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Economic Growth, Equity and Human

Development in Latin America
José Antonio Ocampo & Juliana Vallejo
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Equity and Human Development in Latin America, Journal of Human Development and
Capabilities: A Multi-Disciplinary Journal for People-Centered Development, 13:1, 107-133, DOI:
10.1080/19452829.2011.637395
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Journal of Human Development and Capabilities
Vol. 13, No. 1, February 2012
Economic Growth, Equity and Human

Development in Latin America
JOSÉ ANTONIO OCAMPO and JULIANA VALLEJO
José Antonio Ocampo is Professor at Columbia University and former United
Nations Under-Secretary-General of Economic and Social Affairs, Executive
Downloaded by [Umeå University Library] at 01:15 22 September 2013
Secretary of the Economic Commission for Latin America and the Caribbean,
and Finance Minister of Colombia
Juliana Vallejo was the Research Associate in the United Nations
Development Programme and Organization of American States Project on
Democracy in Latin America in 2008–2010, for which this paper was
prepared
Abstract The relation between the economy and equity has shown marked
contrasts in Latin America over the past two decades. Increases in public
spending have been reflected in advances in education, health and access
to basic utilities. In contrast, the region has experienced weak labor market
performance and limited advances in social security. An intermediate situation
has characterized poverty and income distribution, where there has been
important progress during the first decade of the twenty-first century after
almost a quarter century of unsatisfactory performance. This panorama can
be described as a process of human development with precarious employ-
ment and economic insecurity. It indicates that Latin America has found it
easier to respond to the challenge of human development than to the
reduction of inequality and the expansion of ‘labor citizenship’.
Key words: Latin America, Poverty, Inequality, Social spending, Human

development, Employment, Democracy
Introduction
The relation between the economy and equity has shown marked contrasts
in Latin America over the past two decades. The major gains have been in
the area of human development, as a result of the expansion of public-
sector social spending (simply social spending in the rest of the paper)
and the improved coverage of basic social services. In fact, the expansion
of social spending might be regarded as the major ‘democratic dividend’
in socio-economic terms, as this period covers most of Latin America’s
recent democratic phase. This dividend is, in any sense, incomplete
ISSN 1945-2829 print/ISSN 1945-2837 online/12/010107-27 # 2012 Human Development and Capability Association
http://dx.doi.org/10.1080/19452829.2011.637395
J. A. Ocampo and J. Vallejo
because it has not involved radical changes to the tax structure, which
would expand the redistributive capacity of fiscal policy. An additional posi-
tive effect has been the decline in poverty, with the greatest improvement
occurring between 2003 and 2008, as a result of the economic boom that
took place during those years.
Indicators of the labor market and income distribution show two differ-
ent phases. The first was one of deterioration between 1990 and 2002,
which includes a period of renewed growth (1990 –1997) as well as the
crisis of the developing world that began in East Asia in 1997, which in
Latin America generated a new ‘lost half decade’ of economic development.
The second, which coincided with the economic boom at the beginning of
the twenty-first century, saw an improvement in both these indicators and
was able to reverse the distributive trends of the first period, but the same
was not true of labor market indicators. Labor market trends are therefore
those that shed the greatest shadows in the link between economic and
social trends.
These general regional trends show, of course, sub-regional and national
differences, which are often important. It is worth noting that the recent crisis
has arrested some of the favorable trends experienced during the boom that
preceded it. However, although the information available is still incomplete, it
would appear that the impact was, overall, moderate.
Viewed as a whole, a simple way to summarize these achievements and
failures is in terms of the dual relationship between economic performance
and social indicators. The link that goes from social to economic performance
has worked in a positive way. The democratic dividend, represented by an
increase in social spending, has been reflected in increases in the levels of
human development, but its economic effects have not been equally strong
because the reverse link has not worked in an equally positive way. Except
for the boom of the early twenty-first century, economic growth has not
been satisfactory. The critical issue is the functioning of the labor market,
which has not been able to completely absorb improved human capital
even in the context of demographic transition and international migration
that have reduced pressures on Latin American labor markets. And to this
should be added the volatility of economic growth that has increased the
economic insecurity faced by Latin Americans. The overall trend can thus
be characterized as human development with precarious employment and
economic insecurity. One of the major implications is that economic perform-
ance has not fully benefited, and thus has led to a significant under-utilization
of human capital.
This article summarizes the major indicators of the economy–equity
relationship in Latin America over the last two decades. It is divided into
four parts. The first analyzes the links that operate through the labor
market. The second considers the evolution of poverty and income distri-
bution. The third shows the pattern of social spending and the resulting
expansion of social services. The last section draws brief conclusions.
108
Economic Growth, Equity and Human Development in Latin America
The economy and the labor market

Economic growth
The market reforms that begun in some countries in the 1970s and more gen-
erally across the region from the mid-1980s unleashed fundamental changes in
the workings of Latin American economies, in close interaction with equally
important transformations in the world economy. The changes have been
noteworthy in many areas, mainly macroeconomic management, as reflected
in a relatively uniform progress to control inflation during the 1990s—which,
with few exceptions, has endured—export dynamism, the ability to attract
foreign capital and its correlate, the internationalization of some large Latin
American firms. Here we concentrate, however, on their effects on economic
growth, the variable that most influences the labor market. These effects can
be summarized by two major trends.
The first, shown in Figure 1, is a pronounced business cycle, which is
stronger than that typical during the 1950 –1980 phase of state-led industrial-
ization (to use the terminology of Cárdenas et al., 2000), and shows the per-
sistence external vulnerability of the Latin American economies. Since 1990
there have been two full business cycles, and we are in the beginning of a
third. The upswing of the first in the early 1990s was triggered by renewed
access to international capital markets. Net transfer of resources through
the capital account, which had been negative since the debt crisis, turned
positive again. After the temporary interruption spurred by the Mexican
crisis that erupted at the end of 1994, the abundance of external finance con-
tinued to support economic growth until the East Asian crisis of 1997, which
FIGURE 1. Latin American gross domestic product growth, 1950–2010.

