• Latin America and the Caribbean is the world's most unequal region. The 10% highest earners make on average 12 times more than the poorest 10%. This compares to a ratio of 4 on average for developed countries in OECD. In addition, one in five citizens of Latin America and the Caribbean is poor.
• In Colombia, Chile and Uruguay, around one percent of the population controls between 37 and 40 percent of total wealth, while the poorest half of the population controls only one tenth of the wealth.
• The level is much higher than the 20% to 30% range western Europe and Scandinavia. It is in fact close to the United States (42%).
• Between 1990 and 2014 the region saw its inequality reduced. Progress since has stalled. Governments need better evidence on how to tackle this problem, which has different causes and drivers in each of the region’s countries.
• The Inter-American Development Bank has teamed with London School of Economics, Yale University, the Institute for Fiscal Studies, and academics from more a dozen leading universities to launch a comprehensive rethink of the inequality problem in Latin America through critical reviews of the literature, new data, and new analyses.
• The papers published by this project show that inequality is neither as predictable nor as static as is widely believed:
  • The region is home to countries with extremely high-income inequality such as Brazil, Colombia, Guatemala, Panama and Honduras.
  • But it also includes Bolivia, Dominican Republic, El Salvador and Uruguay, where income gaps are on a par with the United States.
• Inequality has fluctuated over time. In most countries it rose rapidly in the 1970s, peaked in the 1990s, and then began to gradually fall. Today inequality in the region is lower than it was three decades ago, but since 2014 it has plateaued.
• Brazil, Bolivia, Chile, and Peru managed to significantly reduce inequality between 1980 till 2010, even though their levels remain high. In Costa Rica, inequality has increased steadily over this period.
• These new studies also indicate that wealth inequality seems to be deeper than income inequality in the region.
• Many low-income households actually have negative equity, because their outstanding debts are greater than the value of their home, vehicles and other assets.
• We are also finding new evidence that inequality is passed from one generation to another.
• One study shows that between 44 percent (Argentina) and 63 percent (Guatemala) of current income inequality is explained by "inherited" factors.
• Being born in a low-income neighborhood, belonging to an ethnic minority, and having parents with limited schooling or low-paying occupations all contribute to “inherited” inequality.
• New evidence shows that geography matters. While most of the region’s people live in cities, this study of nine countries shows that rural dynamics explain between 11 percent (Uruguay) and 58 percent (Bolivia) of overall income inequality.
• This is not only due to the large gaps between rural and urban incomes, but rather to pronounced differences between low and high-productivity farmers.
• This richer and more layered understanding of inequality should enable governments to abandon some policies, refine others and test entirely new approaches that are more tailored to the specific needs.
• Several papers from this project begin to consider what these opportunities might be in specific sectors:
  • In health, a new analysis explores how differences in healthcare use and health outcomes are related to whether individuals are participating in either contributory or non-contributory healthcare subsystems.
  • In education, this study looks at how differences in both the quantity and quality of schooling interact with other forms of inequality, such as income and labor market outcomes.
  • Given the importance of conditional cash transfers in many of the region’s countries, this analysis of 17 countries seeks to identify factors that keep these transfers from reducing poverty and inequality.
  • Pensions will be an increasingly important mitigator of inequality as the region ages in the years ahead. Since most pension systems are subsidized, this paper examines the extent to which subsidies tend to be regressive, benefiting upper-income recipients more than lower-income beneficiaries. It also shows how non-contributory pensions systems, if well-targeted, can improve the redistributive properties of pension systems.
  • Children’s school attendance and women’s labor force participation are also key drivers of inequality. This paper uses data from 25 countries to explore how changing family structures affect children's attendance and performance at school and women's ability to enter the labor market.
  • Worker turnover can also have implications for wage inequality. This study documents a higher positive annual wage growth rate for job-to-job changers compared to stayers, and it shows that younger workers benefit relatively more from the positive effects of job changes. It also indicates that total job separations and transitions from formal into informal employment occur more often among low-skill and young individuals.

POLICIES THAT CAN INCREASE POSITIVE IMPACTS

• Inequality in Latin America and the Caribbean isn’t just unacceptably high; it is responsive to factors that can make it more—or less—“inherited.” To get at the roots of this problem, governments must abandon old assumptions and apply the latest insights.
• For instance, countries with many workers with informal contract arrangements would need a different set of policies for its tax and pension systems.
• Traditional strategies such as expanding and improving the quality of education and offering cash assistance to low-income households can be effective but not sufficient. Governments must promote economic growth that can generate more productive (and formal) jobs and adopt smarter, more adaptive fiscal policies.