Skilled labor force and cash transfer programs, key to decline inequality in Argentina

Inequality has been a distinctive feature in Latin America and the Caribbean in its history. The gap between rich and poor has nourished years of political and social instability in a region characterized by enormous natural resource reservoirs and a great workforce potential.

But for more than a decade this gap has started to decrease, supported by an economic boom without precedent that has driven tens of thousands families out of poverty.

A World Bank study analyzed some of the concrete causes for the decline in inequality, translated in a decrease of the Gini index – the income coefficient per capita per household – from an average of 0.530 at the end of the 1990s to 0.497 in 2010.  From the 17 countries for which there exists comparable data, 13 registered a decrease, compared to an increase of the Gini in other parts of the world.

The report focuses on what happened in three middle income countries in the region as a representative sample: Mexico, with less economic growth but a better performance in the international markets thanks to the North American Free Trade Agreement (NAFTA);Argentina, that registered impressing growth rates during the analysis period and that between the 70s and 90s presented the highest inequality rate in the region; and Brazil, that boasted an important economic progress that has been translated in social well-being under center-left governments.

According to the study, during the first decade of the 2000s, income increased in the three countries, the average schooling years rose, and inequality between labor income and non-labor income decreased – that means income from cash transfers or interests, among other things.

 Argentina, before and after 2001

The study developed by Nora Lustig, Luis F. López-Calva y Eduardo Ortiz-Juarez analyzes the Argentinean situation before and after the 2001 crisis. According to the Socio-Economic Database for Latin America and the Caribbean (SEDLAC) between 1992 and 2002, Argentina registered an increase of the Gini index that went from 0.450 to 0.533, mostly because the gap between skilled and low-skilled workers rose and the labor unions suffered a weakening due to the wave of privatizations, dollarization and commercial liberalization during this period.

More than ten years have passed after the crisis, and thanks to the economic growth of these years, the Gini fell to 0.442 in 2010. The study points out that “the reduction in inequality accounted for 40 and 50 percent of the decline in extreme and moderate poverty, respectively”.

Thanks to an extremely successful economic period – 8% annual growth rate after 2003, with the exception of 2009 due to the global crisis- and a sharp fall in the unemployment rate – from 20% to 8%- workers started to regain ground in the economic scene. “Although the devaluation initially had a negative impact on real wages, this effect faded as a cheaper peso stimulated output in labor-intensive sectors”, reveals the study.

Also, the main contributing factor was the large expansion in the coverage of government cash transfers programs (such as Jefes y Jefas as well as pensions to the elderly) which played a key role in the distribution of non-labor income in the post crisis, followed by programs like Familias and Asignación Universal por Hijo.

But the study concludes: “The progress in the distribution can be difficult to maintain”, especially in a context of global crisis that can rebound in the productivity of the countries. It recommends improving the quality of education services to raise a skilled and qualified labor force that can face the challenges of a demanding market.