than increased at a Chinese rate (9% per year). It was more than
three times the national average (2,5%)three times the national average (2,5%)Average annual growth rate of family per capita income by
tenth of the distribution: 2001-06
0
1
2
3
4
5
6
7
8
9
10
First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth
Av
era
ge
an
nu
al
gro
wth
ra
te (
%)
Bottom 10%
Top 10%
National average
Annual growth rate of family per capita income by tenth of the distribution: 2003-06
0
2
4
6
8
10
12
14
16
18
First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth
An
nu
al
gro
wth
ra
te (
%)
2003-04
2004-05
2005-06
Absolute income gain by percentile: Brazil, 2001-06
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
0 10 20 30 40 50 60 70 80 90 100
percentile
inc
om
e g
ain
(R
$/m
on
th)
The need for continuityThe need for continuity
Distribution of countries according to per capita income, average income of top 20% and average income of bottom 20%
0
5000
10000
15000
20000
25000
0 10 20 30 40 50 60 70 80 90 100
Percentage of countries
An
nu
al
pe
r c
ap
ita
in
co
me
in
US
$ P
PP
Average income of bottom 20%
Per capita income
Average income of top 20%
Brazil (64, 7790)
Source Human Development Report (2005) UNDP.Note: We considered 124 countries
Brazil (43, 934)
Tunisia(64, 2148)
Brazil (70, 24616)
Cumulative distribution of countries according to inequality level - Gini coefficient
0
10
20
30
40
50
60
70
80
90
100
20.0 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 65.0 70.0
Gini coefficient
Cu
mu
lati
ve
dis
trib
uti
on
(%
)
Brazil 2001(59.3, 94.3)
Source: Estimations produced with the Human Development Report (2005) UNDP.Note: We considered 124 countries
Brazil 2005(56.6, 89.6)
Immediate Immediate DeterminantsDeterminants
Counter-factual simulations
Degree of inequality
(Gini coefficient)
Contribution for the
reduction in inequality (%)
Determinants
Original situation in 2001 59.3
If the 2006 distributions of per adult family income and percentage of adults in the family were equal to the corresponding distributions for 2001
59.6 -7Association between the percentage of adults in the family and family income per adult
If the 2006 distribution of per adult family income were equal to the corresponding distribution for 2001 59.3 9 Distribution of the percentage of adults in the family
If the 2006 distributions of per adult family labor income and per adult family non-labor income were equal to the corresponding distributions for 2001
59.0 9Association between the per adult labor and non-labor income
If the 2006 distribution of per adult family labor income were equal to the corresponding distribution for 2001 57.2 52 Distribution of non-labor income per adult
If the 2006 distributions of per worker family labor income and proportion of adults working were equal to the corresponding distributions for 2001
57.4 -5Association between the percentage of adults working and the family labor income per worker
If the 2006 distribution of per worker family labor income were equal to the corresponding distribution for 2001 57.3 3 Distribution of the percentage of adults working
Original situation in 2006 55.9 39 Distribution of family labor income per worker
Immediate determinants of the recent decline in income inequality in Brazil: 2001-06
(%)
Degree of inequality (Gini coefficient) 27 14 18
Poverty Headcount - P0 28 8 5
Poverty gap - P1 19 11 18
Severity of poverty - P2 15 13 27
Extreme poverty headcount - P0 17 11 22
Extreme poverty gap - P1 10 15 37
Severity of the extreme poverty - P2 8 20 49
Contribution of government transfers for the recent decline in inequality and poverty in Brazil: 2001 - 2006
Characteristics of the income distribution Social security
pensions Social assistance Bolsa Família
Total PensionsSocial
assistancePrograma Bolsa
Família
Gini coefficient 51 57 27 14 18
Poverty rate (P0) 60 44 30 8 5
Poverty gap (P1) 52 50 19 11 18
Poverty severity (P2) 46 57 15 13 27
Extreme poverty rate (P0) 54 50 17 11 22
Extreme poverty gap (P1) 40 64 10 15 37
Extreme poverty severity (P2) 30 74 8 20 49
Characteristics of the income distribution
Contribution of changes in labor income, public pensions, social assistance and Programa Bolsa Família for the decline in inequality, poverty and extreme
poverty
Labor income
government transfers
2001-06
Improvements in the labor marketImprovements in the labor market and the increase in and the increase in government transfers equally explain the decline in poverty and government transfers equally explain the decline in poverty and
inequality in Brazilinequality in Brazil
(%)
Total Social securitySocial
assistanceProgram Bolsa
Família
Degree of inequality (Gini coefficient) 51 57 27 14 18
Poverty headcount - P0 60 44 30 8 5
Poverty gap - P1 52 50 19 11 18
Poverty severity - P2 46 57 15 13 27
Contribution of labor income, and government transfers for the recent decline in inequality and poverty in Brazil: 2001-06
Labor income
Public transfers
Characteristics of the distribution of income
The Life Cycle Bias of The Life Cycle Bias of Government Transfers Government Transfers
in Brazilin Brazil
Poverty age profile without government transfers: Brazil, 2004
0
5
10
15
20
25
30
35
40
45
50
55
60
65
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Age
He
ad
co
un
t ra
tio
(%
)
Source: Estimations produced with Pesquisa Nacional por Amostra de Domicílios (Pnad) - 2004.
