How Middle-Class is Latin America?

Latin American Economic Outlook 2011

Brasilia, 8th August 2011

How middle-class is Latin America?

Mario PezziniOECD Development Centre

2

Significant impact of the crisis on Latin America

Source: OECD (2010), based on data from ECLAC and OECD.

3

Outline

1 Latin America’s middle classes

2 Avoiding downward mobility: social protection

3 Fostering upward mobility: education

4 Fostering new models of growth

5 Middle classes and fiscal policy: a new social contract?

4

The “middle sectors” in Latin America

Source: Castellani and Parent (2010) , based on national household surveys .

Middle sectors: Proportion of the population earning between 50% and 150% of median income

%

5

Possibilities of moving up… and down

Notes: DMP,RES and MSMP are defined in Box 1.2.Source: OECD (2010), based on 2006 National Household Surveys analysed in Castellani and Parent (2010).

Potential to move up into the middle sectors

Middle Sectors Resilience

Potential to move up out of the middle sectors

Indices of “mobility potential”

6

Outline






7

Note: Percentage of total middle sectors’ workers (0.5 – 1.5 median household adjusted income)Source: OECD (2010), based on household survey data.

Middle-sector workers by employment category

0.0

0.2

0.4

0.6

0.8

1.0

2002 BOL 2006 BRA 2006 CHL 2006 MEX

Perc

enta

ge

Formal employees Self Employed (with tertiary education completed)

Non Agricultural Self-employed Non Agricultural Informal Employees

Agricultural Self-employed Agricultural informal employees

Middle income workers: mostly informal

8

Pension Coverage & income level

Formal Workers Informal Workers

Percentage of workers covered

9

Policy recommendations: contents (ex post and ex ante)

Minimum pensions: old affiliates, agricultural informal

Universality vs. Looser eligibility

Affiliation: Independents with tertiary education

Compulsory for independent workers vs. Opt-out

Flexibility (contributions, withdrawals)

Public co-funding: Middle-sectors informal workers with savings

Matching defined contributions

10

Outline






11

Intergenerational mobility in Latin America is low

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Peru

Ecua

dor

Pana

ma

Chi

le

Bra

zil

Col

ombi

a

Nic

arag

ua

Indo

nesi

a

Ital

y

Slov

enia

Egyp

t

Hun

gary

Sri L

anka

Paki

stan

USA

Swit

zerl

and

Irel

and

Sout

h A

fric

a

Pola

nd

Vie

tnam

Phili

ppin

es

Bel

gium

Esto

nia

Swed

en

Gha

na

Ukr

aine

East

Tim

or

Ban

glad

esh

Slov

akia

Cze

ch R

epub

lic

Net

herl

ands

Nor

way

Nep

al

New

Zea

land

Finl

and

Nor

ther

n Ir

elan

d

Gre

at B

rita

in

Mal

aysi

a

Den

mar

k

Kyrg

yzst

an

LAC OECD (excl. Mexico and Chile) Developing countries

Correlation between parental and child education

Source: Hertz el at. (2007)

12

Probability of achieving a higher level of education than one’s parents, given parental educational achievement

Low mobility in the middle

Source: OECD ( 2010), based on survey data from Latinobarómetro (2008).

Parents’ level of education

Prob

abili

ty

13

Social inclusion & PISA science test performance

Note: Blue lines indicate OECD averages. Inclusion index measures proportion of variance of economic, social and cultural variance within schools.Source: OECD ( 2010), based on survey data from 2006 round of PISA

Equity and performance: No trade-off necessary PIS

A S

cience

Sco

re

14

Policies to enhance upward mobility

• Expand early childhood development programs

• More and better secondary education: focus on schools and teachers

• Better social mix within schools

• Financing tertiary education: grants and scholarships

• Redistributive policies and income support

15

Outline






16

Outline






17

Índices de Gini antes y después de impuestos y gastos públicos

Fuente: OCDE (2008) para los países de la OCDE no latinoamericanos, cálculos en base a encuestas de hogares para los países de América Latina

25

30

35

40

45

50

55

60

ARG CHL COL MEX PER OCDE

Ingreso de mercadoTras transferencias en efectivo e impuestos

25

30

35

40

45

50

55

60

CHL MEX OCDE

Ingreso de mercado

+ Transferencias en efectivo

- Impuestos a la renta

+ Educación (especie)

+ Salud (especie)

18

02468

10121416

Gua

tem

ala

Dom

inic

an R

ep.

El S

alva

dor

Cost

a Ri

ca

Mex

ico

Uru

guay

Vene

zuel

a, B

oliv

aria

n Re

p. Colo

mbi

a

Peru

Arge

ntina

Chile

Braz

il

Sele

cted

LAC

OEC

D (3

3)

Direct Taxes

02468

1012141618

Colo

mbi

a

Peru

El S

alva

dor

Dom

inic

an R

ep.

Cost

a Ri

ca

Chile

Uru

guay

Mex

ico

Braz

il

Arge

ntina

Sele

cted

LAC

OEC

D (3

3)Indirect Taxes

Tax revenue as percentage of GDP

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10

Chile

El S

alva

dor

Peru

Gua

tem

ala

Colo

mbi

a

Mex

ico

Arge

ntina

Uru

guay

Cost

a Ri

ca

Braz

il

Sele

cted

LAC

OEC

D (3

3)

Social Security

0

2

4

6

8

10

12

14

16

18

Direct Taxes Indirect Taxes Social Security

Selected LAC

Brazil

OECD (33)

Source: Revenue Statistics in Latin America (OECD, ECLAC, CIAT, 2011, forthcoming)

19

Searching Better Taxation

Source: Revenue Statistics in Latin America (OECD, ECLAC, CIAT, 2011, forthcoming)

%

Tax revenue, as percentage of total taxation

20

Taxation and satisfaction with public services

Source: OECD ( 2010), based on survey data from Latinobarómetro (2007-8).

21

Main Messages

The middle sectors in Latin America are economically vulnerable

Labour informality – and low social protection coverage – are particularly prevalent among the middle sectors

Education is a powerful motor of intergenerational social mobility: but one that isn’t working particularly well in Latin America

The middle sectors might be disposed to pay taxes – if they receive public goods of reasonable quality in exchange.

Latin American Economic Outlook 2011

www.latameconomy.org

www.oecd.org/dev

How middle-class is Latin America?

Mario Pezzini, DirectorOECD Development Centre

Thank you very much!

Obrigado!

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How Middle-Class is Latin America?