facts, puzzles and surprises in inequality...

Facts, Puzzles and Surprises in

Inequality Research Nora Lustig

Tulane University Nonresident Fellow CGD and IAD Consequences of Economic Inequality for Economic

Performance Columbia University

New York, December 3, 2014

Two Themes

• Inequality in Latin America

• Fiscal Policy, Redistribution and Poverty Reduction in the Developing World

2

Inequality in Latin America

In the 1990s:

• Tepid growth

• Stable and high inequality

In the 2000s:

• Higher growth, primarily in commodity exporters

• Generalized decline in inequality – High growth and low growth countries

– Governed by left and nonleft regimes

– Commodity exporters and commodity importers

3

4 (Lustig et al., 2014)

0.42

0.47

0.52

0.57

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Latin America: Weighted

averages of the Gini coefficient (18 countries; 1992-2012)

HH per capita income

5

-2.64 -2.08

-1.68 -1.45 -1.28 -1.00 -0.92 -0.79 -0.74 -0.72 -0.70 -0.58 -0.50 -0.42 -0.40 -0.28

0.09 0.61

-0.86

2.61

1.02 0.74 0.69 0.64

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

Nic

ara

gua

Bo

livia

Ecuad

or

El Salv

ad

or

Arg

en

tin

a

Bra

zil

Peru

Do

m. R

ep.

Pan

am

a

Ch

ile

Mexic

o

Uruguay

Co

lom

bia

Guate

mala

Para

guay

Ven

ezuela

Co

sta

Ric

a

Ho

ndura

s

LA

C-1

8

Indo

nesia

So

uth

Afr

ica

Ch

ina

Russia

USA

Latin America: Yearly Change in Gini

Coefficient (circa 2000 - circa 2013)

(Lustig et al., 2014)

WHY?

6

7

-20

0

20

40

60

80

100

Nonparametric Parametric

Labor income Transfers

Other non-labor income Pensions

Capital Adult population

Occupation share (Lustig et al., 2014)

Zooming in

Brazil

8

Brazil: Wage Inequality of All Workers

Gini Coefficient of Hourly Wages

9

Wang, Yang. 2013. “Decomposing the Changes in Male Wage Distribution in Brazil.” Tulane University, Ph.D. field paper

0.4

0.45

0.5

0.551995

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009

2011

2012

Gin

i

Year

Male Female

Difference in Log Hourly Wage. Base Period 2004

10 Wang, Yang. 2013. “Decomposing the Changes in Male Wage Distribution in Brazil.” Tulane University, Ph.D. field paper

Brazil: Decline in real wages for workers with tertiary education

11


5500

6000

6500

7000

7500

8000

85001995

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009

2011

2012

Month

ly L

abor

Inco

me

Year

College

12

-.1

0

.1

.2

.3

.4

1 11 21 31 41 51 61 71 81 91 100quantile

Log Wage Difference Composition Effect

Wage Structure Effect

Fig.10: RIF Decomposition: 2002-2011 Male

Brazil: Human Capital (2002-2011)

•Wage Structure Effect => Equalizing •Composition Effect =>Slightly Unequalizing


Brazil: Rising minimum wage

13

200

250

300

350

400

Min

imum

Wag

e in

200

2 R

eais

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Fig.13: Minimum Wage in Reais: 2002 Price


14


Brazil: Decline in skill premium coincides with the expansion of the relative supply of workers with tertiary education

Zooming in

Mexico

15

Mexico: Decline in Wage Inequality (Gini)

16

.3.3

5.4

.45

Gin

i

2000

q2

2001

q2

2002

q2

2003

q2

2004

q2

2005

q2

2006

q2

2007

q2

2008

q2

2009

q2

2010

q2

2011

q2

2012

q2

2013

q2

2014

q2

Year - Quarter

Males Females

Campos, Lopez-Calva and Lustig “Declining wages for college-educated workers in Mexico: disentangling the age, cohort and education effects,” to be presented at Latin American Inequality in the Long-run, Buenos Aires, December 5, 2014

Mexico: Wages by Education Level Difference in Log Hourly Wage. Base Period 2008:1