Source: Economic Commission for Latin America and the Caribbean.
109
extended to Russia and most of the developing world in 1998. This generated
a sudden and strong interruption of external funding, with the partial excep-
tion of direct foreign investment. The effect on the region was a strong decel-
eration or open recession of a broad group of Latin American, especially South
American, economies, and in consequence another lost half-decade of econ-
omic development.
The second cycle was characterized by an extraordinary boom between
2003 and 2007, in fact the most important for Latin America since the mid-
1970s, which continued through most of 2008 in several economies and so
we will refer to it as the 2003– 2008 boom (see Figure 1). This fact is even
more extraordinary when we look at the unweighted average growth rate,
which indicates that regional growth was dynamic despite the weak perform-
ance of the two largest economies in the region, Brazil and Mexico. This boom
was supported not only by external finance but also by its unusual combi-
nation with an exceptional commodity boom and high levels of workers’
remittances. Nonetheless, despite renewed rapid growth, Latin America con-
tinued to underperform relative to the dynamic Asian economies.
This combination of favorable external factors weakened since 2007
(remittances) and mid-2008 (end of the boom in commodity prices) and
was transformed into a strong negative external shock as part of the inter-
national financial crisis that exploded in September 2008. Already in the
course of the same year, several economies in the region started to experience
slower growth; all went into a sharp slowdown or an outright recession in the
last quarter. The overall effect was a contraction of the Latin American
economy of around 2% in 2009, the worst since the debt crisis. The set of
adverse factors began to change in mid-2009, generating renewed growth of
around 6% in 2010.
The expectation created by the economic reforms was that the liberaliza-
tion of the Latin American economies and their integration into the world
economy would result in dynamic economic growth. Figure 1 does not
confirm this view and shows that economic growth has been lower on
average—with the exception of the period 2003 – 2007—and, as already
noted, more volatile than during the phase of state-led industrialization. The
snapshot supplied by Figure 2 supports this view. This figure compares the
recent growth performance of different Latin American economies between
1990 and 2008 (thus excluding the 2009 recession), which can be considered
representative of the economic reform period, with the evolution of the same
indicator between 1950 and 1980. Rather than examining gross domestic
product (GDP) per capita, it is more meaningful to look at GDP per worker,
which is a good approximation of the evolution of average labor productivity
for these economies.1
The diagonal line allows us to differentiate between those countries that
have grown more rapidly during the reform period compared with the phase
of state-led industrialization (those located above the line) from those that
have grown more slowly (below the diagonal). As can be seen, the first
group is very small. It only consists of Chile and the Dominican Republic,
110
FIGURE 2. Annual increase of gross domestic product per worker: 1990– 2008 versus 1950– 1980.
Source: Authors’ estimates based on Economic Commission for Latin America and the Caribbean (ECLAC)’s
national accounts and estimates of the growth of the labor force from the International Labour Organization
(1950– 1980) and ECLAC (1990–2008).
the two most dynamic economies of the last decade; and Uruguay and El Sal-
vador, which grew at slow rates in both periods; Argentina is close to the diag-
onal, but its position is more like Uruguay with not particularly dynamic
growth rates in either period. The other countries (13 in total) show
growth rates during the reform phase that are much lower than those of
the period of state-led industrialization. Among the countries worst placed
in this group are to be found the largest economies in the region, Brazil and
Mexico, as well as Ecuador, Paraguay and Venezuela and in a very disadvanta-
geous situation, Bolivia, Colombia and Honduras.
Reflections on the labor market

The poor performance of the labor market until the beginning of the first
decade of the twenty-first century was devastating, as a result of economic
factors, particularly the slow growth, illustrated in the previous section, and
the effects of economic reforms. Most studies indicate, in effect, that
market reforms had a negative impact on employment generation. Further-
more, the data show that in the 1990s the growth of employment was
slower than that of the second half of the 1980s; as a result, unemployment
grew, there was a proliferation of the informal sector and there was an
increase in real wages that favored skilled labor (Stallings and Weller, 2001).
111
FIGURE 3. Latin America: employment and unemployment rates, 1990–2010.

Source: Economic Commission for Latin America and the Caribbean. Please note that the overall rates here
differ from those of Table 1, reflecting different estimates of the Economic Survey (used here) and the Social
Panorama (used in Table 1).
These trends became more pronounced during the lost half-decade, 1998 –
2002.
This is corroborated in Figure 3, which shows the reduction of the
employment rate between 1990 and 2002. It is worth clarifying that this
phenomenon was present during the years of economic growth of the
1990s (up to 1997), confirming that the net impact of economic reforms on
employment creation was negative. Given a stable male labor participation
rate at around 74% and the continuous expansion of female labor partici-
pation—from 38.4% in 1991 to 46.5% in 2002—weak labor demand led to
an explosion in the unemployment rate from 7.8% in 1990 to 9.2% and
11.4% in 1997 and 2002, respectively.
Although, contrary to widespread perceptions, the process of economic
reforms did not include a general flexibilization of labor markets (Murillo
et al., 2011), it generated a tendency to use short-term contracts. The pro-
portion of persons who received a salary and worked as temporary employees
increased significantly. The creation of new jobs was very weak and was found
mostly in the informal sector. Although real wages increased a little, they only
helped a slow and partial recovery from previous losses (Economic Commis-
sion for Latin America and the Caribbean [ECLAC], 2001).
A phenomenon highlighted by the same ECLAC report, and also docu-
mented by Stallings and Weller (2001), is the differentiation since the 1990s
between two patterns of Latin American integration into the global
economy and their impact on the labor market. The countries in the north
of the region (Mexico, Central America and the Dominican Republic) are
largely linked to the economy of the USA exporting both traditional
112
manufacturing goods (textiles in particular) and especially, in the case of

Mexico and Costa Rica, goods with a greater technological content (elec-
tronics, automobiles). In the smaller countries, these links were largely
based on subcontracting (maquila), while in Mexico production relations
are more varied. Several of these economies are also exporters of services,
mainly tourism. On the other hand, the major source of export dynamism
in South America is the production of goods based on natural resources,
which are exported to more diverse destinations. For both Central and
South America, these patterns of specialization coincided with active intrare-
gional trade, where manufactured goods predominate.
During the 1990s, according to Stallings and Weller (2001), employment
growth in the ‘North’ of the region was twice that in the ‘South’ (3.6% versus
1.6%; see also changes to the employment rate in Table 1 for the period 1990 –
1997). This was particularly marked for the manufacturing sector. In the
North, employment in the manufacturing sector increased at an average
annual rate of 4.3%, greater than total employment, and represented around
13% of all jobs created. In contrast, in the South, manufacturing employment
fell. Subcontracting (maquila) explains a good part of this behavior, given its
importance to the manufacturing growth of the North in the 1990s. By 1999
maquila employees made up between 10 and 40% of all manufacturing
employees in the North (in some, particularly Mexico and the Dominican
Republic, they were already important at the beginning of decade). The
strong differences between both specialization patterns can also be observed
in the type of jobs generated. While in the North wage earners increased at an
average annual rate of 4.2%, in the South they increased by only 1.8% per year.
The combination of employment and informality during this phase of the
deterioration of labor market conditions depended, among other factors, on
the abovementioned patterns of economic growth, as well as labor policy
and the international migration of workers. In any case, as Table 1 shows,
the majority of the countries experienced deterioration in either one or
both of these indicators, indicating that they operated as complementary
labor market adjustment mechanisms. Note that the most adverse combi-
nation of informal employment and unemployment was concentrated in the
South American countries, especially during the boom years, showing the
impact of specialization patterns. During the lost half-decade the typical
pattern of South American deterioration was by way of open unemployment
rather than by informality, with the latter being the dominant path in Mexico
and Central America.
In marked contrast to trends since 1990, the 2003 –2008 boom had a very
positive impact on the labor market, which was reflected in the strong growth
of employment and a fall in the unemployment rate (to 7.6% in 2008) (Figure
3). Furthermore, as ECLAC (2008a) has pointed out, the growth of wage
employment was particularly dynamic and reversed the rising trend of inform-
ality. Table 1 shows also that, in marked contrast to the period when labor con-
ditions deteriorated, the most notable improvements occurred in South
America, both in terms of open employment and informality. The most
113
114
TABLE 1 Labor market indicators, 1990 –2008

