Social Panorama of Latin America, Edition 1995, ECLAC
Previous editions of the Social Panorama have
analysed the changes in income distribution that took place
during the 1980s and the early 1990s.5/
These studies have concluded that, in most of the countries,
households in the highest decile did not suffer income losses
during the crisis and that, in some cases, their incomes even
increased in real terms. Thus, in general, their share of income
distribution rose. On the other hand, the available evidence
indicates that households in the seven lowest-income deciles bore
the brunt of the crisis and the costs of adjustment policies. In
addition, the most recent trends show that the periods of resumed
growth in the region have been characterized by a highly
inflexible pattern of income distribution, which has prevented
the benefits of such growth from outweighing the relative
disadvantages faced by population groups whose income share had
fallen during the 1980s.
Under these circumstances, the percentage increases in household
incomes among the various deciles have been similar, so that
while the relative share of the lowest-income households has not
improved, their real income has increased in direct proportion to
economic growth. This has allowed a significant percentage of
households in this category to escape from indigence and poverty,
particularly in cases where economic growth has been strong and
sustained. Given the effects of scarce resources on households in
the poorest deciles, it must be assumed that during periods of
rapid growth, such groups would be likely to support a
development mode that enables them to escape from the worst kinds
of poverty. At the other end of the scale, the two or three
highest deciles are receiving a major share of the income
increases, and can naturally be expected to be more supportive of
current development processes.
Between these two extremes are the population groups which, while
not poor, are not fully integrated into the more dynamic sectors
of the economy. These are the households whose incomes, while
sufficient to meet their basic needs, are still below the
average. In the urban areas of the countries which have attained
what may be considered a middle or high per capita income level
for Latin America, such households make up the next three deciles
after the poorest 40% in terms of family income distribution.6/ In
1980 the lowest household incomes in this group were between 30%
and 40% above the per capita value of the poverty line, and the
highest incomes were between 2.2 and 3.3 times higher than the
poverty line, depending on the country (except in Argentina and
Uruguay, where they were around four times higher)7/ (see table 1). The
30% of households in this group earn incomes ranging between US$
300 and US$ 800 per month for a family of four, and they
typically constitute the lower level of the broad middle-income
urban groups in the region's countries.8/
The following discussion will examine the trends in the income
share of middle-income urban households in the fifth, sixth and
seventh deciles and their absolute levels of well-being, which
are relevant to an analysis of how the fruits of economic growth
have been distributed in recent years. This group is generally
considered to play an important role in strengthening democracy,
since it consists mainly of wage-earners employed in enterprises
in the formal sector of the economy and a portion of the public
sector. Moreover, because of its position in the income pyramid,
the urban group is the one that best represents the paramount
level of well-being in the countries, and it is therefore the
reference group for the population living in poverty. A further
factor which may be important to social stability is the
perception that the members of the lower-middle group have of
their own incomes as compared with those of other groups and with
their growing consumer expectations, as well as their
opportunities for social mobility. This perception derives from
their access to the mass media, and their higher educational
attainments.
Be that as it may, households at the lower-middle level receive a
significantly smaller share of total urban income distribution
than the 30% which they would hypothetically receive if income
was equitably distributed. In the Latin American countries with a
relatively less concentrated pattern of income distribution
(Argentina, Costa Rica, Uruguay and Venezuela), this group's
share hovers around 26%, but it dwindles to 20% in countries with
a more concentrated urban income distribution (Brazil and Chile,
among the countries considered). In the other countries these
households' share falls between those percentages (see table 2).
There is a significant contrast between this situation and that
of the industrialized countries with higher per capita incomes,
in which the share received by the 30% of households in the
lower-middle group approaches 32% of national income.9/
An analysis of trends in the lower-middle group's share of urban
income distribution after 1980 shows that, in seven of the eight
countries for which information is available, this share
decreased or held steady, between the early 1980s and the early
1990s. The exception is Uruguay, where income distribution did
not worsen significantly during the 1980s and even showed a less
concentrated pattern at the beginning of the 1990s than a decade
earlier. In the other countries, the percentage of total income
received by this group declined sharply, particularly by the
mid-1980s; thereafter, it stagnated or recovered slightly up to
1992. Nevertheless, this recovery was not sufficient to restore
income shares to the levels achieved at the end of the 1970s (see table 3).
Consequently, in five countries (Argentina, Brazil, Costa Rica,
Panama and Venezuela), the average real incomes of lower-middle
income households declined sharply between 1980 and 1992 -by
between 7% and 27%. In Mexico, however, they increased by nearly
2%, although there was no improvement in these households' share
of total income. In all the countries referred to, with the
exception of Argentina, the gap between the average income for
the group and total household income widened still further. In
addition, a number of lower-middle-income households are
currently approaching the poverty line. Accordingly, this group
is now more vulnerable than in the past two recessions and
declining economic growth rates, with the resulting increases in
unemployment.
