How middle-class is Latin America?

Latin American Conference on Measuring Well-Being

and Fostering the Progress of Societies

Mexico DF, 11 May 2011

Social inequality and well-being

Jeff Dayton-Johnson

Head, Americas Desk

OECD Development Centre

2

Significant impact of the crisis on Latin America

Source: OECD (2010), based on data from ECLAC and OECD.

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0U

rugu

ay

Arg

enti

na

Peru

Ecu

ado

r

Co

lom

bia

Bra

zil

Co

sta

Ric

a

Ch

ile

Ven

ezu

ela

OEC

D

Mex

ico

An

nu

al g

row

th p

erce

nta

ge

GDP growth in previous three years 2009 GDP growth

3

but transitory

Source: OECD Economic Outlook, Dec 2010 (Chile, Brazil Mexico and OECD) Latin American Consensus Forecasts, Nov 2010 for other countries

-8

-6

-4

-2

0

2

4

6

8

10

LA&C ARG BRA CHL COL CRI DOM MEX PER VEN OECD

Rea

l G

DP

in

% incre

ase

GDP growth expectation

2009 2010 2011

4

Resilience was also visible in the social dimension

20

25

30

35

40

45

50

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Source: ECLAC (2010).

Poverty headcount ratio (% of total population)

5

The “middle sectors” in Latin America

0

10

20

30

40

50

60

70

80

90

100

Ital

y

Uru

guay

Mex

ico

Ch

ile

Bra

zil

Peru

Co

sta

Ric

a

Ecu

ado

r

Arg

enti

na

Co

lom

bi

a

Bo

livia

Disadvantaged Middle sectors Affluent

Source: Castellani and Parent (2010) , based on national household surveys.

Middle sectors: Proportion of the population earning between 50% and 150% of median income

6

The middle sectors and the poor

0

5

10

15

20

25

30

35

40

45

50

Argentina Brazil Chile Colombia Costa Rica Mexico Peru Dominican Rep.

Per

cen

tage

of

tota

l po

pu

lati

on

Moderate poverty headcount

Extreme poverty headcount

Disadvantaged

Source: OECD (2010), based on data from the SEDLAC database, accessed in August 2010.Notes: Poverty headcount figures refer to the number of individuals below the respective national poverty line, according to official statistics. The square refers to the percentage of disadvantaged population as per the 50-150 definition.

Proportion of the population below the middle-sector cut-off, compared with moderate and extreme poverty rates

7

Possibilities of moving up… and down

Notes: DMP,RES and MSMP are defined in Box 1.2.

Source: OECD (2010), based on 2006 National Household Surveys analysed in Castellani and Parent (2010).

0

10

20

30

40

50

60

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Uru

gu

ay

Me

xic

o

Ch

ile

Bra

zil

Pe

ru

Co

sta

…

Ec

ua

do

r

Arg

en

t…

Co

lom

…

Bo

livia

DMP Middle sectors size …

0

10

20

30

40

50

60

0.44

0.45

0.46

0.47

0.48

0.49

0.50

0.51

Uru

gu

ay

Me

xic

o

Ch

ile

Bra

zil

Pe

ru

Co

sta

Ric

a

Ec

ua

do

r

Arg

en

tin

a

Co

lom

bia

Bo

livia

RES Middle sectors size …

0

10

20

30

40

50

60

0.42

0.43

0.44

0.45

0.46

0.47

0.48

0.49

Uru

gu

ay

Me

xic

o

Ch

ile

Bra

zil

Pe

ru

Co

sta

…

Ec

ua

do

r

Arg

en

…

Co

lom

…

Bo

livia

MSMPMiddle sectors size (right axis)

Potential to move up into the middle sectors

Potential to fall down out of the middle

sectors

Potential to move up out of the middle sectors

Indices of “mobility potential”

8

Middle-sector workers: mostly informal

Note: Percentage of total middle sectors’ workers (0.5 – 1.5 median household adjusted income)Source: OECD (2010), based on household survey data.

Middle-sector workers by employment category

0.0

0.2

0.4

0.6

0.8

1.0

2002 BOL 2006 BRA 2006 CHL 2006 MEX

Pe

rce

nta

ge

Formal employees Self Employed (with tertiary education completed)

Non Agricultural Self-employed Non Agricultural Informal Employees

Agricultural Self-employed Agricultural informal employees

9

Probability of achieving a higher level of education than one’s parents, given parental

educational achievement

Education as a tool for upward mobility: more can be done

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Illiterate Incomplete primary

Complete primary

Incomplete secondary

Complete secondary

Incomplete tertiary

Complete tertiary

Women Men

Source: OECD ( 2010), based on survey data from Latinobarómetro (2008).

