Growth, Employment, and Poverty in Latin America UNU World Institute for Development Economics Research (UNU-WIDER) was established by the United Nations University as its fi rst research and training centre and started work in Helsinki, Finland, in 1985. The mandate of the institute is to undertake applied research and policy analysis on structural changes affecting devel- oping and transitional economies, to provide a forum for the advocacy of policies leading to robust, equitable, and environmentally sustainable growth, and to pro- mote capacity strengthening and training in the fi eld of economic and social policy- making. Its work is carried out by staff researchers and visiting scholars in Helsinki and via networks of collaborating scholars and institutions around the world. United Nations University World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6B, 00160 Helsinki, Finland < www.wider.unu.edu > Growth, Employment, and Poverty in Latin America Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz A study prepared by the United Nations University World Institute for Development Economics Research (UNU-WIDER) 1 Comp. by: EElangovan Stage : Revises1 ChapterID: 0003036260 Date:3/3/17 Time:09:54:47 Filepath:d:/womat-filecopy/0003036260.3D Dictionary : OUP_UKdictionary 4 3 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University ’ s objective of excellence in research, scholarship, and education by publishing worldwide. 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OUP UNCORRECTED PROOF – REVISES, 3/3/2017, SPi Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY Foreword The motivation behind this piece of research was cemented during a meeting attended by Professor Gary Fields — one of the co-editors of this book — and myself in mid-2013 where we discussed in depth the linkages between economic growth, changing employment conditions, and the reduction of poverty. Gary has been working on the frontier of our profession on employ- ment and development issues all of his academic career, and he pointed to new inroads and data to be explored within the growth – employment – poverty nexus, focusing on Latin America. At the time of our exploratory discussions the target date for completion of the UN Millennium Development Goals was looming, with the number one goal — to halve between 1990 and 2015 the proportion of people living on less than 1 dollar a day — having already been achieved. The new Post-2015 Devel- opment Agenda, since adopted, was under intense debate. Leading the charge among the Sustainable Development Goals is the aim to end poverty in all its forms everywhere, followed closely by the SDG to promote inclusive and sustainable economic growth, full and productive employment, and decent work for all. Thus the proposed research could not have been more timely for the international agenda. And more so as UNU-WIDER was then launching a new research programme — focusing on the three development challenges of transformation, inclusion, and sustainability — wherein work on the growth – employment – poverty nexus was a straightforward fi t. I hereby express my sincere appreciation of the four editors, Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz, for bringing this academic work to full fruition, and particularly for their analytical skills brought out so clearly in this book. UNU-WIDER gratefully acknowledges the support and fi nancial contribu- tions to its research programme by the governments of Denmark, Finland, Sweden, and the United Kingdom. Finn Tarp Helsinki September 2016 Acknowledgements We would like to express our gratitude to UNU-WIDER for its generous sup- port, and especially to its director, Finn Tarp, who encouraged us during the three years we worked on this book. We are also grateful to CEDLAS and its director, Leonardo Gasparini, for allowing us access to the SEDLAC database to construct most of the calculations presented in this book. Many persons provided helpful comments throughout the process of writ- ing this book. They include Leonardo Gasparini for comments on a fi rst draft of this book, and the following colleagues for comments on country-speci fi c chapters: Tim Gindling (Costa Rica), Robert Duval-Hernández (Mexico), José Rodríguez (Peru), and Verónica Amarante (Uruguay). We would also like to thank anonymous reviewers from Oxford University Press and UNU-WIDER whose comments helped us improve our work. Participants at the UNU- WIDER 30th Anniversary Conference ‘ Mapping the Future of Development Economics ’ , held in Helsinki in September 2015, and the 2015 LACEA Meet- ing also provided useful suggestions and comments on previous versions of our manuscript. A group of excellent research assistants contributed to the bibliographical review. They are Ivana Benzaquén, Jessica Bracco, Cynthia Marchioni, and Germán Reyes. Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz Contents List of Figures xi List of Tables xiii List of Abbreviations xv Notes on Authors xvii Part I. Introduction to the Volume 1. Introduction and Motivation for the Project 3 2. Data and Methodology 20 Part II. Cross-Country Analysis 3. Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s 31 4. Cross-Country Analysis of the Growth – Employment – Poverty Nexus 55 5. Within-Country Analysis of the Growth – Employment – Poverty Nexus: Additional Evidence 104 6. Conclusions from the Cross-Country Analysis 136 Part III. Individual Country Analysis 7. Argentina 143 8. Bolivia 161 9. Brazil 178 10. Chile 196 11. Colombia 213 12. Costa Rica 232 13. Dominican Republic 250 14. Ecuador 268 15. El Salvador 286 16. Honduras 302 17. Mexico 320 18. Panama 340 19. Paraguay 357 20. Peru 377 21. Uruguay 397 22. Venezuela 417 Appendix 1 Evolution of Labour Market Indicators over the 2000s by Country 435 Appendix 2 Cross-Country Relationship between Changes in Labour Market Indicators and Changes in Macroeconomic Variables during the 2000s 452 Appendix 3 Evolution of Macroeconomic Variables over the 2000s by Country 476 Index 493 Contents x List of Figures 1.1 Open transmission channels 6 1.2 Blocked transmission channels 7 3.1 Evolution of GDP per capita and labour market indicators in the Latin American region: Unweighted average 2000 – 12 32 3.2 Evolution of labour market indicators over time by country 37 3.3 Cross-country relationship between the percentage of labour market indicators moving in the welfare-worsening direction and growth rate of GDP per capita during the international crisis 47 3.4 Distribution of labour market indicators according to the post-crisis path by country 51 4.1 Cross-country relationship between the percentage of labour market indicators moving in the welfare-improving direction and growth rate of GDP per capita during the 2000s 57 4.2 Cross-country relationship between the annualized changes in labour market indicators and annualized growth rate of GDP per capita during the 2000s 58 4.3 Cross-country relationship between the percentage of labour market indicators moving in the welfare-improving direction during the 2000s and initial GDP per capita 64 4.4 Cross-country relationship between the annualized changes in labour market indicators during the 2000s and initial GDP per capita 65 4.5 Cross-country relationship between the annualized changes in labour market indicators during the 2000s and the initial value of labour market indicators 68 4.6 Cross-country relationship between the percentage of improving labour market indicators and the annualized changes in macroeconomic variables during the 2000s 71 4.7 Cross-country relationship between annualized changes in labour market indicators and annualized changes in mean labour earnings during the 2000s 88 4.8 Cross-country relationship between annualized changes in selected labour market indicators and annualized changes in the share of wage/salaried employees in total employment during the 2000s 90 4.9 Cross-country relationship between annualized changes in labour market indicators and annualized changes in the 2.5 dollars-a-day poverty rate during the 2000s 93 4.10 Cross-country relationship between annualized changes in labour market indicators and annualized changes in the 4 dollars-a-day poverty rate during the 2000s 95 5.1 Mean labour earnings, 2.5 and 4 dollars-a-day poverty rates elasticity with respect to GDP per capita for illustrative countries 112 5.2 Relationship between percentage changes in mean labour earnings, 2.5 and 4 dollars-a-day poverty rates, and percentage changes in GDP per capita