Poverty in Latin America: Don’t look down

In the first decade of the new millennium Latin America grew more equal.. Escaping poverty was easy enough. Staying out of it looks harder

In the first decade of the new millennium Latin America grew more equal. A report on poverty published on June 14th by the United Nations Development Programme found that between 2003 and 2013 nearly half the region’s population moved up the income ladder, and one in five joined the middle class, defined as having between $10 and $50 a day of purchasing power. Conversely, only 1% dropped into a lower group, and the share of people living on less than $2.50 a day fell by half, to 11.5%. As a result, Latin America’s Gini coefficient, which runs from zero (where everyone earns the same) to one (where a single fat cat gets all the cash), declined from 0.55 in 1994 to 0.49 in 2013.

Unfortunately, the end of the global commodity boom has spelled the end of Latin America’s long growth spurt. In 2014-15, GDP increased by just 0.6% annually. As a result, the gains achieved by the region’s lower classes now look precarious. In the past, a bit over 10% of people just above the poverty line have wound up falling beneath it. If the same proportion slide back in the coming years, more than a third of those who escaped poverty in the past decade will relinquish their progress.

The report’s central message is that without robust economic growth, the policies that helped reduce poverty (such as conditional cash transfers, which give families money for vaccinating children and sending them to school) may not be enough to keep their beneficiaries from becoming poor again. It lists four factors that prevent downward mobility. Not all jobs are created equal: formal employment with benefits and severance provides a better cushion than piecemeal gigs. Owning assets, such as a car or house, is another buffer. Help with caring for children and old people is essential, whether by friends, family or the state. And formal safety nets, like pensions and unemployment insurance, do their jobs as advertised.

Such counsel would have been even more useful in 2006, when the region enjoyed windfall tax revenues. Today, these indicators look troubling. Most workers are either self-employed or in businesses with fewer than five staff. Nearly half of this group has no job-based pension. Just 12.5% of people in the region’s bottom three wealth quintiles own a car. Without these safeguards, poverty reduction in Latin America could prove as fleeting as the commodity boom that made it possible.

The Economist |

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