17


Mexico: Average Monthly Earnings for College-Educated Workers

18

8500

1000

011

500

1300

014

500

1600

0

Mon

thly

Lab

or In

com

e

2000

q2

2001

q2

2002

q2

2003

q2

2004

q2

2005

q2

2006

q2

2007

q2

2008

q2

2009

q2

2010

q2

2011

q2

2012

q2

2013

q2

2014

q2

Year - Quarter


19

-.5

-.2

.1.4

.71

Log w

age e

ffe

cts

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100Quantile

Total differential Effects of Characteristics

Effects of Returns

Campos, R., G. Esquivel and N. Lustig. 2014. “The Rise and Fall of Income Inequality in Mexico, 1989–2010,” Chapter 7 in Giovanni Andrea Cornia, ed., Falling Inequality in Latin America: Policy Changes and Lesssons, WIDER Studies in Development Economics, Oxford University Press,

Mexico: Human Capital (1996-2010):

•Wage Structure Effect => Equalizing •Endowment Effect =>Slightly Unequalizing

Real Minimum Wage and Unionization: 1988-2010 A. Real Minimum Wage Index (December

2010=100) B. Unionization Rate

10

01

20

14

01

60

18

02

00

Rea

l M

inim

um

Wag

e (D

ecem

ber

20

10

=1

00

)

1988m1 1992m1 1996m1 2000m1 2004m1 2008m1 2010m12Year

.1.1

2.1

4.1

6.1

8.2

Un

ion

izat

ion

Rat

e

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Year

ENIGH ENOE


In contrast to Brazil, in Mexico minimum wages did not increase at all…


Mexico: Decline in skill premium coincides with the expansion of the relative supply of workers with tertiary education

-40

-20

02

04

0

Pro

po

rtio

nal C

ha

ng

e (

%)

200

0q

2

200

1q

2

200

2q

2

200

3q

2

200

4q

2

200

5q

2

200

6q

2

200

7q

2

200

8q

2

200

9q

2

201

0q

2

201

1q

2

201

2q

2

201

3q

2

201

4q

2

Year - Quarter

Relative Supply Relative Wages

References • Azevedo, J. P., L. F. Lopez-Calva, N. Lustig, E. Ortiz-Juarez (2015) “Inequality, Mobility and Middle

Classes in Latin America”, in: Dayton-Johnson, J. (2015) Latin America’s Emerging Middle Class. Palgrave McMillan. Bourguignon, F., F. Ferreira and N. Lustig. 2005. The Microeconomics of Income Distribution Dynamics in East Asia and Latin America, Oxford University Press, Washington, DC.

• Campos, Lopez-Calva and Lustig “Declining wages for college-educated workers in Mexico: disentangling the age, cohort and education effects,” to be presented at Latin American Inequality in the Long-run, Buenos Aires, December 5, 2014

• Ferreira, F .H. G., S. Firpo, and J. Messina (2014) “A More Level Playing Field? Explaining the Decline in Earnings Inequality in Brazil, 1995-2012”, IRIBA Working Paper: 12, The University of Manchester.

• Ferreira, Francisco H.G, Julian Messina, Jamele Rigolini, Luis F. Lopez-Calva, Maria Ana Lugo and Renos Vakis. 2013. “Economic Mobility and the Rise of the Latin American Middle Class.” Washington, D.C: The World Bank.

• Lopez-Calva, L. F. and N. Lustig. 2010. Declining Inequality in Latin America: A Decade of Progress?, Brookings Institution Press and UNDP.

• Lustig, N., L. F. Lopez-Calva, E. Ortiz-Juarez. 2014. “Deconstructing the Decline in Inequality in Latin America,” in Basu, Kaushik and Joseph Stiglitz, eds. Proceedings of IEA roundtable on Shared Prosperity and Growth, 2015, Palgrave-Macmillan

• Wang, Yang. 2013. “Decomposing the Changes in Male Wage Distribution in Brazil.” Tulane University, Ph.D. field paper.

22

Fiscal Policy, Redistribution and Poverty Reduction in the

Developing World

23

When using material in this ppt please cite as:

• Lustig, Nora. 2014. “Fiscal Policy, Inequality and the Poor in the Developing World. Round 1.” CEQ Working Paper No. 23, Center for Inter-American Policy and Research and Department of Economics, Tulane University and Inter-American Dialogue, forthcoming.