Variation of Variation of
Unemployment rate unemployment rate Employment rate employment rate Informality Variation of informality
1990 – 1997 – 2002 – 1990 – 1997 – 2002 – 1990 – 1997 – 2002 –

1990 1997 2002 2008 1997 2002 2008 1990 1997 2002 2007 1997 2002 2007 1990 1997 2002 2007 1997 2002 2007
South 6.4 8.2 13.2 8.3 1.9 5.0 –4.9 53.9 52.5 51.7 51.7 –1.4 –0.7 0.0 42.2 45.9 47.5 44.5 3.7 1.6 –3.0
America
Argentina 7.4 14.9 19.7 7.9 7.5 4.8 – 11.8 37.6 38.4 45.9 49.2 0.8 7.6 3.3 44.4 41.3 42.4 41.0 –3.1 1.1 –1.4
Bolivia 7.3 4.4 8.7 8.0 –2.9 4.3 –0.7 47.6 50.2 59.0 58.8 2.6 8.8 – 0.1 62.8 65.6 66.7 62.5 2.8 1.1 –4.2
Brazil 4.3 5.7 11.7 7.9 1.4 6.0 –3.8 58.9 55.2 50.1 49.9 –3.7 –5.1 – 0.2 49.3 46.7 46.2 41.8 –2.6 – 0.5 –4.4
Chile 7.8 6.1 9.8 7.8 –1.7 3.7 –2.0 48.5 50.9 48.4 49.7 2.4 –2.5 1.2 38.9 34.3 31.8 30.7 –4.6 – 2.5 –1.1
Colombia 10.5 12.4 17.6 11.5 1.9 5.2 –6.1 52.2 52.5 53.4 51.5 0.3 0.9 – 1.9 27.3 30.7 39.3 37.5 3.4 8.6 –1.8
Ecuador 6.1 9.3 8.6 6.9 3.2 –0.7 –1.7 45.8 52.0 53.3 55.2 6.1 1.3 1.9 54.5 54.0 56.4 57.3 –0.5 2.4 0.9
Paraguay 6.6 7.1 14.7 7.4 0.5 7.6 –7.3 ... ... 52.2 54.0 ... ... 1.8 55.3 62.9 61.7 60.1 7.6 – 1.2 –1.6
Peru 8.3 9.2 9.4 8.4 0.9 0.2 –1.0 56.2 ... 62.0 62.4 ... ... 0.5 ... 61.9 63.3 64.6 ... 1.4 1.3
Uruguay 8.5 11.5 17.0 7.9 3.0 5.5 –9.1 52.2 51.1 49.2 52.1 –1.1 –1.8 2.9 36.8 42.4 45.7 43.8 5.6 3.3 –1.9
Venezuela 10.4 11.4 15.8 7.3 1.0 4.4 –8.5 52.5 56.5 57.8 53.2 4.1 1.3 – 4.6 39.1 48.1 56.5 50.1 9.0 8.4 –6.4
Mexico and 5.1 5.4 5.5 5.6 0.3 0.2 0.0 50.9 54.7 53.6 55.7 3.8 –1.1 2.1 42.5 43.9 48.9 46.9 1.4 5.0 –2.0
Central
America
Costa Rica 5.4 5.9 6.8 4.8 0.5 0.9 –2.0 50.6 50.6 51.6 53.2 0.0 1.0 1.5 36.9 39.5 40.3 37.7 2.6 0.8 –2.6
El Salvador 10.0 7.5 6.2 5.5 –2.5 –1.3 –0.7 ... 47.1 48.0 58.2 ... 0.9 10.2 51.0 52.5 54.4 54.7 1.5 1.9 0.3
Guatemala 6.3 5.1 5.4 4.4 –1.2 0.3 –1.0 ... ... ... ... ... ... ... 54.6 64.4 57.7 58.1 9.8 – 6.7 0.4
Honduras 7.8 5.8 6.1 4.2 –2.0 0.3 –1.9 ... 50.6 46.7 45.5 ... –3.9 – 1.2 53.3 54.3 56.7 43.9 1.0 2.4 – 12.8
Mexico 2.7 3.7 3.9 4.9 1.0 0.2 1.0 50.4 56.7 55.5 57.9 6.3 –1.2 2.4 43.6 44.0 47.1 45.7 0.4 3.1 –1.4
Nicaragua 7.6 14.3 11.6 8.0 6.7 –2.7 –3.6 ... ... 45.1 43.6 ... ... – 1.4 49.3 60.7 59.8 58.4 11.4 – 0.9 –1.4
Panama 20.0 15.5 16.5 6.5 –4.5 1.0 – 10.0 47.1 52.0 52.3 52.7 4.8 0.3 0.5 32.3 33.5 38.4 36.5 1.2 4.9 –1.9
Dominican 19.6 15.9 16.1 14.1 –3.7 0.2 –2.0 44.2 44.2 46.2 46.7 ... ... 0.5 ... ... 54.3 48.9 ... ... –5.4
Republic
Latin America 6.0 7.5 11.2 7.6 1.4 3.7 –3.6 53.3 53.0 52.3 52.8 –0.2 –0.8 0.5 42.3 45.3 47.9 45.2 3.0 2.6 –2.7
Note: Data from different years are the most approximate available.
Source: ECLAC, database for the Social Panorama of Latin America.
pronounced reductions in the unemployment rate indeed took place in five

South American countries (Argentina, Colombia, Paraguay, Uruguay and Vene-
zuela) together with Panama, countries that in previous periods had registered
the highest rates; in the other country with high unemployment, the Domin-
ican Republic, the improvement was moderate and delayed. One reason for
this pattern was, of course, the commodity price boom of 2003 –2008,
which benefited in this case the ‘Southern’ specialization pattern.
The recession, which began at the end of 2008, clearly moderated these
positive trends. However, as ECLAC (2009b) and the International Labour
Organization (2009) have noted, the impact on the region’s labor markets
was more moderate than in the past. As shown in Figure 3, the employment
rate fell by 0.6 percentage points, while the unemployment rate increased by
slightly under 1 percentage point. Moreover, the relatively widespread decline

in employment rate was combined with a reduction in private wage employ-
ment and the loss of dynamism in the creation of formal employment.
In spite of these positive effects, the 2003– 2008 boom was unable to
correct the strong deterioration in the quality of jobs that had accumulated
between 1990 and 2002. Table 2 compares the trend since 1990 of the four
indicators of labor market conditions. As it can be appreciated, only Chile
shows a systematic improvement. In the other countries, there is a long-
term deterioration in one or several of the indicators. Trends in unemploy-
ment rates are diverse, and cases of long-term improvements in other indi-
cators are infrequent. Given the high dependence of access to social
security on formal employment, one of the unfortunate effects of employment
TABLE 2 Change in labor market conditions in Latin America 1990 –2007
Open unemployment Informality Remuneration Social security coverage

