CHAPTER I

POVERTY, INEQUALITY AND DEVELOPMENT

This chapter presents data regarding on the poverty and inequality index of the Costa Rica.
The data gathered tend to help indicate the situation of the country in the said sectors, also this
chapter provide information subject to Costa Rica’s high poverty group and policies implemented
that are either efficient or not on sustaining the need on the country’s problem.

A. POVERTY AND GROWTH

Costa Rica belongs to the third-world country but as far as its governments concern to the
said status, they still uplifting the lives of their people to resolve the problem encountered by the
country, especially to the poverty rate and inequality index.

Population living on less than 3.20 U.S. dollars per day

and Unemployment Rate
12.00%

10.00% 9.06%
8.60%
7.70% 7.60% 8.14%
7.71% 9.78%
8.00% 10.14% 9%
5.20% 8.77%

6.00% 5.20% 7.17%

3.80%
6.57% 5.74% 3.80%
4.00% 5.50%
4.49% 4.78% 4% 4.30% 4.20% 4% 4%
2.00%
2.70%

0.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Share of Population living on less than 3.20 U.S. dollars per day Unemployment Rate

Figure 1.
Poverty index living under $3.20 per day and Unemployment Rate in Costa Rica
Sources: https://www.statista.com/statistics/789881/poverty-rate-costa-rica/
https://www.macrotrends.net/countries/CRI/costa-rica/unemployment-rate
 The data shows how the poverty rate of Costa Rica living under 3.20 U.S. dollars dropping
slowly on each year, but the problem rises to the unemployment sector which the percentage of
unemployment from dropping to rising up to the following years.

Poverty Rate

From the year 2005 up to the year 2017, the rate is consistently declining whereas the
record shows how steadily the rate is falling. In 2010 with a rate of 4% was increased by .3% in
2011, it is not alarming that the country handle to take back its declining percentage to the
succeeding years. The Costa Ricans have a little share in population living under 3.20 U.S. dollars
according to the figure above. According to Agbonile, A. (September 19,2017), the reason of its
declining percentage of people living under the poverty line is its governments spending that the
fact is that nearly 20% of its GDP goes towards the social spending of the country. It boomed the
economy of Costa Rica with the help of its leaders.

On the other hand, according to National Statistics and Census Institute (INEC) the
population who live in poverty line is more than 1.1 million. In 2015 Household Survey verified a
poverty rate of 21.7% in 2015 which is lower than the 22.4% in 2014. For the moment, the extreme
poverty continues to rise from 5.8% of its population in 2010 to 7.2% in 2015. The reason behind
these uprising extreme poverty is that poor Costa Ricans are most likely to be single mother and
also have higher average number of children under the age of 5. INEC also reported that the
indicator of the decrease in percentage of extreme poverty between 2014 and 2015 are the
improved employment and reduction in average household size contributed to the country’s point
in income.

Unemployment Rate

The dramatically shift of the unemployment rate from 2007 to the succeeding years are
very visible. On the report by the United Nations Economic Commission for Latin America and
the Caribbean (ECLAC) stated that the Costa Rica is the second on highest unemployment rate in
the region. Lower than the Columbia unemployment rate of 10.6% and 8.77% in Costa Rica in the
year 2013. The financial crisis affects the employment rate of the country. According to the
president of the country’s Central Bank, Francisco de Paula, the main concern is the inflation.
Whereas the inflation rate in 2007 was recorded at 8% but by the end of the year it achieved 10.8%
which affects the economy of the country, slowing down and affects people in the field of job.

According to the 4th state of education report released in 2013, there are low high school
rates recorded between 17 and 21 that kept them from taking advantage of the better and high
paying jobs. The working age are rapidly increasing in Costa Rica, but because of the crisis they
are facing, it is hard to provide jobs for all of the people. The falling agricultural activity is affected
by the long spell of dry weather, income inequality has the greatest impact in the employment rate
of the country. Also according to the Central America Data that the commercial sectors are
providing fewer jobs than the past years, it says that the decreasing performance in the number of
jobs provided by the commercial sectors coincides the fall of employment rate and rise the
unemployment rate of Costa Rica.

B. INEQUALITY AND GROWTH

GINI INDEX (WORLD BANK ESTIMATES)

Gini Index

52

51 51.1 51
50.9

50 49.9
49.5
49.3 49.2
49 49.1
48.9
48.6 48.6 48.5
48 48.1 48.2
47.8
47.4
47

46

45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 2.
Gini Coefficient of Costa Rica estimated by World Bank from year 2000 to 2015
Source: https://www.indexmundi.com/facts/costa-rica/indicator/SI.POV.GINI
Gini Index provides measurement on which distribution of income or other expenditures
among individuals within the country’s economy differs from a perfectly equal distribution. Within
the years provided, the Figure 2 shows that the highest index with 51.1 was in the year 2001 and
the minimum index was recorded in 2000 with 47.4. Costa Rica has grown to its inequality,
whereas the proponents discussed in the poverty and growth that one of the reason why there is
unemployment in the country is the income inequality. According to the international standards,
Costa Rica has a high income inequality in contrast to its neighboring country in Latin America,
also it is visible that it is increasing in recent years.
Indicators of the inequality in Costa Rica are the redistribution through taxes and transfers
are weak, the labor market also contributes which unemployment and informal sector are high but
the labor forces are low with small participation of women. The Costa Rica is now on the high
level of inequality due to these indicators that leads the country to be uneven.