24

www.commitmentoequity.org

http://www.commitmentoequity.org

http://www.commitmentoequity.org

Redistribution in Europr, the US and developing countries

26

-0.25

-0.20

-0.15

-0.10

-0.05

0.00 In

do

nesia

(2

01

2)

Gu

atem

ala

(2

01

0)

Co

lom

bia

(2

01

0)

Sri L

an

ka

(2

00

9)

El S

alv

ad

or (

20

11

)

Bo

livia

(2

00

9)

Peru

(2

00

9)

Eth

iop

ia(2

011

)

Jo

rd

an

(2

01

0)

Co

sta

Ric

a(2

01

0)

Ecu

ad

or (

20

11

)

Mex

ico

(2

01

0)

Arm

en

ia(2

011

)

Po

lan

d

Bu

lga

ria

Uru

gu

ay

(2

00

9)

Bra

zil(

20

09

)

Ch

ile(2

00

9)

Greece

Lit

hu

an

ia

Esto

nia

Cy

pru

s

Ro

ma

nia

La

tv

ia

Slo

va

kia

Ita

ly

Hu

ng

ary

Ma

lta

US

(2

011

)

Czech

Rep

ub

lic

So

uth

Afric

a(2

01

0)

Sp

ain

Sw

ed

en

Den

ma

rk

Slo

ven

ia

Po

rtu

ga

l

Au

stria

Neth

erla

nd

s

Germ

an

y

Fra

nce

Fin

lan

d

Lu

xem

bo

urg

Belg

ium

Un

ited

Kin

gd

om

Irela

nd

ChangeinGini:Disposablevs.Market(inGINIpoints)

Soures: for US and for CEQ countries see Lustig (2014) and references at the end; for Europe : EUROMOD for EU,Higgins et al. (2014) f Note: in these calculations contributory pensions are part of market income and NOT treated as a government transfer.

Soures: for US and for CEQ countries see Lustig (2014) and references at the end; for Europe : EUROMOD for EU,Higgins et al. (2014) f Note: in these calculations contributory pensions are part of market income and NOT treated as a government transfer. 27

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.30 0.35 0.40 0.45 0.50 0.55 0.60

MktIncomeGini

ChangeinGinipoints:Disposablevs.MarketDevelopingCountries,EuropeandUS

(declineinGinipointsshowninposi vequadrant)

Robinhood Paradox

28

Sources: : for US and for CEQ countries see Lustig (2014) and references at the end; for Europe : EUROMOD for EU,Higgins et al. (2014) f Note: in these calculations contributory pensions are part of market income and NOT treated as a government transfer.

USA

BEL

BRG

CZE

DNK

DEU

EST

IRL

GRC

ESP

FRA

ITA

CYP

LVALTU

LUX

HUNMLT

NLDAUT

POL

PRT

POM

SVNSVK FIN

SWE

GBR

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.30 0.35 0.40 0.45 0.50 0.55

MktIncomeGini

ChangeinGinipoints:Disposablevs.MarketEuropeandUS

(declineinGinipointsshowninposi vequadrant)

However,paradox disappears once one disaggregates into Europe and US

29

Sources: Lustig (2014) and references at the end.

Note: in these calculations contributory pensions are part of market income and NOT treated as a government transfer.

IND GTMLKA

ECU

SLV

BOLPER

ETH

JOR

CRIMEX

ARMURY CHLBRA

COL

ZAF

0.000

0.020

0.040

0.060

0.080

0.100

0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80

MktIncomeGini

ChangeinGinipoints:Disposablevs.MarketDevelopingCountries(CEQ16)(declineinGinipointshowninposi vequadrant)

And also, …

30

GTMBOL

SLV

PER

CRI

MEX

URY

BRACHL

COL

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0 2000 4000 6000 8000 10000 12000 14000 16000

GNI/Capita(2005PPP)

ChangeinGini:Post-fiscalvs.Market(declineinGinipointsshowninposi vequadrant)

Results sustained even when one adds indirect taxes

South Africa

31

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

Col

ombia

(201

0)

Per

u(200

9)

Guat

emal

a(20

10)

Cos

ta R

ica(

2010

)

Chile

(200

9)

El S

alva

dor (20

11)

Mex

ico(

2010

)

Bol

ivia

(200

9)

Uru

guay

(200

9)

