Institute of Development Studies

Income inequality declining in Latin America

15 July 2010  

For the first time in history, income inequality declined throughout Latin America in the past decade while it has been growing in China, India and South Africa. A new book, edited by IDS Board Member Professor Nora Lustig and Luis F. López-Calva, chief economist at the Regional Bureau of Latin America and the Caribbean of the UNDP, takes an in-depth look at Argentina, Brazil, Mexico and Peru to determine the primary impetus for this trend.

Given that Latin America is the most unequal region in the world and that during the 1980s and 1990s inequality increased, this is great news. The decline of inequality in Latin America has been pervasive: of the seventeen countries for which comparable data is available, inequality fell in twelve. It has occurred both in countries whose growth was fast and countries whose growth was mediocre.

In Declining Inequality in Latin America: A Decade of Progress?, editors Luis F. López-Calva and Nora Lustig bring together leading scholars and policymakers to examine the decline of inequality in the region. Through in-depth country analyses, this book is among the first attempts to understand why inequality has fallen in Latin America since 2000.

The country studies focus primarily on the proximate causes of changes in inequality, such as changes in the distribution of educational attainment, returns to personal characteristics (education, gender and experience), access to employment, hours worked, and government transfers. Authors rely on a variety of parametric and non-parametric methods to decompose the changes in household income inequality. The empirical analysis is combined with indirect evidence and historical narratives.

The book reveals two leading factors that may account for the reduced inequality:

• the narrowing of the earnings gap between skilled and low-skilled workers 
• the increase of government transfers to the poor.

Educational upgrading contributed to the narrowing of the earnings gap and democratization to the more equitable use of public resources. Will inequality continue to decline in the future? Lopez-Calva and Lustig think not unless the quality of education in public schools is vastly improved and access to tertiary education is expanded.

Image credit: Eduardo Martino / Panos

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