Average
Poverty age profile: Brazil 2004
0
5
10
15
20
25
30
35
40
45
50
55
60
65
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Age
He
ad
co
un
t ra
tio
(%
)
Transfers included
Source: Estimations produced with Pesquisa Nacional por Amostra de Domicílios (Pnad) - 2004.
Average
Poverty age profile including and excluding government transfers: Brazil 2004
0
5
10
15
20
25
30
35
40
45
50
55
60
65
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Age
He
ad
co
un
t ra
tio
(%
)
Transfers included
Transfers excluded
Source: Estimations produced with Pesquisa Nacional por Amostra de Domicílios (Pnad) - 2004.
Average
We have been giving priority to the elderly, while reducing We have been giving priority to the elderly, while reducing povertypoverty
Average annual rate of reduction in poverty headcount by age: Brazil, 2001-06
0
5
10
15
20
25
30
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Age
aver
age
ann
ual
rat
e o
f re
du
ctio
n (
%)
Poverty
Extreme poverty
As a consequence, the level of poverty among children is almost As a consequence, the level of poverty among children is almost tenfold higher than among the elderlytenfold higher than among the elderly
Poverty by age, Brazil 2006
0
5
10
15
20
25
30
35
40
45
50
55
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
age
po
vert
y h
ead
cou
nt
(%)
Children
Elderly
National average
As a consequence, the level of poverty among children is almost As a consequence, the level of poverty among children is almost tenfold higher than among the elderlytenfold higher than among the elderly
Extreme poverty by age, Brazil 2006
0
2
4
6
8
10
12
14
16
18
20
22
24
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80age (years)
extr
eme
po
vert
y h
ead
cou
nt
(%)
Children
Elderly
National mean
Educational ProgressEducational Progress
Evolution of the impact of schooling on labor income: Brazil, 1996-06
12.7
13.8
14.4 14.5
13.813.5
12.9 12.9
12.5
12.2 12.2
12.0
12.5
13.0
13.5
14.0
14.5
15.0
1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006
Imp
ac
t o
f o
ne
ex
tra
ye
ar
of
sc
ho
oli
ng
(%
)
Evolution of the average impact of basic primary education (first to fourth grade) on labor income: Brazil, 1995-2006
10
11
12
13
14
15
16
17
18
19
20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
aver
age
im
pa
ct o
f o
ne
extr
a ye
ar o
f ed
uca
tio
n (
%)
Evolution of the average impact of the second phase of primary education (fifth to eight grade) on labor income:
Brazil, 1995-2006
5
6
7
8
9
10
11
12
13
14
15
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
av
era
ge
imp
ac
t o
f o
ne
ex
tra
ye
ar
of
ed
uc
ati
on
(%
)
Evolution of the average impact of secondary education on labor income: Brazil, 1995-2006
10
11
12
13
14
15
16
17
18
19
20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
aver
age
im
pa
ct o
f o
ne
extr
a ye
ar o
f ed
uca
tio
n (
%)
Evolution of the average impact of college education on labor income: Brazil, 1995-2006
15
16
17
18
19
20
21
22
23
24
25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
av
era
ge
imp
ac
t o
f o
ne
ex
tra
ye
ar
of
ed
uc
ati
on
(%
)
Evolution of the degree of inequality of education in the labor force: Brazil, 1996-2006
4.44
4.44
4.47
4.49
4.50
4.49
4.504.50
4.49
4.47
4.46
4.40
4.42
4.44
4.46
4.48
4.50
4.52
1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006
Sc
ho
oli
ng
sta
nd
ard
de
via
tio
n
(%)
Characteristic Price and quantity Price Quantity
Labor income
Experience 7 -1 7
Education 39 19 17
Per capita family income
Experience 2 -1 3
Education 17 11 4
Contribution of education and labor market experience for the reduction in inequality: Brazil, 2001-06
Labor Market Labor Market Imperfections: Imperfections:
Discrimination and Discrimination and SegmentationSegmentation
Evolution of the gap in labor income by race and gender: Brazil, 1995-2006
54.8
62.063.2
61.1 61.1
58.759.1
57.056.1
58.1
66.3
11.311.0
12.312.3
11.3
12.912.6
11.711.7
12.412.2
50
55
60
65
70
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Gen
de
r g
ap
in
la
bo
r in
co
me
(%
)
10
12
14
16
18
Ra
ce
ga
p i
n la
bo
r in
com
e (
%)
Gender gap
Race gap
Evolution of the wage gap between large metropolitan areas and small and median size municipalities
6.1
18.4
10.110.7
12.9
11.09.4 9.3
6.2 6.44.5
5.6
19.317.1
20.7
23.0
25.726.0
28.0
32.0
29.530.2
0
5
10
15
20
25
30
35
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Years
Wa
ge
ga
p (
%)
Wage gap between large metropolitanareas and median size municipalities
Wage gap between large metropolitanareas and small municipalities
Source: Estimations based on Pesquisa Nacional por Amostra de Domicílios (PNAD) 1995 to 2006.
