Is Labor Income Responsible for Poverty Reduction? A Decomposition Approach

Demographics, labor income, public transfers, or remittances: Which factor contributes the most to observed reductions in poverty? Using counterfactual simulations, this paper accounts for the contribution labor income has made to the observed changes in poverty over the past decade for a set of 16 countries that have experienced substantial declines in poverty. In contrast to methods that focus on aggregate summary statistics, the analysis generates entire counterfactual distributions that allow assessing the contributions of different factors to observed distributional changes. Decompositions across all possible paths are calculated so the estimates are not subject to path-dependence. The analysis shows that for most countries in the sample, labor income is the most important contributor to changes in poverty. In ten of the countries, labor income explains more than half of the change in moderate poverty; in another four, it accounts for more than 40 percent of the reduction in poverty. Although public and private transfers were relatively more important in explaining the reduction in extreme poverty, more and better-paying jobs were the key factors behind poverty reduction over the past decade

Argentina: macroeconomic crisis and household vulnerability

Using urban household surveys, we constructed a panel dataset to study the effects of the Argentine macroeconomic crisis of 1999-2002 with the aim of (1) identifying the most vulnerable households, (2) investigating whether employment in the public sector and government spending served to decrease vulnerability, and (3) understanding the mechanisms used by households to smooth the effects of the crisis. Households whose heads were male, less educated, and employed in the construction sector were more vulnerable to the crisis, experiencing larger-than-average declines in income and higher dispersion. Households whose heads were employed in the public sector were more protected from the crisis, although higher public spending did not serve to decrease their vulnerability. A significant source of vulnerability was linked to changes in employment status, and we studied the determinants of the probability of being unemployed and of becoming unemployed. Last, we found that households were unable to perfectly smooth income shocks. Given these results, there is room for broadening social safety nets, particularly in the form of public works programs.Departamento de Economí

Argentina: macroeconomic crisis and household vulnerability

Using urban household surveys, we constructed a panel dataset to study the effects of the Argentine macroeconomic crisis of 1999-2002 with the aim of (1) identifying the most vulnerable households, (2) investigating whether employment in the public sector and government spending served to decrease vulnerability, and (3) understanding the mechanisms used by households to smooth the effects of the crisis. Households whose heads were male, less educated, and employed in the construction sector were more vulnerable to the crisis, experiencing larger-than-average declines in income and higher dispersion. Households whose heads were employed in the public sector were more protected from the crisis, although higher public spending did not serve to decrease their vulnerability. A significant source of vulnerability was linked to changes in employment status, and we studied the determinants of the probability of being unemployed and of becoming unemployed. Last, we found that households were unable to perfectly smooth income shocks. Given these results, there is room for broadening social safety nets, particularly in the form of public works programs.Departamento de Economí

Inclusión Social en Panamá: La Población Indígena

Este estudio utiliza una reciente encuesta de hogares para medir los avances en materia de inclusión social durante la última década, incluyendo una revisión de los indicadores de pobreza, estructura del hogar, los activos laborales, de capital humano, físicos, y financieros. Dicha revisión resume las intervenciones del gobierno en salud, educación e infraestructura en los pueblos indígenas a la luz de los impactos sociales observados en los datos. Asimismo, se hace una descomposición de la brecha salarial entre grupos étnicos utilizando la metodología de matching desarrollada por Ñopo (2008). Los resultados demuestran que a pesar de los recientes avances, la población indígena de Panamá continúa con niveles de pobreza y marginación alarmantes. Sin embargo existe bastante heterogeneidad en estos resultados. Asimismo, los resultados señalan aciertos en la política de Gobierno, como también debilidades, las que permiten apuntar a posibles acciones de política que permitan mejorar la calidad de vida de los pueblos indígenas

Decomposing Distributional Changes in Pakistan

This paper quantifies the contributions to distributional changes observed in Pakistan over the last decade. In contrast to methods that focus on aggregate summary statistics, the method adopted in this paper generates entire counterfactual distributions to account for the contributions of demographics, labor and non-labor incomes in explaining poverty reduction. The results show that the most important contributor was the growth in income. Moreover, this growth in income seems to be driven by returns to individual and household endowments, pointing to productivity increases as the driving force behind poverty reduction. Lower dependency ratios, transfers and remittances also contributed to poverty reduction, albeit to a smaller extent. Growth in productivity, particularly between 2001-02 and 2005-06 is consistent with estimates from aggregate accounts, which points to productivity growth led by movements of labor force away from agriculture and into industry and services. If the objective is to reach similar or accelerated poverty reduction and productivity growth going forward, increased investment in rural areas will be needed