for illustrative countries 114 5.3 2.5 dollars-a-day poverty rates elasticity with respect to unemployment and mean earnings for illustrative countries 123 5.4 4 dollars-a-day poverty rates elasticity with respect to unemployment and mean earnings for illustrative countries 125 5.5 Growth incidence curves of labour earnings by country. Percentage changes for the sample of employed workers with positive labour earnings 129 5.6 Growth incidence curves of labour earnings by country. Dollar changes for the sample of employed workers with positive labour earnings 131 List of Figures xii List of Tables 2.1 Latin American household surveys and period under study by country 21 3.1 Annualized growth rates of GDP per capita (at PPP 2005) for different time periods by country 35 3.2 Qualitative changes in labour market indicators from initial to fi nal year by country 36 3.3 Qualitative changes in labour market indicators during the international crisis of 2008 by country 45 3.4 Qualitative changes after the international crisis of 2008 in labour market indicators which worsened during the crisis by country 49 4.1 Direction of the cross-country relationship between annualized changes in macroeconomic variables and annualized changes in labour market indicators and GDP per capita growth during the 2000s 74 4.2 Tightness of the cross-country relationship (R-squared) between annualized changes in macroeconomic variables and annualized changes in labour market indicators and GDP per capita growth during the 2000s 76 4.3 Cross-country relationship between annualized changes in labour market indicators and annualized changes in macroeconomic variables and in GDP per capita during the 2000s 80 4.4 Cross-country correlation matrix between the annualized changes in labour market indicators during the 2000s 84 4.5 Cross-country poverty elasticities with respect to GDP per capita, unemployment rate, and labour earnings during the 2000s 99 5.1 Labour market indicators ’ elasticities with respect to GDP per capita during the 2000s by country and for the Latin American region 107 5.2 2.5 dollars-a-day elasticity with respect to employment and earnings indicators and inequality indicators during the 2000s by country and for the Latin American region 117 5.3 4 dollars-a-day elasticity with respect to employment and earnings indicators and inequality indicators during the 2000s by country and for the Latin American region 119 7.1 Argentina: Evolution of growth and labour market indicators over the 2000s 148 8.1 Bolivia: Evolution of growth and labour market indicators over the 2000s 163 9.1 Brazil: Evolution of growth and labour market indicators over the 2000s 180 10.1 Chile: Evolution of growth and labour market indicators over the 2000s 198 11.1 Colombia: Evolution of growth and labour market indicators over the 2000s 215 12.1 Costa Rica: Evolution of growth and labour market indicators over the 2000s 234 13.1 Dominican Republic: Evolution of growth and labour market indicators over the 2000s 252 14.1 Ecuador: Evolution of growth and labour market indicators over the 2000s 270 15.1 El Salvador: Evolution of growth and labour market indicators over the 2000s 288 16.1 Honduras: Evolution of growth and labour market indicators over the 2000s 304 17.1 Mexico: Evolution of growth and labour market indicators over the 2000s 322 18.1 Panama: Evolution of growth and labour market indicators over the 2000s 342 19.1 Paraguay: Evolution of growth and labour market indicators over the 2000s 359 20.1 Peru: Evolution of growth and labour market indicators over the 2000s 379 21.1 Uruguay: Evolution of growth and labour market indicators over the 2000s 399 22.1 Venezuela: Evolution of growth and labour market indicators over the 2000s 419 List of Tables xiv List of Abbreviations CASEN Encuesta de Caracterización Socioeconómica Nacional (Chile) CCT conditional cash transfer CEDLAS Centro de Estudios Distributivos, Laborales y Sociales CSS Caja del Seguro Social (Panama) ECH Encuesta Continua de Hogares (Bolivia, Colombia, Uruguay) EH Encuesta de Hogares (Bolivia, Panama) EHPM Encuesta de Hogares de Propósitos Múltiples (Costa Rica, El Salvador) EIH Encuesta Integrada de Hogares (Paraguay) ENAHO Encuesta Nacional de Hogares (Costa Rica, Peru) ENEMDU