Argentina 1.1 – 3.4 – 0.5 –34.6
Bolivia 0.4 – 0.3 – 0.7 – 8.3
Brazil 5.0 – 7.5 – 0.2 – 3.8
Chile –0.7 – 8.2 1.9 0.8
Colombia 0.9 – 0.5 0.4 ND
Costa Rica –0.6 0.8 0.6 – 4.1
Ecuador 1.3 2.8 1.3 – 4.4
El Salvador –4.3 3.7 – 0.1 3.6
Guatemala –1.9 3.5 – 0.1 0.6
Honduras –3.8 – 9.4 – 0.2 ND
Mexico 2.1 2.1 – 0.3 1.7
Nicaragua –0.7 9.1 – 0.6 – 7.9
Panama –12.2 4.2 0.3 – 5.6
Paraguay 0.6 4.8 – 0.8 1.1
Peru 0.1 2.7 – 0.6 0.8
Dominican Republic –4.3 – 5.4 0.5 ND
Uruguay 1.1 7.0 – 0.4 – 1.9
Venezuela –2.0 11.0 – 0.4 – 0.6
Note: Variations correspond to the latest year available against the first year available.
Source: ECLAC (2008, Tables II.11 and II.13 and Statistical Appendix Tables 17.1, 18, 19 and 21.1).
115
trends has been the reversal of social security coverage in more than half the
countries for which data exist. This adverse trend is thus closely associated
with the expansion of the informal economy over the past two decades
(Tokman, 2007, 2011), a category that includes both the informal-sector
and formal-sector wage workers in precarious employment conditions
(without access to social security and even without a labor contract).2 Accord-
ing to its most recent estimates (Tokman, 2011), the informal economy grew
from 58.8 to 64.0% of urban employment between 1990 and 2008.3
Taken together, these indicators indicate that improvements in human
development indicators that we will be shown below have been accompanied
by a long-term deterioration in labor market conditions. To this we should add
the continuous economic insecurity associated with the volatility of economic
growth that has predominated over the past two decades, which is reflected in
the risks of losing employment in the case of a wage worker and of losing
income in that of a self-employed worker in the informal sector.
It is important to note that the sharp increase in the employment rate
during the 2003 –2008 boom was associated with the positive impact a
factor rarely highlighted in recent discussions: the maturation of the demo-
graphic transition. It should be recalled that, although Latin America’s demo-
graphic growth has slowed since the mid-1960s, the labor supply increased at
rapid rates since the 1970s, owing to the double impact of the continued rapid
growth of working-age population and the positive effects that reduced demo-
graphic dependence had on female labor participation. Rapid labor force
growth was maintained until the end of the twentieth century. According to
Centro Latinoamericano y Caribeño de Demografı́a (2006, Table 11), the
growth of labor supply was still 3.1% per year during the last decade of
century, a rate not too different from the 3.3% of 1970 –1990. During the
first decade of the twentieth century, however, the growth of labor supply
fell to 2.2% per year. To this should be added the impact of labor emigration
(see, in this respect, ECLAC, 2008b).
The growth of economically active population in relation to total popu-
lation during the long phase of the demographic transition experienced by
Latin America in the recent decades represents an opportunity—a demo-
graphic ‘bonus’, as it is generally called. However, the benefits of this
‘bonus’ are not automatic, given that the economy must generate sufficient
employment to make it effective. For this reason, it was wasted during the
last two decades of the twentieth century (although as we shall see, it had
positive effects on poverty levels). The recent boom benefited from both
the demographic bonus and a reduced labor force growth rates.
Poverty and inequality

Major trends
The return to growth in the 1990s began to be reflected in reduced poverty
rates, although its rate of progress was limited due to slow economic
116
growth and a simultaneous deterioration of income distribution experienced

by several countries. Until 2004, poverty levels remained above those prior to
the debt crisis of the 1980s, leading to a lost quarter-century in this area.
ECLAC’s data, reproduced in Figure 4, shows that the poverty rate
declined from 48.3% in 1990, the highest level inherited from the lost
decade, to 43.5% in 1997, although the number of people remained practically
the same. Both numbers, relative and absolute, increased although not mark-
edly, during the lost half-decade of 1998 –2002, when the decline in economic
activity coincided in some countries with a deterioration in income distri-
bution. The location of poor people underwent important long-term
changes, in particular a trend toward greater concentration in the cities.
Although the rate of poverty and extreme poverty continued to be much
higher in rural areas, already by the end of the 1990s there were 75% more
poor people in urban than in rural areas (ECLAC, 2001).
The 2003 – 2008 boom accelerated the decline in poverty levels at a rate
that has few historical precedents. According to ECLAC’s estimates, the
poverty rate fell from 44.0% in 2002 to 33.0% in 2008; that is, 11 percentage
points in a short time period (Figure 4). As with labor indicators, the effects of
2009 recession were more moderate than during previous crises, as poverty
only increased mildly in 2009 to 33.1% before starting to decline with the
2010 recovery (ECLAC, 2010).
The reason for this sharp reduction in poverty beginning in 2003 was the
coincidence of rapid economic growth with simultaneous improvements in
income distribution, which benefited more than half of the countries in the
region. While in several cases this improvement was a reversal of the deterio-
ration experienced during the 1980s and 1990s, for the region as a whole and
FIGURE 4. Evolution of poverty and extreme poverty in Latin America.

117
FIGURE 5. Gini coefficient behavior in Latin America.

Note: Economic Commission for Latin America and the Caribbean (ECLAC) data include 12 countries:
Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Mexico, Panama and
Venezuela.
Source: Calculations by the authors based on data from ECLAC (for part [a]) and Gasparini et al. (2009)
(for part [b]).
for several countries, the recent improvement of income distribution is a

slight improvement on 1990 but still worse than 1980 (Gasparini and
Lustig, 2011). The trends since 1990 are set out in Figure 5, using data from
both Gasparini et al. (2009) and ECLAC. Using a simple average of the Gini
coefficients, it can be appreciated that income inequality increased both
during the growth period of the 1990s and the lost half-decade, but fell
during the boom at the beginning of the twenty-first century, arriving in
recent years to levels similar or slightly lower than in the early 1990s. As
the reversal in distributional trends seems to have taken place earlier in the
two largest economies in the region, especially in Mexico, and was also
more pronounced in these two countries than in others, the trends are
more positive when the average is estimated weighted by population.4 In
this case, the break came at the turn of the century and was the equivalent,
for the region as a whole, of two points of the Gini coefficient, between the
early 1990s and today.
With regard to the sub-regions, the estimations by Gasparini et al. (2009)
show that inequality trends were similar in the countries of the Southern Cone
(including Brazil) and in the Andean countries (Figure 6). In both these South
American regions, the Gini coefficient increased during the growth period of
the 1990s and in the lost half-decade, and fell during the boom of the early
twenty-first century. On the other hand, the Gini coefficient has slowly
declined in Mexico and Central America since 1990. This would appear to
reproduce the ‘North –South’ pattern typical of labor markets. In each case,
it is worth noting that there is considerable heterogeneity in the changes in
equality among different countries. In fact, in seven of the 17 countries ana-
lyzed in the Gasparini et al.(2009) study, inequality did not increase during
the 1990s. The decline that is observed in the first decade of the twenty-
first century was more generalized, but again there were exceptions. When
118
FIGURE 6. Trends of the Gini coefficient at the sub-regional level.