Parents’ level of education

Pro

bab

ility

10

Social inclusion & PISA science test performance

Note: Blue lines indicate OECD averages. Inclusion index measures proportion of variance of economic, social and cultural variance within schools.Source: OECD ( 2010), based on survey data from 2006 round of PISA

Equity and performance: No trade-off necessary P

ISA

Scie

nce

Sco

re

11

Effective net receipt of benefits by household income deciles: weighted average, percentage of mean disposable income (TOP); percentage of decile mean disposable income (BOTTOM)

Middle sectors: players in a renewed social contract?

-90.0%-80.0%-70.0%-60.0%-50.0%-40.0%-30.0%-20.0%-10.0%

0.0%10.0%20.0%30.0%

I II III IV V VI VII VIII IX X

Taxes Social spending Net transfersCHILE MEXICO

-90%-80%-70%-60%-50%-40%-30%-20%-10%

0%10%20%30%

I II III IV V VI VII VIII IX X

Taxes Social spending Net transfers

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

I II III IV V VI VII VIII IX X

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

I II III IV V VI VII VIII IX X

Source: OECD (2010), based on national household surveys.

12

Taxation and satisfaction with public services

30

35

40

45

50

55

60

Q1 Q2 Q3 Q4 Q5

"Good Citizens pay their taxes"(percentage of respondents who agree)

25

30

35

40

45

50

Q1 Q2 Q3 Q4 Q5

"Taxes are too high"(percentage of respondents who agree)

25

27

29

31

33

35

37

Q1 Q2 Q3 Q4 Q5

"Tax evasion is never justified"(percentage of respondents who agree)

-

20

40

60

80

100

Q1 Q2 Q3 Q4 Q5

Satisfaction with health services(percentage of respondents)

Satisfied

Not Satisfied

No Access

Source: OECD ( 2010), based on survey data from Latinobarómetro (2007-8).

www.latameconomy.org

www.oecd.org/dev

Jeff Dayton-Johnson

Head, Americas Desk

OECD Development Centre

Thank you Obrigado

Gracias Merci

How middle-class is Latin America?

Paradoxes of well-being

Latin American Conference on Measuring Well-Being

and Fostering the Progress of Societies

Mexico DF, May 2011

14

What kind of work do middle-sector people do?

0

5

10

15

20

25

30

35

Argentina (urb)Uruguay (urb) Brazil Chile Costa Rica Mexico Peru

Agriculture, Forestry, Fishing Manufacturing

Wholesale, Hotels, Restaurants Construction, Transport, Communication

Public administration, Education, Health

Source: OECD (2010) based on analysis of national household surveys in Castellani and Parent (2010).

Proportion of middle-sector population in various occupations

15

Coverage improves with income – in the informal sector

sector

Source: OECD (2010), based on national household surveys.

0

20

40

60

80

100

Disadvantaged Middle Sectors Affluent

BOL 2002 BRA 2006 CHL 2006 MEX 2006

0

5

10

15

20

25

30

35

Disadvantaged Middle Sectors Affluent

BOL 2002 BRA 2006 CHL 2006 MEX 2006

Workers with formal jobs Workers with informal jobs

Pension coverage rate of workers by income category, formal and informal employment

16

Middle sectors: supporters of democracy, politically moderate

Attitudes towards democracy(% support and satisfaction)

Distribution of political preferences(0 extreme left, 1 extreme right)

Attitudes towards democracy

0%

10%

20%

30%

40%

50%

60%

70%

80%

1 2 3 4 5

Perceived Income Quintile

Support for democracy Satisfaction with functioning of democracy

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

0 1 2 3 4 5 6 7 8 9 10

Fre

qu

en

cy

Left - Right self-reported preferences

Q1 Q2-Q4 Q5

Source: OECD ( 2010), based on survey data from Latinobarómetro (2007-8).

17

The Outlook: Main Messages

• The middle sectors in Latin America are economically vulnerable

• Labour informality – and low social protection coverage – are particularly

prevalent among the middle sectors

• Education is a powerful motor of intergenerational social mobility: but one

that isn’t working particularly well in Latin America

• The middle sectors are disposed to pay taxes – if they receive public goods

of reasonable quality in exchange.

18

The Outlook: Policy Recommendations

• Flexible social protection policies must be put in place to arrest

downward social mobility and an increase in inequality

• Early childhood education, as well as better quantity and quality of

secondary education would bolster the role of human capital as a

means of climbing the social ladder

• Tax reform must be accompanied -- or preceded -- by improvements in

the quality of public spending