Encuesta de Empleo, Desempleo y Subempleo (Ecuador) ENFT Encuesta Nacional de Fuerza de Trabajo (Dominican Republic) ENIGH Encuesta Nacional de Ingresos y Gastos de los Hogares (Mexico) EPH Encuesta Permanente de Hogares (Argentina, Paraguay) EPH-C Encuesta Permanente de Hogares-Continua (Argentina) EPHPM Encuesta Permanente de Hogares de Propósitos Múltiples (Honduras) EPM Encuesta de Hogares por Muestreo (Venezuela) FPS Fondo de Pensiones Sociales (Peru) GEIH Gran Encuesta Integrada de Hogares (Colombia) GIC growth incidence curve IESS Instituto Ecuatoriano de Seguridad Social IHSS Instituto Hondureño de Seguridad Social ILO International Labour Organization IMSS Instituto Mexicano del Seguro Social INJUPEMP Instituto Nacional de Jubilaciones y Pensiones de los Empleados y Funcionarios del Poder Ejecutivo (Honduras) INPREMA Instituto Nacional de Previsión del Magisterio (Honduras) IPM Instituto de Previsión Militar (Honduras) IPS Instituto de Previsión Social (Paraguay) IPSFA Instituto de Prevision Social de las Fuerzas Armadas (Venezuela) ISSFA Social Security Institute of the Armed Forces (Ecuador) ISSFAM Instituto de Seguridad Social para las Fuerzas Armadas Mexicanas ISSPOL Instituto de Seguridad Social de la Policía Nacional (Ecuador) ISSS Instituto Salvadoreño de Seguridad Social ISSSTE Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Mexico) IVSS Instituo Venezolano de los Seguros Sociales NAFTA North American Free Trade Agreement PISA Programme for International Student Assessment PNAD Pesquisa Nacional por Amostra de Domicílios (Brazil) PPP purchasing power parity PRAF Programa de Asignación Familiar (Honduras) RGPS Regime Geral de Previdência Social (Brazil) RJP IMSS Régimen de Jubilaciones y Pensiones, Instituto Mexicano del Seguro Social RPPS Regime Próprio de Previdência Social (Brazil) SDG Sustainable Development Goal SEDLAC Socio-Economic Database for Latin America and the Caribbean UN-ECLAC United Nations Economic Commission for Latin America and the Caribbean List of Abbreviations xvi Notes on Authors Guillermo Cruces (PhD in economics, LSE) is the deputy director of the Center for Distributive, Labor and Social Studies (CEDLAS) at the Universidad Nacional de La Plata, Argentina (UNLP) and a research fellow at IZA. His research is focused on labour economics and distributional analysis in Latin America and the Caribbean. He has published in journals such as the Journal of Political Economy , Journal of Public Economics , Labour Economics , Journal of Population Economics , Brookings Papers on Economic Activity , Journal of Development Studies , and Economia , and he has edited books and contributed to collective volumes and reports. Gary S. Fields is the John P. Windmuller Professor of International and Comparative Labor and Professor of Economics at Cornell University, a research fellow at IZA, and a Non-Resident Senior Research Fellow at UNU-WIDER. At Cornell, he teaches and conducts research in labour economics, development economics, and public policy in the university-wide Department of Economics and the ILR School. He is the winner of the 2014 IZA Prize in Labor Economics, the top worldwide award in the fi eld, and director of the IZA Program in Labor and Development. His most recent prior book is Working Hard, Working Poor (Oxford University Press). David Jaume is an economics PhD student at Cornell University, and visiting researcher at CEDLAS. His work is focused on labour markets and income distribution in developing countries. He has published in the areas of economics of development and economics of education. He has also been a research fellow at CEDLAS, Universidad Nacional de La Plata, where he received his Master ’ s degree in economics. Mariana Viollaz has a PhD in economics from the Universidad Nacional de La Plata (UNLP), Argentina. She is a Senior Researcher at the Center for Distributive, Labor and Social Studies (CEDLAS) at the Universidad Nacional de La Plata. She has been a postdoctoral fellow at the ILR School of Cornell University where she researched on the growth – employment – poverty nexus in Latin America during the 2000s. Her research is focused on labour and development economics in Latin America and the Caribbean. Part I Introduction to the Volume