Is Labor Income Responsible for Poverty Reduction? A Decomposition Approach

38 Pages Posted: 20 Apr 2016

See all articles by Joao Pedro Azevedo

Joao Pedro Azevedo

affiliation not provided to SSRN

João Pedro Azevedo

World Bank

Gabriela Inchauste

World Bank

Sergio Olivieri

Universidad Nacional de La Plata

Jaime Saavedra

GRADE; World Bank

Hernan Winkler

World Bank

Date Written: April 1, 2013

Abstract

Demographics, labor income, public transfers, or remittances: Which factor contributes the most to observed reductions in poverty? Using counterfactual simulations, this paper accounts for the contribution labor income has made to the observed changes in poverty over the past decade for a set of 16 countries that have experienced substantial declines in poverty. In contrast to methods that focus on aggregate summary statistics, the analysis generates entire counterfactual distributions that allow assessing the contributions of different factors to observed distributional changes. Decompositions across all possible paths are calculated so the estimates are not subject to path-dependence. The analysis shows that for most countries in the sample, labor income is the most important contributor to changes in poverty. In ten of the countries, labor income explains more than half of the change in moderate poverty; in another four, it accounts for more than 40 percent of the reduction in poverty. Although public and private transfers were relatively more important in explaining the reduction in extreme poverty, more and better-paying jobs were the key factors behind poverty reduction over the past decade.

Keywords: Rural Poverty Reduction, Services & Transfers to Poor, Regional Economic Development, Poverty Monitoring & Analysis

Suggested Citation

Azevedo, Joao Pedro and Wagner de Azevedo, João Pedro and Inchauste Comboni, Maria Gabriela and Olivieri, Sergio and Saavedra, Jaime and Winkler, Hernan Jorge, Is Labor Income Responsible for Poverty Reduction? A Decomposition Approach (April 1, 2013). World Bank Policy Research Working Paper No. 6414, Available at SSRN: https://ssrn.com/abstract=2253784

Joao Pedro Azevedo (Contact Author)

affiliation not provided to SSRN

No Address Available

João Pedro Wagner de Azevedo

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Maria Gabriela Inchauste Comboni

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Sergio Olivieri

Universidad Nacional de La Plata ( email )

7 Nº 776
Buenos Aires, BA 1900
Argentina

Jaime Saavedra

GRADE ( email )

Av, Graú 915
Barranco, Lima
Peru

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

Hernan Jorge Winkler

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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