Voices in Development: 

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In Latin America, inequality has persisted despite major structural economic and social change. To help develop effective policies for a more equitable society, a research initiative based at EGC and partner institutions explores the causes and consequences of inequality within the Latin American context.

In this episode of Voices in Development, three leading social scientists discuss a project to develop “a shared vision” of inequality in Latin America. Marcela Eslava, Professor of Economics and Dean of the School of Economics at Universidad de los Andes in Bogotá, Colombia; Santiago Levy, a nonresident senior fellow with the Global Economy and Development Program at the Brookings Institution; and Ana de la O, Associate Professor of Political Science at Yale University, discuss their engagement with the Latin America and the Caribbean Inequality Review (LACIR), a collaborative effort between Yale, the Inter-American Development Bank, the London School of Economics, and the Institute for Fiscal Studies.

Levy shared that fighting inequality is a more complex problem than poverty:

When you worry about poverty, you're only worrying about a segment of population that is below some poverty line, whereas when you're looking at inequality, you're looking at the whole population. And you're also very worried about what's happening at the very top, at the bottom. It is a much more complex problem. – Santiago Levy

Eslava, Levy, and de la O believe that research is essential to addressing inequality because it helps policymakers better understand the context of social problems, assess whether or not interventions work, and build support for the wider implementation of successful policies. “We always have to feed policymaking with research,” said Levy, the lead architect of Mexico’s social program Progresa Oportunidades.

While development scholars around the world have evaluated a variety of interventions to combat inequality, policies that have been successful in regions such as the United States and Europe may not have a similar effect in Latin America. For example, a 1994 paper by David Card and Alan Krueger showed that raising the minimum wage helped workers at little to no cost to employers. While this research, which was based on data from Pennsylvania and New Jersey, may be persuasive to US policymakers, LACIR researchers suggest that Latin American leaders would need to consider what minimum wage looks like in their region before following suit. 

In Latin America, many people earn less than the minimum wage; in some of the region’s countries, the number can be as high as 70% of workers. In this context, raising the minimum wage would be unlikely to reduce inequality. “On the contrary,” Eslava said, “you need to ask, why are people not being paid the minimum wage, and how can we deal with the problems that the minimum wage was supposed to deal with?” 

When researchers have looked more closely at the people earning below the minimum wage, they have found that these workers are usually either self-employed or employed by small firms that are not productive enough to pay the minimum wage and still stay in business. Recognizing this, Eslava said, “the question is how we achieve the same goal with a different instrument that is actually well tailored to the realities of the region.”

If policy is … guided by intuition, or by only partial diagnostics, then policy can be very misguided, and therefore, it can actually have unintended consequences, strong enough to undo whatever it was supposed to do, or collateral damage that can be large enough to create deeper problems than the ones it was supposed to help with. – Marcela Eslava

LACIR also serves as an intellectual gathering point for researchers to synthesize findings for translation into effective policy. So far, researchers agree that inequality in Latin America, which has always been very high, increased during the 1990s, started to decrease at the beginning of the 2000s and has continued to decrease since then, but not rapidly enough to recover from the spike of the 90s. 

Understanding why inequality has been so resistant to intervention is a central goal of those who study the region. One factor, according to research by de la O, is that many middle-class Latin Americans opt out of public services including health, education, and even security. This choice makes it more likely that they hold low opinions of public services and do not support robust funding of public services or other policies that aim to redistribute wealth to lower-income people. Without a strong interclass coalition that champions public services, public policy fails to adequately support the tools of socioeconomic mobility. “The people who have more political power are the ones who are making policy decisions that end up underinvesting in public services that are essential for social mobility,” de la O said.

Although they recognize the complex factors sustaining inequality in Latin America, these researchers are hopeful that, as it did in the 1990s, their work can help move the region in a more equitable direction.

It is important to keep in mind that there was a point in time in the late 90s and in the 2000s that we saw both governments, on the left and on the right, designing and implementing policies that enhanced human development, that invested in early childhood education, that improved the education and health of girls and boys, and that those investments had important positive effects not only on the children that were benefited directly, but in their households, too. So I think it's important to keep in mind that this is something that can be done, and that even though it seems politically very difficult to achieve, there are ways in which to achieve political coalitions that would support the types of policies that would help us reduce inequality once again. – Ana de la O

About the Guests:

Marcela Eslava Mejia is Professor of Economics and Dean of the School of Economics at Universidad de los Andes in Bogotá, Colombia. She is a chief co-editor for Economía, the journal of the Latin American and the Caribbean Economic Association (LACEA); a research affiliate of LACEA and the Innovations for Poverty Action’s Small and Medium Enterprises program; and member of the directing boards of LACEA, Research Institute for Development, Growth and Economics (RIDGE), and the Latin American committee of the Econometric Society. Her current research interests include the relationship between firm dynamics and regulations; the relationship between business growth and the evolution of productivity versus demand at the firm; the effect of credit constraints on business performance and aggregate productivity; and the policy alternatives to address financial restrictions to businesses. 

Santiago Levy is a nonresident senior fellow with the Global Economy and Development Program at the Brookings Institution. He was previously president of the Latin American and Caribbean Economic Association. From 2008 to 2018 he was the vice president for sectors and knowledge at the Inter-American Development Bank. From 1994 to 2000, he served as the deputy minister at the Ministry of Finance and Public Credit of Mexico.

Ana de la O is Associate Professor of Political Science at Yale University, where she is affiliated with the MacMillan Center for International and Area Studies, the Institution of Social and Policy Studies, and the Jackson Institute for Global Affairs. Her research relates to the political economy of poverty alleviation, clientelism, and the provision of public goods.