Dynamics of Poverty, Labor Market and Public Policies in Latin America

Abstract

Latin America experienced six years of sustained growth from 2003-2008. The high rate of economic growth over these years, before the 2008-2009 crisis, positively impacted social and labour market indicators. Evidence of these positive impacts can be seen in the form of job creation (particularly formal occupations), reduced unemployment and a slight recovery of average wages. During the period of interest, the rates of poverty and extreme poverty in the region respectively fell by 11 and 6 percentage points (p.p.). It is highly pertinent, in this context, to study the dynamics of poverty in the region and to analyze the flows into and out of poverty that accompanied this significant reduction in poverty.

The main objective of this paper is to carry out a comparative study of poverty dynamics in five Latin American countries. The study specifically aims to analyze the extent to which countries with various levels of poverty incidence differ in terms of the intensity of poverty exits and entries, identify the relative importance of events associated with poverty transitions (such as factors in the labour market, demographic change and public policy), and finally, this study aims to examine the ways in which these events affect households with different characteristics.

In order to achieve these objectives, we perform a dynamic analysis of panel data from regular household surveys. Of the five countries included in the study, Argentina and Costa Rica are found to have a relatively low incidence of poverty, Brazil is in an intermediary situation in this regard, while relatively high rates of poverty are found in Ecuador and Peru. This heterogeneous selection gives us a varied picture of social deprivation in the region.

This dynamic analysis is useful for policy recommendations to overcome high poverty levels in the region, both by reducing the probability of falling into poverty and increasing the chances of moving out of poverty.

Keywords: Poverty dynamics, Latin America, Labour market, Social policy

JEL Classification: I32, I38, J68, O54