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Jobs and Development Blog - The Jobs Knowledge Platform > Posts > Friday Smorgasbord – Overcoming Obstacles to More Income Equality in Latin America
Friday Smorgasbord – Overcoming Obstacles to More Income Equality in Latin America
August 24, 2012 | Contribution by CLAUDIA SEPULVEDA

By Claudia Sepulveda, Lead Economist, Office of the Chief Economist, the World Bank

Since the early 2000s, the Latin America and the Caribbean (LAC) region has sharply cut the poverty rate - from 44 percent of the population in 2002 to 33 percent in 2008. But it has made fewer inroads in reducing income inequality, leaving LAC still the most unequal region in the world. In addition, a majority of the population suffers from inadequate social protections.

Chocolate Factory in Sao Paulo, Brazil
Chocolate Factory in Sao Paulo, Brazil by Matt Devincenzi, 2009.

For that reason, the upcoming 34th session of the Economic Commission for Latin America and the Caribbean (ECLAC), to be held August 27-31 in San Salvador, will focus on the types of structural policies needed to promote economic growth, jobs, and equality. At the session, it will launch a major report, "Structural Change for Equality," focusing on the links between employment and social protection. In recent years, ECLAC has called for a new approach, one that reconciles growth and structural change with environmental sustainability and equality. It cites two key binding constraints: (i) the structure of production, affecting the ability to achieve greater equality in the labor market and access to social protection; and (ii) political capabilities, such as a more efficient and effective public sector.

On the production front, a major issue is the large productivity gap between the region and the industrial countries. This gap reflects too little diversification, specialization in non-technology-intensive sectors, and scant investment in research and development and innovation. As a result, a high percentage of the population is employed in low-productivity jobs with low pay. Moreover, according to another new ECLAC report - "Eslabones de la Desigualdad, Heterogeneidad Estructural, Empleo y Protección Social" - the employment inequality gap has been widening in recent decades. As the chart below shows, the reduction in urban population employment in low-productivity sectors has been greater for richer people than for poorer people, presumably because the richer have moved up the productivity ladder.

Employment inequality in Latin America is increasing

(Urban population in Latin America (17 countries) employed in low-productivity sectors, by income quintile, weighted average; percentage of total urban population employed)

Source: Eslabones de la Desigualdad, Heterogeneidad Estructural, Empleo y Protección Social, ECLAC, 2012. Note: The quintiles range from the poorest (Quintile I) to the richest (Quintile V).

To reignite inclusive development, ECLAC proposes: (i) industrial policies to consolidate, create, or develop more knowledge-intensive and environmentally sustainable sectors with strong demand in world markets; (ii) macroeconomic policies for growth, job creation, and income distribution (with nominal and real stability); and (iii) social and labor policies that help to drive progress toward equality by universalizing employment with full rights ("Structural Change for Equality" Leaflet, ECLAC, 2012).

That's a highly ambitious and politically difficult agenda. But the good news is that having held its own through the recent global financial crisis - and with the World Bank predicting growth of 3.5 percent in 2012, 4.1 percent in 2013, and 4.0 percent in 2014 - the region has a window of opportunity to design and implement public policies that help workers move up the production ladder so that they can get better jobs with higher salaries - and it's in the industrial sectors where this greater added value appears.

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