Exploring Roots of Inequality in Latin America and Peru

1.1TFP Evolution, 1950–2011

1.2Trade and Value-Added in Economic Sectors

1.3Summary Statistics

1.4Cointegration Test

1.5Granger-causality Test by Country

1.6Deindustrialization and the Structure of the Economy

1.7Deindustrialization and Income Inequality

Chapter Two

2.1List of Mean and Standard Deviation Values of Each Variable

2.2Sample Distribution of Zero and Missing Observations by Indigenous Status, Gender & Sector

2.3Estimation of Log of Weekly Wage in Peruvian Labor Market, 1985–1994

2.4Log of Wage Estimates Inclusive of Interactives with Date, 1985–1994

3.1Household Shocks, Numbers and Types Experienced

3.2Descriptive Statistics

3.3Household Shocks and Child Labor Incidence

3.4Number of Household Shocks and Specific Forms of Child Labor Activity

3.5Number of Specific Household Shocks and Specific Forms of Child Labor Activity

1.1Productivity in Latin America, 1950–2017

1.2Cumulative TFP Growth, 1950–2017

1.3Productivity Growth in Latin America, 1960–2017

1.4Manufacturing Productivity in Latin America, 1960–2016

1.5Manufacturing Productivity in Latin America across Decades

1.6Revealed Comparative Advantage in Latin America

1.7Manufacturing Comparative Advantage in Latin America

1.8Employment by Sector in Latin America

1.9Average Trade in Services in Latin America, 2000–2015

1.10Gini Coefficients in Latin American Countries, 1950–2011

1.11Labor Force by Productivity Level, Selected Countries in Latin America, 2018

1.12Deindustrialization and the Structure of the Economy by Decade

1.13Economic Composition and Income Inequality

1.14Change Economic Composition and Income Inequality

Introduction

This volume deals with inequality. Isolating the roots of inequality in a region as vast and diverse as Latin America requires an undertaking beyond the narrow focus of the present volume. Most studies on Latin America point to the growing diversity in the region’s labor markets; the Mexico/Central American region is characterized by informality, outmigration, and low productivity, while the Southern region has benefitted from higher average levels of schooling and less ethnic diversity, though overall, the region has very high levels of income inequality. Nonetheless, this volume demonstrates, both from a macroeconomic perspective of the entire region and via two country-level studies, that a few prominent causes of inequality are pervasive and empirically evident. The evidence presented here, while far from comprehensive, points to three specific causes of inequality that are suggestive of shared features of inequality across Latin America.

First there are sectoral differences in productivity that are closely related to declining shares of labor in agriculture and increases in the share of small firms operating in the informal services sector. Second, the growth of the informal services sector is the result of the migration from rural areas to the urban informal service sector because of a relative decline of manufacturing and deindustrialization. Third, compared to observations from East Asian economies, this trend has prevented the services sector from playing a leading role in Latin American economic growth due to the size of the high-skilled services sector in Latin America being relatively small; that is, the region does not have the average levels of ←1 | 2→education and the skilled labor to support a dynamic services sector that is capable of absorbing a high proportion of surplus labor. Hence, inequality as employed in this volume either results in sectoral differences in earnings or, at least, has a significant impact on labor market outcomes. The first chapter in this collection is a macroeconomic examination of aspects of Latin American inequality in terms of these factors. Using microdata, the second chapter, a country study, follows with an examination of the causes of earnings inequality. The third chapter, also a country study, focuses on child labor stemming from household shocks and inequality in terms of household wealth, education, etc. While the country studies employ wider sets of explanatory variables, both chapters empirically demonstrate the significant impacts of informal labor, rural migration, and education on labor market-related inequalities. While both country studies examine Peru and, thus, admittedly narrow the diversity of data sources, it is notable that Peru is also a country for which more extensive good quality data are available from international bodies. For that reason, it is often chosen for research on inequality and development change in Latin America. The longitudinal data from Peruvian households that is employed in the final chapter reflects this assessment.