Source: Gasparini et al. (2009).
the two decades are considered together, more or less the same number of
countries experienced increases and reductions in income inequality.
The major trends mentioned—deterioration in income distribution for
many, especially the South American countries, during the 1990 – 1997
period and the crisis at the end of the century, and the relative general
improvement during the 2003 –2008 boom—is confirmed in various
studies. Thus, ECLAC (2001) shows a general deterioration during the first
two periods. Székely (2001) concludes that there was no country in Latin
America where inequality declined significantly during the 1990s. According
to the data, the only two countries that showed a positive trend were the
Dominican Republic and Colombia, but in both cases the reductions were
insignificant from a statistical perspective.
The improvement in income distribution during the first decade of the
twenty-first century has been confirmed, again, by various studies. According
to López-Calva and Lustig (2010), 12 of the 17 countries with comparable data
experienced a decline in inequality between 2000 and 2006. A comparison of
the most recent figures for each country to those available in 2002 shows a
relatively widespread improvement (ECLAC, 2009a). In fact, the only excep-
tions to this trend have been Colombia, Guatemala and the Dominican
Republic.
Determinants of poverty and inequality

While worsening income distribution and the evolution of poverty during the
1980s and 1990s have excited broad debate and analysis, the most recent
trends have only started to be examined with the same detail. There is a con-
sensus in the existing literature that economic crises have regressive effects,
119
which together with the direct impacts of recessions on employment and

income growth explains why crises have led to increases in poverty levels.
This impact was much worse during the 1980s than in later crises, not only
for its length and depth but because the adjustments took place in highly
inflationary contexts in several countries. The sharp increase in poverty in
Argentina during the lost half-decade is another confirmation of this
phenomenon.
A variable that has a positive effect on poverty is the demographic tran-
sition. The clearest analysis of the importance of this variable is that of Ros
(2009). The reduction of family dependents is the factor that most helps
explain the cross-country pattern of poverty in the different Latin American
countries in the period 1990– 2006. The data show that this factor contribu-
ted about 71% to poverty reduction in these countries, whereas economic

growth contributed around 27%. The contribution of the demographic tran-
sition to poverty reduction is particularly evident in those countries where
the dependency ratio experienced a pronounced reduction (Brazil, Ecuador,
Honduras, Mexico and Venezuela).
The impact of structural reforms has been the object of much debate. The
reforms generated winners and losers, with their net distributive impact
having sometimes opposite signs in different countries. For example, the
study by Ganuza et al. (2002) shows that during the 1990s external sector lib-
eralization generated an increase in inequality in eight of the countries ana-
lyzed (Argentina, Bolivia, Colombia, Ecuador, Mexico, Panama, Peru and
Uruguay) and a decrease in six (Brazil, Costa Rica, El Salvador, Guatemala,
Honduras and the Dominican Republic), with Chile experiencing opposite
effects depending on the period of analysis.
Different components of reforms also had opposing effects according to
different authors. Behrman et al. (2001) have argued, for example, that finan-
cial liberalization had regressive effects, which were more important than the
progressive and moderate effects of trade liberalization. Morley (2001) has
pointed out to the contrary: trade liberalization had adverse effects that over-
came any favorable financial effects. The most important impact these authors
seek to explain is the increase in the wage skill premium that occurred across
the region in the 1990s, with the important exception of Brazil. Other authors
believe that these results are the product of technological bias rather than the
effects of economic reforms, which helps explain why this trend was rela-
tively widespread throughout the world.
According to Behrman et al. (2001), the explanation for the regressive
effect of financial liberalization is that it led to a reduction in the cost of
capital, a relatively scarce factor in the region. Given that capital and
skilled labor are complementary factors, and that capital and unskilled
labor are substitutes, a reduction in the cost of capital increases the
demand for skilled labor, thus leading to an increase in the wage skill
premium. It should be noted that an even more important regressive
effect of financial liberalization might be its contribution to greater macroe-
conomic instability.
120
A large group of authors support the Morley thesis according to which trade
liberalization was the most important factor that helped widen the wage gap.
Four factors are likely to have contributed to this result: reduction to the
tariffs on capital goods, which led to more capital-intensive production pro-
cesses; the complementarity between investment in machinery and equipment
and skilled labor; the pressure to adjust to competition, as wage cost com-
pression is the easiest way to reduce costs in the short term for firms; and cur-
rency appreciation, which further reduced equipment prices, as it increased
labor costs in dollar terms, thus affecting the more labor-intense sectors.
Sectors with initially greater levels of protection were also important, as
can be shown by the contrast between Brazil and Mexico. Brazil had higher
levels of protection for more skill-intensive sectors while Mexico protected
more heavily sectors that used unskilled labor (Gaspirini and Lustig, 2011).
Colombia had high initial protection of agriculture, and so the urban sectors
gained with trade liberalization and widened the urban –rural gap (Ocampo
et al., 2001). The most important impact across the region was employment
creation in export sectors, which, however, was unable to compensate for the
destruction of jobs in previously protected sectors. They had to increase their
productivity by rationalizing, at least initially, their labor costs. New jobs
tended to be inferior in terms of income and job stability (Lora, 2011).
The recent reduction in inequality from 2002 has been analyzed by
Cornia (2010), Gasparini et al. (2009) and Gasparini and Lustig (2011),
among others. It seems to be the product of both cyclical and structural
effects, together with social policy and perhaps politics, plain and simple.
Among the contextual factors are the reversal of the strong adverse distribu-
tional impacts experienced by several countries during the lost half decade
and the reduction in the urban –rural gap as a result of the increase in agricul-
tural prices. As already noted, the economic boom produced a significant
increase in employment opportunities, and especially wage employment,
which at the same time faced an important reduction to the growth of
labor supply as a result of demographic trends and the opportunities pro-
vided, in the north of the region, for labor migration to the USA and Europe.
Other favorable factors are more permanent. The strong increase in the
income gap between skilled and unskilled workers that characterized the
1990s has stopped or been partially reversed. Education policy has contribu-
ted to this result, both with an increase in the population’s years of education
and the reduction of some features of educational inequality. In fact, Cornia’s
(2010) econometric estimates show that a reduction in educational inequality
is the most important factor that influenced improvements in income distri-
bution during the first decade of twenty-first century. However, not all the
educational trends have been so favorable. While access to secondary edu-
cation has improved, that to tertiary education has not in some countries.
No less important, while access gaps may have been closing, the quality
gap may have increased (Gasparini et al., 2009). However, the expansion of
human capital does not necessarily imply an immediate reduction in
income inequality, as recognized by Bourguignon et al. (2005).
121
Several national studies confirm the importance of educational policy. For

example, Jaramillo and Saavedra (2010) conclude that the expansion of
primary education and the more equal distribution of the land made Peru,
at the beginning of the twenty-first century, less unequal than four decades
earlier. In Brazil, educational inequality increased until the end of the past
century but has decreased continually since then. This recent fall is one of
the factors responsible for the reduction of income inequality. The concave
shape of the curve (inverted U-shaped, showing an inverse relationship)
implies that the faster education expands, the greater the fall in educational
inequality and, therefore, of income inequality (Barros et al., 2010).
The most important contribution of social policy to inequality reduction
has thus been the positive impact of educational change. While important,
the expansion of new income transfer schemes, among which conditional