C. ECONOMIC CHARACTERISTICS OF HIGH-POVERTY GROUP

WOMEN AND POVERTY

Women are most likely to contribute on the country’s population of poor, according to
Todaro’s Module of Economic Development. They are capable on giving birth and contribute on
population index. The women in Costa Rica has a rising proportion of female-headed single-parent
households that leads to the increasing number of women with children that arrived on the labor
force and usually many of them are first timer. Majority of the Costa Rican mothers were unable
to find or they are unwilling to accept f a full-time work that pays high in the formal sector, and
chose to be part of the unemployed or part-time as self-employed worker. These labor market
happening are contributing on low income individuals, especially to a single parent women.
The status of women in Costa Rica are contributing to the population of people living under
poverty line. As stated before, the graph that shows unemployment which is increasing in the
recent years, one of its factors are those women who chose to work on an informal sector carrying
the burden of being a single mother raising her children.

D. POLICIES IMPLEMENTED
REDUCING INCOME INEQUALITY AND POVERTY THROUGH FISCAL MEASURES
 This implementation drives to tax reformation, spending reduction, and provide additional
consolidation benefits over the long run. This implies in the tax reformation regards into
 the conversion of the current sales tax into a full-fledged value-added tax and widening its
base that includes services. And also the reduction on expenditure implies to the partial
hiring freeze and holding base salary increase below, these measures or factors help the
Costa Rica lower its Gini index, poverty rate, and the extreme poverty rate. This indicates
that the implementation of the said policy has an efficient effect to the country with the
help of the reformation of tax.
NATIONAL STRATEGY FOR POVERTY REDUCTION

 This is implemented that addresses to the poverty of the country, its approaches are from
multi-sectoral and inter-institutional, certifying the contact to the social protection system,
capacity building, linking employment with entrepreneurship, benefitting from
technologies’ advantages, decent housing and territorial development, mitigating
inequality and respecting strategic approaches, in the interest of human development and
social inclusion. Its target population are those who belongs to the extreme poverty line
and also those who belong under the poverty line.

“PUENTE AL DESARROLLO” (BRIDGE TO DEVELOPMENT)

 It is a poverty reduction plan that aims to help pulling the lives of at least 54600 out of
extreme poverty. The targeted families are those who live below the monthly income of
$130. This provokes that these families could not afford to have a daily meal or place to
live, according to National Institute of Statistics and Census. Through this system, the
beneficiaries will apply for housing and food subsidies, health insurance, pensions, training
programs and scholarships, among other types of aid. But the fact that the poverty in Costa
Rica is gradually rising, this might not accommodate all the population who belong under
the poverty line. On the other hand, this poverty reduction plan’s result would be visible in
the future years due to its conditions. This plan is not efficient to reduce the poverty rate in
this year in Costa Rica, but could have a head turning in the future.
References:

 Agbonile,A. (Sept. 2019) I n c o m e I n e q u a l i t y : O n e O f T h e C a u s e s O f P o v e r t y

In Costa Rica. Retrieved from: https://borgenproject.org/main-causes-of-
poverty-in-costa-rica/
 Dyer, Z. (Oct. 2015) More than 1.1 million Costa Ricans live in poverty. Retrieved from:
https://ticotimes.net/2015/10/23/1-1-million-costa-ricans-live-poverty
 IPS Correspondents (n/a) ECONOMY-COSTA RICA: ‘U.S. Crisis Will Affect Growth,
Exports, Tourism’. Retrieved from: http://www.ipsnews.net/2008/03/economy-costa-rica-
lsquous-crisis-will-affect-growth-exports-tourismrsquo/
 Unemployment in Costa Rica. Retrieved from: https://www.focus-
economics.com/country-indicator/costa-rica/unemployment
 (2019) Costa Rica: Commercial Sector Generates Fewer Jobs. Retrieved from:
https://www.centralamericadata.com/en/article/home/Costa_Rica_Commercial_Sector_G
enerates_Fewer_Jobs
 Gindling, T.H and Oviedo, L. (April 2008) Female-headed single-parent households and
poverty in Costa Rica. Retrieved from: https://www.cepal.org/en/publications/11266-
female-headed-single-parent-households-and-poverty-costa-rica
 https://www.indexmundi.com/facts/costa-rica/indicator/SI.POV.GINI
 Figliuoli, L. and Peraza, G. (June 27, 2017) Costa Rica: Reducing Income Inequality and
Poverty through Fiscal Measures. Retrieved from:
https://www.imf.org/external/np/blog/dialogo/062717.pdf
 FOOD AND NUTRITION SECURITY PLATFORM. Retrieved from:
https://plataformacelac.org/en/politica/252
 Arias, L. (March 2015) Costa Rican government launches new anti-poverty plan aimed at
helping 54,600 families. Retrieved from: https://ticotimes.net/2015/03/27/costa-rican-
government-launches-new-anti-poverty-plan-aimed-at-helping-54600-families