Evolution of the gap in labor income between urban and rural areas: Brazil, 1995-2006
10.6
8.4
7.16.6
9.7
12.0
10.310.9
10.2
13.9
11.8
0
2
4
6
8
10
12
14
16
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Gap
in l
ab
or
inc
om
e (
%)
Evolution of the gap in labor income among economic sectors: Brazil, 1995-2006
7.1
6.5
8.9
6.4
6.0
6.6
8.28.3
8.8
9.39.1
4
5
6
7
8
9
10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Av
era
ge
ga
p i
n l
ab
or
inc
om
e (
%)
2001-05 2001-06
Inequality generated by labor market 18 13
Discrimination 4 3
Segmentation 14 11
Geographical 11 12
State 2 5
Urban-rural 3 1
Size of municipality 7 6
Formal / informal -7 -6
Economic sectors 10 5
Contribution of reductions in labor market discrimination and segmentations for reductions in income inequality
Contribution (%)Determinants
Let us limit our celebration, Let us limit our celebration, after all the decline in after all the decline in
inequality has not been inequality has not been accompanied by a major accompanied by a major
concomitant increase in labor concomitant increase in labor productivity productivity
Growth in per capita family income and labor income by percentile: 2001-06
-20
-15
-10
-5
0
5
10
15
20
25
30
35
40
45
50
55
60
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
(%
)
Per capita family income
Workers labor income
The exit path for the very poor remains limited. The exit path for the very poor remains limited. Brazilian social policy does not seem very effective in giving Brazilian social policy does not seem very effective in giving
short-run opportunities for the very poorshort-run opportunities for the very poor
Labor income average annual growth rate by tenth of the distribution: 2001-06
-1
0
1
2
3
4
5
6
First Second Third Fourth Fifth Sixth Seventh Eighth Ninth Tenth
An
nu
al
gro
wth
ra
te (
%)
Bottom 10%
Recent growth in labor productivity in Brazil : 2001-06
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
ra
te i
n l
ab
or
pro
du
ctiv
ity
Recent growth in labor productivity in Brazil : 2001-06
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
ra
te i
n l
ab
or
pro
du
ctiv
ity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Per
cen
tag
e o
f th
e p
op
ula
tio
n b
y p
erce
nti
le
Growth in labor productivity
College educationLess than four years
of education
Recent growth in labor productivity in Brazil : 2001-06
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
ra
te i
n l
ab
or
pro
du
ctiv
ity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Per
cen
tag
e o
f th
e p
op
ula
tio
n b
y p
erce
nti
le
Median size municipalities
Small municipalitiesMetropolitan areas
Growth in labor productivity
Recent growth in labor productivity in Brazil : 2001-06
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
ra
te i
n l
ab
or
pro
du
ctiv
ity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Per
cen
tag
e o
f th
e p
op
ula
tio
n b
y p
erce
nti
le
Manufacturing
Aggriculture
Transports and comunications
Growth in labor productivity
Recent growth in labor productivity in Brazil : 2001-06
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
ra
te i
n l
ab
or
pro
du
ctiv
ity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Per
cen
tag
e o
f th
e p
op
ula
tio
n b
y p
erce
nti
le
Formal employed
Informal employed
Self-employed
Growth in labor productivity
Recent growth in labor productivity in Brazil : 2001-06
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80 90 100
Percentile
Gro
wth
ra
te i
n l
ab
or
pro
du
ctiv
ity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Per
cen
tag
e o
f th
e p
op
ula
tio
n b
y p
erce
nti
le
South
Northeast
Southeast
Growth in labor productivity
The very limited The very limited effectiveness of the effectiveness of the
Minimum Wage Policy Minimum Wage Policy for reducing poverty for reducing poverty
and inequalityand inequality
The impact of increasing the minimum wage and benefits from Bolsa Familia on the cumulative income of the poorest percentiles
0
5
10
15
20
25
30
35
0 10 20 30 40 50 60 70 80 90 100
Percentage of population
Gro
wth
in
av
era
ge
in
co
me
(%
)
Source: Estimations produced with Pesquisa Nacional por Amostra de Domicílios (Pnad) 2005.
Bolsa Familia
Minimum wage
Per capita income
The impact of increasing the minimum wage and the benefits from Bolsa Familia on average income of the percentiles accumulated by the center of
the distribution
0.0
0.5
1.0
1.5
2.0
2.5
0 10 20 30 40 50 60 70 80 90 100
Percentage of population
Gro
wth
in
av
era
ge
in
co
me
(%
)
Source: Estimations produced with Pesquisa Nacional por Amostra de Domicílios (Pnad) 2005.
Bolsa Familia
Per capita income
Minimum wage
49