cash transfers are the most notable, have had a more modest impact. The expla-
nation is that, although well targeted, these schemes involve a relatively small
proportion of the national income in all countries, and have a limited coverage
in several of them. Furthermore, the distributional impact of the tax system has
been limited in the region. Goñi et al. (2008) estimate that while cash transfers,
including pensions, have led to an average reduction in the Gini coefficient of
3.6 percentage points (about one-quarter of that achieved in the OECD), taxes
have only had a marginal effect on income distribution.
Transfer programs have had a somewhat more important impact in the
region’s two largest countries. The greatest contribution has been that of
the cash transfer programs Progresa/Oportunidades in Mexico and Bolsa
Familia in Brazil, to which should be added the Mexican rural program Pro-
campo, and several social security benefits in Brazil. In the Mexican case,
Esquivel (2009) has shown the notable increase in the percentage of house-
holds that receive some kind of transfer since 1992. In Brazil, public transfers
represent more than 80% of non-employment income and 29% of Brazilian
household income. These transfers include Bolsa Familia but also social
security benefits, including transfers for poor seniors and the disabled (Bene-
ficio da Prestação Continuada). According to Gasparini and Lustig (2011),
the Oportunidades program explains just short of one-fifth of the improved
distribution in Mexico, while the broader set of Brazil’s transfers has contrib-
uted two-fifths of the country’s improved distribution, mainly through the
social security mechanisms.
Cornia (2010) ascribes part of the improvement to the impact of center-
left governments. According to his calculations, the average regional
reduction of the Gini coefficient was between two and three points, but in
those countries governed by the center-left it was relatively larger. However,
Gasparini et al. (2009) concluded that the impact of this political variable is
difficult to measure.
Changes to labor regimes may be more important. Although, as noted,
there was no large-scale liberalization of labor markets, the distributional
deterioration came about in the context of a weakened labor union movement
and a wage policy (especially for minimum wages) that was prejudicial to
122
workers. However, the first decade of the twenty-first century has been
characterized by a friendlier relationship toward the union movement in
different countries. The labor reforms have also changed direction in a
number of them, toward greater protection (Murillo et al., 2011). Brazil is
the most prominent example, with the rise of a labor union leader to the Pre-
sidency of the Republic that coincided with an increase of 35% of the real
minimum wage between 2001 and 2007. Barros et al. (2010) note that the
increase in the minimum wage had a positive impact on distribution, both
as a result of reduced wage inequality as well as improvement in transfers
associated with the minimum wage.
In any case, recent improvements have not overcome the fundamental
problem of bad income distribution that characterizes Latin America and
that continues to be, with sub-Saharan Africa, the worst in the world. In par-
ticular, it has failed to dent the deep social segmentation that characterizes
highly unequal societies. Some factors that contributed to improvements in
recent years are cyclical in nature. The ability to make transformations into a
more permanent positive trend will depend, therefore, on ever more active
social policies. To the recent improvements in educational spending and the
design of a more progressive transfer system, several additional factors have
to be added to guarantee a large structural improvement in income distri-
bution: a permanent reduction in urban–rural gaps; the resolution of structural
problems associated with access to social security for workers outside the
formal sector; access to higher education for lower income groups; addressing
the large gaps in educational quality; and more progressive tax systems.
Social spending and human development

If Latin America shows some long-term deterioration in labor markets and only
recent advances in income distribution and poverty reduction, progress in
basic welfare indicators have been persistent. This is reflected, first of all, in
significant increases in life expectancy over the past decades, and a marked
decrease in infant and under-five mortality rates. Similarly, adult illiteracy
has declined, primary education has become universal, access to secondary
education has increased, and many countries have expanded their coverage
of technical and higher education. As a result, human development indicators
have shown a persistent improvement. These results, in turn, reflect the
increase in social spending since the 1990s, which, as we noted in the intro-
duction to this paper, can be regarded as the major ‘democratic dividend’ in
socioeconomic terms.
Social spending
The recession and fiscal adjustments that characterized the lost decade of the
1980s led to significant reductions in public social spending in Latin America.
Per-capita spending experienced a persistent reduction throughout the
decade and fell on average 9% between 1981 –1982 and 1983 –1989.
123
However, average trends hide a huge divergence of performance across the

region, with some countries indeed showing a predominantly upward trend
(Brazil, Colombia, Costa Rica, Honduras, Panama y Uruguay), others sharp
reductions (Guatemala, Ecuador, El Salvador, Peru, the Dominican Republic
and Venezuela) and the rest a U-shaped pattern. Democracies performed
better than authoritarian regimes, as reflected in no or smaller reductions in
spending in the face of contractions in per-capita GDP and the demands
generated by the external debt service.5
Cuts in social spending were part of general reduction in overall public
spending generated by the debt crisis, which followed a period of significant
fiscal expansion. Due to their dependence on central government budgets,
education and health experienced stronger cuts than social security pay-
ments. However, in spite of these cuts, the indicators for education, health
and other programs continued to advance during the 1980s, and in fact it
can be said that in this area there was no lost decade. Nevertheless, the
public structures that provided social services suffered a heavy blow, reflected
in the loss of both human capital and service quality.
This process was followed by a strong expansion of public social spend-
ing during the 1990s, when it increased from 12.2 to 15.3% of GDP (Figure 7).
Despite a slowdown at the turn of the century, reflecting the impact of the lost
half-decade, this positive trend resumed, bringing social spending to 18.4%
in 2008/09. Furthermore, as GDP per capita has simultaneously increased,
per-capita social spending more than doubled over the past two decades.
This growth was more pronounced in countries that had initially low
levels of social spending, leading to some convergence in the shares of
social spending in GDP across the region. This is shown in Figure 8 in the mod-
eration of the slope of the line that captures the average pattern of social
spending in relation to GDP per capita in both periods.6 Both in the early
1990s as well as 2008/09, Argentina, Brazil, Costa Rica and Uruguay had
higher levels of spending than the regional pattern. The largest gains were
FIGURE 7. Public-sector social spending (% of GDP).

124
FIGURE 8. Evolution of GDP per capita and social expenditure.

Note: Data given in part (a) are for the period 1991–1991; data in part (b) correspond to the period 2008–2009
(except for Bolivia, Ecuador, El Salvador, Dom. Rep. and Venezuela, for which the data refer to 2006–2007).
Sources: Economic Commission for Latin America and the Caribbean (ECLAC) (2009a, 2009b, 2009c, 2010),
and [http://websie.eclac.cl/infest/ajax/cepalstat.asp?carpeta=estadisticas].
achieved in Brazil and Colombia, among the larger countries, and El Salvador
among the smaller.
A worrisome development in the evolution of social spending has been,
however, its pro-cyclical behavior, similar to that of public spending as a
whole (ECLAC, 2010). As a result, periods of sharp slowdown or output reces-
sion have generally been accompanied by a moderation in the positive trends of
social spending. Again, the recent crisis appears to represent an important break
from that behavior in different countries, with some using social spending tools
(particularly an increase in conditional cash transfers) as a countercyclical tool.
As pointed out by Ocampo (2008), although social assistance is highly
redistributive, the associated amount of spending is relatively small. For this
reason, the major redistributive impact of social spending is linked to the
scope of core social policies. Those with the broadest coverage, such as
primary and increasingly secondary education, together with general public
health programs, are those with the greatest redistributive impact. Those
with intermediate coverage, such as housing and sanitation, are slightly pro-
gressive. In contrast, those services that reach only a small proportion of
the population, such as higher education and social security, are regressive,
but generally less than the overall distribution of income.
Human development
The result of increases in social spending was the continuous advance in a
broad range of indicators describing conditions in education, health, water
and sewage services among others, although with important differences
among countries in the region. Advances in schooling and health (infant mor-
tality rates and coverage of medical services, plus the number of births
attended by medical personnel) has continued to locate Latin America at
the same or higher levels of social development than those regions with
similar per-capita incomes (North Africa and East Asia), with notable
125
exceptions for some health indicators (maternal mortality, in particular). With