Bra

zil(20

09)

South

Afr

ica(

2010

)

Change in Headcount Ratio ($2.5 PPP/Day): Disposable vs. Market Income

(in percentage points)

Direct Transfers (net of direct taxes) reduce poverty (except in Ethiopia)

Indirect Taxes increase poverty over and above market income poverty in several

countries

32

33

-0.09

-0.08

-0.07

-0.06

-0.05

-0.04

-0.03

-0.02

-0.01

0.00

0.01Guatemala(2010)

Bolivia(2009)

Indonesia(2012)

SriLanka(2009)

Colombia(2010)

ElSalvador(2011)

Peru(2009)

Ethiopia(2011)

CostaRica(2010)

Jordan(2010)

Mexico(2010)

Armenia(2011)

Uruguay(2009)

Brazil(2009)

Chile(2009)

SouthAfrica(2010)

ChangeinGini:MarginalContribu onofNetIndirectTaxes

(inGINIpoints)

Contribu onfromNetIndirectTax GiniChange:Post-fiscalvsMkt

Note that Net Indirect Taxes can be equalizing and yet poverty increasing: Ethiopia

0.026

-0.015

0.045

-0.007

0.006 0.006

-0.012 -0.016

-0.002

-0.024-0.019

0.006

0.036

-0.028

0.012

-0.072-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%Ethiopia(2011)

Indonesia(2012)

SriLanka(2009)

Peru(2009)

Colombia(2010)

Guatemala(2010)

CostaRica(2010)

Chile(2009)

ElSalvador(2011)

Jordan(2010)

Mexico(2010)

Bolivia(2009)

Armenia(2011)

Uruguay(2009)

Brazil(2009)

SouthAfrica(2010)

ChangeinHeadcountRa o($2.5PPP/Day):MarginalContribu onfromNetIndirectTaxes(inpercentagepoints)

Contribu onfromNetIndirectTaxes ChangeinHeadcount:Post-FiscalvsMkt

CEQ Teams (Year of Survey; C=consumption & I=income)(MWB Version)

1. Argentina (2009, I): Nora Lustig and Carola Pessino (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3

2. Armenia (2011; I): Stephen Younger and Artsvi Khachatryan (May 31, 2014; paper)

3. Bolivia (2009; I): Veronica Paz Arauco, George Gray-Molina, Wilson Jimenez and Ernesto Yañez (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3

4. Brazil (2009; I): Sean Higgins and Claudiney Pereira (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3

5. Chile (2009, I): Jaime Ruiz-Tagle and Dante Contreras (Oct. 25, 2014)

6. Colombia (2010, I): Marcela Melendez, Nora Lustig and Valentina Martinez (May 2014)

7. Costa Rica (2010; I): Pablo Sauma and Juan Diego Trejos (February 2014; paper)

8. El Salvador (2011; I): Margarita Beneke, Nora Lustig and Jose Andres Oliva (March 11, 2014)

9. Ethiopia (2010/11; C): Ruth Hill, EyasuTsehaye, Tassew Woldehanna (Sept. 28, 2014)

10. Guatemala (2011; I): Maynor Cabrera, Nora Lustig and Hilcias E. Moran (August 27, 2014)

10 Indonesia (2012; C) : Jon Jellema and Matthew Wai-Poi (Sept. 9, 2014)

11 Jordan (2010; C) : Morad Abdel-Halim, Shamma Adeeb Alam, Yusuf Mansur, Umar Serajuddin, Paolo Verme (May 16, 2014)

12 Mexico (2010; I): John Scott (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3

13 Peru (2009; I): Miguel Jaramillo (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3

14 South Africa (2010; I): Ingrid Woolard, Precious Zikhali, Mashekwa Maboshe, Jon Jellema (Aug. 25, 2014)

15 Sri Lanka (2009/10; C): Nisha Arunatilake, Gabriela Inchauste and Nora Lustig (April 8, 2014; paper)

16 United States (2011; I): Sean Higgins, Nora Lustig, Whitney Ruble and Timothy Smeeding (paper Oct. 2014)

17 Uruguay (2009; I): Marisa Bucheli, Nora Lustig, Maximo Rossi and Florencia Amabile (CEQ Web Dec 2013) Public Finance Review, May 2014, Volume 42, Issue 3

34

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