Poverty and Social Impact Analysis in PRGF-Supported Programs

This paper aims to inform on the status of Poverty and Social Impact Analysis (PSIA) in IMF-supported programs, detailing the results presented in the recent review of PRGF-supported programs. The review showed that more needs to be done, both in undertaking PSIA when necessary, and in reporting the policy tradeoffs in program documents. Policy design should be continuously informed by the results of PSIA.Poverty;impact analysis, social impact analysis, international trade, social safety nets, transition economies, trade shocks, international trade policy, terms of trade, social safety net, terms of trade shocks, poverty reduction strategy, domestic prices, qualitative analysis, exogenous shock, domestic price, oil prices, macroeconomic framework, capacity constraints, ex ante analysis, impact of policies, poverty line, tariff increases, compensation packages, terms-of-trade shocks, ante analysis, income groups, social implications, social insurance, impact of reforms, incidence of implementation of reform, impact of policy, poverty reduction strategy paper, transition countries, participatory poverty assessments, tariff rates, external tariff, world market, imported inputs, household surveys, impact of policy changes, poverty alleviation, international trade policies, country programs, poverty assessments, vertical integration, trade policies

Educational Choices and Educational Constraints

Recent efforts at poverty alleviation emphasize increasing government spending on education. However, even if spending were perfectly targeted, it is not evident that spending by itself will lead to higher educational attainment. Bolivian household data is used in this paper to ascertain the probability of an individual quitting school due to financial or other reasons. Simulations show that government cash transfers can help to improve educational attainment somewhat. However, nonmonetary limitations must also be addressed if educational attainment is to improve significantly, in particular, for indigenous women who have the lowest levels of education in the country.Government expenditures;Economic models;probability, schooling, educational achievement, educational attainment, problems, leaving school, simulation results, survey, educational levels, school enrollment, educational level, statistics, standard deviation, sensitivity analysis, educational establishments, educational choices, standard errors, returns to schooling, educational campaigns, education expenditure, educational performance, school years, equation, econometrics, average educational level, probabilities, samples, educational goals, dummy variable, educational review, estimation procedure, education levels, grade repetition, educational institution, education spending, educational establishment, educational choice, university education, public schools, dummy variables, equations, educational expenditures, independent variables, lower educational levels, simultaneous equation

Understanding Poverty Reduction in Sri Lanka: Evidence from 2002 to 2012/13

This paper quantifies the contributions to poverty reduction observed in Sri Lanka between 2002 and 2012/13. The methods adopted for the analysis generate entire counterfactual distributions to account for the contributions of demographics, labor, and non-labor incomes in explaining poverty reduction. The findings show that the most important contributor to poverty reduction was growth in labor income, stemming from an increase in the returns to salaried nonfarm workers and higher returns to self-employed farm workers. Although some of this increase in earnings may point to improvements in productivity, defined as higher units of output per worker, some of it may simply reflect increases in food and commodity prices, which have increased the marginal revenue product of labor. To the extent that there have been no increases in the volumes being produced, the observed changes in poverty are vulnerable to reversals if commodity prices were to decline significantly. Finally, although private transfers (domestic and foreign) helped to reduce poverty over the period, public transfers were not as effective. In particular, the reduction in the real value of transfers of the Samurdhi program during 2002 to 2012/13 slowed down poverty reduction

Intrahousehold Allocation of Resources

Recognizing that intrahousehold inequalities exist, this study focuses on the distribution of resources toward children across household types. A bargaining framework is used to test whether it matters who has control over resources. Results show that control over resources matters, as well as the characteristics of family members. The policy implication is that the education of mothers is important to improve child welfare, over and above the benefits of cash transfer schemes. Parental education campaigns should accompany child welfare programs, particularly among indigenous families. Children fare better when mothers are educated, both parents are present, and there are fewer children.Resource allocation;Economic models;family members, extended family, child welfare, extended families, household type, household income, household survey, household size, household members, household consumption, household spending, children under age, family member, social safety net, household behavior, poverty reduction strategy, cash transfers, cash transfer, household expenditure, data sets, child mortality, social safety, household model, representative households, single mothers, household surveys, demand analysis, linear expenditure system, domestic workers, parental education, child survival, urban centers, indigenous people

Inclusión Social en Panamá: La Población Indígena

Este estudio utiliza una reciente encuesta de hogares para medir los avances en materia de inclusión social durante la última década, incluyendo una revisión de los indicadores de pobreza, estructura del hogar, los activos laborales, de capital humano, físicos, y financieros. Dicha revisión resume las intervenciones del gobierno en salud, educación e infraestructura en los pueblos indígenas a la luz de los impactos sociales observados en los datos. Asimismo, se hace una descomposición de la brecha salarial entre grupos étnicos utilizando la metodología de matching desarrollada por Ñopo (2008). Los resultados demuestran que a pesar de los recientes avances, la población indígena de Panamá continúa con niveles de pobreza y marginación alarmantes. Sin embargo existe bastante heterogeneidad en estos resultados. Asimismo, los resultados señalan aciertos en la política de Gobierno, como también debilidades, las que permiten apuntar a posibles acciones de política que permitan mejorar la calidad de vida de los pueblos indígenas