water and sewage services, essential for progress in health, the region is
clearly better off than other parts of the developing world. Table 3 shows
this relatively favorable situation based on some of the indicators used to
follow up performance to achieve the Millennium Development Goals.
This same progress is reflected in the indicators for human development
regularly calculated by the United Nations Development Programme. This
progress has been broad based, as Figure 9 indicates. Furthermore, the pro-
gress has been most marked in the countries that were behind in 1990, as
reflected in the negative correlation (–0.37) between the change in 1990 –
2010 and the initial level of the index in 1990. This can be expected for an
index that compares living standards with a given international standard for
all countries. However, it also reflects the increases in public social spending
that, as already indicated, have been most remarkable for countries that were
TABLE 3 Progress on Millennium Development Goals indicators

Latin American
and the Developing
Caribbean North Africa East Asia countries
1990 2008 1990 2008 1990 2008 1990 2008

Proportion of children under 0.11 0.06 0.11 0.07 0.17 0.07 0.31 0.26
age five who are
underweight
Proportion of 0.12 0.09 ,5% ,5% 0.18 0.1 0.2 0.16
undernourished
populationa
Net enrollment rate (%)
Primary 86.7 95.0 82.8 94.0 98.0 96.0 79.6 89.0
Secondaryb 58.7 70.2 ND 66.3 60.7 69.0 45.4 52.6
Tertiaryc 21.5 31.3 ND ND 13.3 24.2 10.9 17.4
Girls in relation to boys (%)
Primary education 97.0 97.0 82.0 94.0 94.0 104.0 87.0 96.0
Secondaryb 106.0 108.0 95.0 98.0 97.0 105.0 90.0 95.0
Tertiaryb 113.0 125.0 68.0 95.0 55.0 100.0 78.0 97.0
Under-five mortality rate per 52 23 80 29 45 21 100 72
1000 live births
Maternal mortality rated (for 180 130 250 160 95 50 480 450
every 100 000 births alive)
Proportion of deliveries 0.72 0.86 0.46 0.8 0.94 0.98 0.53 0.63
attended by skilled health
personnel
Population with access to:
Improved water source 0.85 0.93 0.86 0.92 0.69 0.89 0.71 0.84
Improved facilities 0.69 0.8 0.72 0.89 0.43 0.56 0.41 0.52
Note: aUndernourishment data refer to 1990/1992 and 2008 or latest data available. bData refer to 1999/
2000 and 2006 and in the case of Asia and includes Japan. cData refer to gross enrolment and correspond to
1999/2000 and 2006. dThe 2008 data belong to 2005, latest data available.
Source: United Nations MDG data based and UNESCO.
126
FIGURE 9. Human Development Index, 1990–2010.

Source: United Nations Development Programme (2010).
behind in 1990. In addition, the noticeable advances in Brazil, Colombia and El

Salvador may also reflect the efforts associated with increased social spending.
The growth of primary education to the point of almost universal cover-
age is, of course, part of a much longer process, which took off prior to or in
the mid-twentieth century, and which has allowed access to this educational
level for boys and girls from all socioeconomic levels and ethnic origins (Inter-
American Development Bank, 2008). As noted by UNESCO (2007) and
Urquiola (2011), despite the high level of access, full universal primary edu-
cation remains an important challenge as, according to UNESCO calculations,
only 83% of the students that enter the first grade finish their primary edu-
cation. There have been continued gains in secondary and tertiary education
coverage, although all levels continue to have quality problems. Some chil-
dren are forced to abandon their studies because they have to support their
households financially, or because of lack of secondary schools in the area
where they live or simply because they fall behind in relation to their peers.
As already noted, one of Latin America’s most notable characteristics in
recent decades has been the reduction of inequalities in the access to
primary and secondary education. However, it is important not to forget
that the gaps in education continue to be important for tertiary education
and there are equity problems in terms of quality (Gasparini et al., 2009;
ECLAC, 2010). Interestingly, however, the same is not true of gender inequal-
ities where, in contrast, women outnumber men in terms of years of schooling
completed. In fact, as shown in Table 3, levels of gender equity in the edu-
cation system in Latin America are the best in the developing world.
As a result of advances in coverage at all educational levels, workers
entering the labor market today in Latin America have several more years of
schooling than previous generations. However, in contrast to the rapidly
industrializing nations of East Asia, the region shows a development pattern
127
with reduced contributions from human capital and technological knowl-

edge. At the aggregate level, this suggests that the region’s growth has been
underpinned by an increasing, but not necessarily more productive, work-
force (Inter-American Development Bank, 2008).
While there have been great gains in health, persistent challenges remain
in several areas, including in transmissible diseases, such as HIV/AIDS, malaria
and tuberculosis; chronic non-transmissible illnesses such as cardiovascular,
diabetes and cancer; and, in some countries, the impact of high levels of vio-
lence on health indicators. Again, while there has been progress in the
number of births attended by qualified personnel, according to the Pan Amer-
ican Health Organization (2007) each year around 22 000 women in Latin
America and the Caribbean die from complications associated with child deliv-
ery. Most of these deaths could have been avoided if they would have relied on
appropriate prenatal controls during pregnancy, birth and postnatal care.
Similarly, in five countries of the region, the maternal mortality rate exceeds
the rate reported 60 years ago in the USA.
There are improvements in other welfare dimensions, although in many
there are also persistent shortcomings. For example, despite advances in
housing, in a group of 65 Latin American and Caribbean cities, inhabited by
more than one-half of the region’s urban population, around 18% of the
houses are constructed with materials of insufficient quality, measured by
the standard of each country (Inter-American Development Bank, 2008; Cris-
tini and Moya, 2008). Also, while the availability of electricity is almost univer-
sal in the region’s urban areas (95% access), the availability of piped water
shows greater gaps (86%) and a large number of dwellings have no connection
to sanitation networks (60%). Telephone landline coverage is also limited
(61%), although access to telecommunications is high (87%) when one
includes mobile telephony.
Social protection
The social policy dimension that shows least advance is, without question,
that of social protection. Various reports from organizations such as ECLAC,
the International Labour Organization and the World Bank argue that in
spite of a series of reforms undertaken by Latin American countries, there con-
tinues to be only slow progress in terms of social security coverage and, more-
over, there has been regression in some countries. The essential issue is that
there are no social protection schemes in place that respond to the realities of
the region’s labor markets, particularly the prevalence of informality and fre-
quent changes of employment.
According to Uthoff (2011), the countries of the region can be divided
into three groups according to their state capacity (in terms of the develop-
ment of social policy) and the characteristics of the labor market: those
with weak state capacities and large informal sectors; those with moderate
state capacity and more developed labor markets; and finally those that
have developed a strong state capacity and have a potential welfare state.
128
The first group is made up of Bolivia, Ecuador, El Salvador, Guatemala, Hon-