It is particularly interesting to examine the experience of
lower-middle-income groups in Argentina, Chile, Mexico and
Uruguay, countries which in recent years have mostly exhibited
high growth rates and have made substantial progress in reforms.
In Argentina, the economic growth achieved during 1990-1992
allowed households in this group to recover a major portion of
the real income10/
which they had lost during the past decade. In Mexico, the
improvement resulting from growth in the early 1990s was not
sufficient to enable these households to regain their earlier
share of urban income, although their purchasing power increased
relative to 1984. In Uruguay, on the other hand, growth was of
relatively greater benefit to middle-income groups, including
those at the lower- middle-income level; these groups not only
managed to regain their 1980 income share, but to exceed it, as
their income improved significantly (26%) between 1986 and 1992.
It is also instructive to review what has happened to the
well-being and urban income share of lower-middle-income
households in Chile, which has exhibited very high growth rates
since the mid-1980s. There, average incomes in this group grew by
around the same proportion as overall household income
(approximately 20%), so that between 1987 and 1992, the
lower-middle-income share of urban income did not improve, but
remained at around one fifth of total income (except in 1990,
when it showed a slight, temporary increase). Nevertheless, these
households made significant gains in well-being, as measured in
terms of the poverty line. The most recent figures indicate that
the income share of lower-middle-income urban households remained
virtually static between 1992 and 1994, but that their incomes
continued to improve in real terms, with an average increase of
15% over the period. Nevertheless, for the period 1990-1994, the
income percentage received by this group appears to have
decreased slightly (see table 1).
In short, in some of the region's countries, the
lower-middle-income urban group had developed protective
mechanisms enabling it to survive adverse economic conditions,
and had partially begun to share in the benefits of growth. In
most cases, however, this group suffered a notable setback in its
share of income distribution from 1980 onward, so that, in six of
the eight countries considered, it experienced significant real
income losses. Thus, not only did the households in this group
have to defer their expectations of increased consumption levels,
but in some cases, their incomes have tended to approach the
poverty line.
If the dominant type of employment among the lower-middle-income
labour force is looked at, it can be seen that there are a number
of policies that are closely linked to income trends at this
level. Of the total lower-middle-income population employed in
the urban areas of Chile, Costa Rica, Mexico, Uruguay and
Venezuela, 70%-75% are wage-earners, and 55%-65%, including
public-sector wage-earners, are employed in the formal sector of
the economy, the traditional base of trade-union movements.
Therefore, this group's opportunities for improving its income
and income distribution share depend largely on the dissemination
of technological progress among the sectors and enterprises in
which it is employed, and on its capacity for turning
productivity increases into income.
Currently, the most important policies, whether proposed or
implemented, that are directed towards this group's income and
productivity are aimed at promoting flexibility in labour-force
participation, so that employment and household income can be
increased, although it is recognized that such measures could
lead initially to a drop in wages. Mention should also be made of
new regulations which, in a different context, are designed to
give trade-union organizations more power in wage agreements in
order to restore wage-earners' negotiating position. As regards
productivity, it is worthwhile to note the policies designed to
bring small and medium-sized enterprises and micro-enterprises
into the more dynamic sectors of the economy, and those that link
public sector-wage increases to heightened efficiency and
macroeconomic policies.
5/ See ECLAC, Social Panorama of Latin America, 1994 edition (LC/G.1844), Santiago, Chile, November 1994, chapter III, and table 18.
6/ This analysis does not include countries with annual per capita incomes under US$ 1,000 and poverty levels of nearly 50% or higher in urban areas. Of the countries for which information is available on income distribution trends during the period 1980-1992, Bolivia, Guatemala, Honduras and Paraguay were not included.
7/ The low poverty percentages and the high income and urbanization levels reached in Argentina and Uruguay in the early 1980s, as compared with the rest of the region, mean that this group was larger in both countries. The next 10% of households after the poorest 30% should be added to the three deciles mentioned; the lower-middle level would thus consist of the 40% of households in the fourth, fifth, sixth and seventh deciles in terms of urban income distribution. For purposes of comparison, however, the definition of the level was retained.
8/ The middle-income urban groups, defined in accordance with the income-classification method, are broader than the definition used for analytical purposes. Also included in these groups are the 20% (the eighth and ninth income distribution deciles), or even 25% of households with above-average incomes. These households constitute the middle and upper-middle urban groups.
9/ This figure is an average of the lower-middle group's percentage shares of national income distribution in the following eight countries around 1985: Australia, Canada, France, Italy, Japan, Sweden, the United Kingdom and the United States. The share received by the next 30% of households after the poorest 40% was estimated on the basis of income distribution data published by the World Bank in The Challenge of Development. World Development Report, 1991, New York, Oxford University Press, 1991.
10/ Deflated by the nominal per capita value of the poverty line.
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