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Poverty and employment in 5 Latin American countries: the 1990s

Poverty and employment in 5 Latin American countries: the 1990s. Diana Alarcon, Rafael Osorio, Fabio Veras, Eduardo Zepeda. The link between poverty & employment: Khan. poverty will decrease if: wage employment increases;

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Poverty and employment in 5 Latin American countries: the 1990s

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  1. Poverty and employment in 5 Latin American countries: the 1990s Diana Alarcon, Rafael Osorio, Fabio Veras, Eduardo Zepeda

  2. The link between poverty & employment: Khan poverty will decrease if: • wage employment increases; • real wages increase (Δ^ demand for labour &/or Δ^labour productivity) • Δ^ opportunities for the poor to employ themselves • Δ^ terms of trade of self-employmed’s output

  3. The link between poverty & employment: Khan After studying 30 countries poverty reduction ocurred if; • growth rate in income per capita >~ 3%; • output elasticity of the demand for labour ~ 0.7; • ability of the poor to respond to the increase in the demand for labour.

  4. The link between poverty & employment: Islam (2004) East Asia vs South Asia and 23 countries • Clear link between poverty reduction and employment elasticity in manufacturing. • However, case for Elasticity below 1. How far? • how developed a country is • relative factor endowment • sectoral composition of production.

  5. The link between poverty & employment: Osmani (2003) under-employment • open under-employment (working less than full time) • disguised under-employment (full-time low-intensity) low returns to labour • large pool of potential entrants competing for his/her job, • working at low-productivity, • adverse terms of trade (low output prices or high input prices –e.g. credit)

  6. The link between poverty & employment: Osmani (2003) • growth factor • elasticity factor, growth-> jobs • integrability factor, poor’s access to jobs

  7. The link between poverty & employment: Kakwani (2005) • Δincome per capita of the poor, the growth potential income of the poor, • Δincome pc population, growth potential. • employment elasticity of income, the quantity of employment potential; • Δ share of the poor in total employment, the employment potential of the poor; • Δ labour income per poor worker, the productivity of employment among the poor.

  8. Three step decomposition of changes in income per capita Step 1 • Δ household income pc = Δ labour income pc + Δ other income sources pc (Conceptually focus on the household, but practically work on percentiles-20)

  9. Three step decomposition of changes in income per capita Step 2 • Δ lb income pc = Δ lb income per hour + Δ hours per worker + Δ (No. workers / No. hh- members) (Conceptually focus on the household, but practically work on percentiles-20)

  10. Three step decomposition of changes in income per capita Step 3 Δlabour income per hour’ = Δ in “prices” + Δ in characteristics* + Δ in unobserved characteristics * sex, age, rural/urban, type of occupation, industry. (Conceptually focus on the household, but practically work on percentiles-20)

  11. Poverty, growth and employment

  12. Changes in income per capita in the 1990s • Brazil 1992-2002: 2.5%, PRO-POOR • Chile 1996-2000: 1.7%, NOT PRO-POOR • Mexico 1992-2002: 0.9, PRO-POOR • Peru 1994-2000: -5.8, SHIELDING POOR • Venezuela 95-00: 0.2, NOT PRO-POOR

  13. Annual change in income per capita (%) and its pattern across percentiles

  14. Annual change in labour income per capita (%) and its pattern across percentiles

  15. Annual change in labour income per hour (%) and its pattern across percentiles

  16. Decomposing the change in household income per capita log Δ(Yi / Ni )= log Δ( Wi / Ni ) + log Δ( Si / Ni ) + log ΔVi Where Yi = Wi + Si, total income equals the sum of labour income and other income. Ni = Li + Oi, total population is divided into those working, L, and the unemployed plus the inactive, O Yi / Ni, income per capita Wi / Ni, labour income per capita Vi = log Δ (Ni(Si+Wi))/(SiWi) .

  17. Decomposing the change in labour income per capita log Δ(Wi / Ni ) = log Δ( Wi / Hi ) + log Δ( Hi / Li ) + log Δ( Li / Ni ) Where Wi / Ni, labour income per capita Wi / Hi, labour income per hour Hi / Li, hours worked per worker Li / Ni, occupation ratio

  18. Decomposing changes in labour income per hour Beta-0 is the constant for period t; Betas are the estimated parameters for Xj Xj are the characteristics; and uit is the residuals for individual i in year t; time, t = {1, 2}.

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