duras, Nicaragua, Peru and Paraguay. The age structure of these countries is
relatively young with a considerable proportion of dependent youth and
large informal employment. The poverty rate is higher than the regional
average and the social security for employed persons is less than 30%. Colom-
bia, Mexico, the Dominican Republic, Panama and Venezuela belong to the
second group. In the last decades, the fertility rate has declined in these
countries, which is reflected in large changes in the age structure. Their
poverty rate hovers around the regional average and social security coverage
around 50%. Finally countries such as Argentina, Brazil, Chile, Costa Rica and
Uruguay make up the last group. Their population’s age structure is older with
a great number of dependent senior adults and youth, both economically inac-
tive. Poverty incidence is relatively low and social security coverage for
employed persons is over 60%.
The major conclusion to be drawn from existing analyses is that social
security systems based on contributions alone exclude a large share of the
labor force. Second, given the limited capacity of the state to provide
welfare, the market, firms and families have been operating on their own.
The explicit inclusion of the private sector in social security systems enhances
the ability of the market to contribute to the goal of social security, but it also
results in exclusion of large proportion of workers. There is a consensus that
progress in this area has to be based on a pillar of public spending, which is
non-contributory, publicly funded with general taxes and with an innovative
design to incorporate the informal economy. ECLAC (2006), Levy (2008) and
Uthoff (2011), among others, have proposed such reforms. There is, however,
no model that fits all national conditions.
Conclusions
The socioeconomic development of the region over the past two decades can
be visualized as a panorama of lights and shadows. The first refers to the
advances made in the field of public social spending since the 1990s and
are reflected in the primary indicators of welfare—education, health, access
to basic utilities—which have reduced the gaps that separate the region
from countries with higher per-capita incomes. The shadows refer to the
weak long-term performance of the labor market, the associated growth of
the informal economy and the limited advances or even reversion in the
area of social protection; these two phenomena are interrelated, as access
to social protection depends on formal employment. An intermediate situ-
ation characterizes poverty and income distribution, where there has been
important progress during the first decade of the twenty-first century after
almost a quarter-century of unsatisfactory performance. In any case, recent
improvements in income distribution are only the reversal of adverse trends
in previous decades, and the region continues to maintain levels of inequality
that are among the highest in the world.
129
As stated in the introduction to this essay, this panorama can be summar-

ized as a process of human development with precarious employment and
economic insecurity. It indicates that Latin America has found it easier to
respond to the challenge of human development than to the reduction of
inequality and the expansion of ‘labor citizenship’. The latter reflects both
weak economic growth prior to the 2003 –2008 boom—and even weak
during the boom relative to the dynamic Asian economies—as well as
adverse employment effects of structural reforms and natural resource depen-
dence, particularly in the latter case in South America.
Recent improvements in poverty and income distribution reflect both
cyclical and long-term factors. The former include the effects of rapid econ-
omic growth on employment and reductions in the urban–rural gap associ-
ated with improvement in agricultural prices. The more structural factors

include the stabilization or reduction in skilled income gaps, facilitated
among other factors by long-term improvements in average education levels
and their distribution among the population, and favorable demographic
trends.
Democracy has played a positive role, by generating greater demands for
more social spending and innovations in this area, but which has only marginally
reduced the enormous inequalities in income distribution, which include large
urban–rural gaps. These inequalities, the growing share of the informal
economy, the very incomplete development of social security, and insufficiently
progressive tax systems are the grand unresolved tasks that the countries of Latin
America ought to pursue to build up more egalitarian societies.
Acknowledgements
We are grateful to Deepak Nayyar and an anonymous referee for comments on
a previous draft of this paper.
Notes
1 As we compare GDP with the labor force, our measure is an estimate of productivity unad-
justed by changes in open unemployment, and in this sense better captures the level of labor
force utilization.
2 On social security coverage, see also Uthoff (2011).
3 For the period 1990–2005, Garcia (2007) also estimates that more than 55% of the increase
in Latin America’s total employment is explained by informal employment.
4 Please note that this is not an estimation of the overall income distribution for Latin America
as a whole, but rather an alternative way of understanding average patterns in the region.
5 See Cominetti and Ruiz (1998) and Carciofi and Beccaria (1995). For the effects of demo-
cratic regimes, see Brown and Hunter (1999).
6 Since most of the available data refer to central government, there is an underestimation of
spending for some countries. Further, when social programs have been partially or totally
privatized (in health and pensions, in particular), public-sector social spending will not
fully account for overall social spending.
130
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On: 22 September 2013, At: 01:15

Journal of Human Development and

Economic Growth, Equity and Human

To link to this article: http://dx.doi.org/10.1080/19452829.2011.637395

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Economic Growth, Equity and Human

Key words: Latin America, Poverty, Inequality, Social spending, Human

The economy and the labor market

FIGURE 1. Latin American gross domestic product growth, 1950–2010.

Reflections on the labor market

FIGURE 3. Latin America: employment and unemployment rates, 1990–2010.

manufacturing goods (textiles in particular) and especially, in the case of

TABLE 1 Labor market indicators, 1990 –2008

1990 – 1997 – 2002 – 1990 – 1997 – 2002 – 1990 – 1997 – 2002 –

pronounced reductions in the unemployment rate indeed took place in five

slightly under 1 percentage point. Moreover, the relatively widespread decline

TABLE 2 Change in labor market conditions in Latin America 1990 –2007

Open unemployment Informality Remuneration Social security coverage

Poverty and inequality

growth and a simultaneous deterioration of income distribution experienced

FIGURE 4. Evolution of poverty and extreme poverty in Latin America.

FIGURE 5. Gini coefficient behavior in Latin America.

for several countries, the recent improvement of income distribution is a

FIGURE 6. Trends of the Gini coefficient at the sub-regional level.

Determinants of poverty and inequality

which together with the direct impacts of recessions on employment and

ted about 71% to poverty reduction in these countries, whereas economic

Several national studies confirm the importance of educational policy. For

the expansion of new income transfer schemes, among which conditional

Social spending and human development

However, average trends hide a huge divergence of performance across the

FIGURE 7. Public-sector social spending (% of GDP).

FIGURE 8. Evolution of GDP per capita and social expenditure.

exceptions for some health indicators (maternal mortality, in particular). With

TABLE 3 Progress on Millennium Development Goals indicators

1990 2008 1990 2008 1990 2008 1990 2008

FIGURE 9. Human Development Index, 1990–2010.

behind in 1990. In addition, the noticeable advances in Brazil, Colombia and El

with reduced contributions from human capital and technological knowl-

The first group is made up of Bolivia, Ecuador, El Salvador, Guatemala, Hon-

As stated in the introduction to this essay, this panorama can be summar-

ated with improvement in agricultural prices. The more structural factors

tution, Washington, DC, pp. 218–243.

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