The poorest 50% keep 10% of the income and the richest 10% keep 55%. The richest 10% get 77% of the wealth and the poorest 50% get 1%. And it is that inequality in Latin America and the Caribbean has deeper roots than previously estimated and is transmitted from generation to generation, according to the new Report on Economy and Development (RED 2022) of the Development Bank of Latin America CAF.
This report titled Inherited inequalities: the role of skills, employment and wealth in the opportunities of the new generations, released on December 5, 2022, indicates that the lack of opportunities to train human capital, obtain good jobs and accumulate assets are key factors behind the spread of inequalities and that opportunities in these three areas are distributed very unevenly between people from families of different socioeconomic levels.
“Low social mobility is a major problem for Latin America and the Caribbean. And it is not only because of its consequences on equity, but also because of its impact on other central components of economic development, such as growth and political-institutional stability. The lack of social mobility tends to alter incentives for effort and distort the allocation of human talent, affecting productivity levels and growth…”, explains Dolores de la Matta, co-author of the publication and principal economist at the Directorate of Socioeconomic Research of CAF.
About 80% of people born in the first decades of the 20th century did not finish primary education, but this percentage dropped to 5 among those born at the end of the century. In contrast, those born in the 1990s who did not finish high school reached 50%, still far from the goal of universality at this level.
The higher educational levels attained by children compared to their parents are not reflected as expected in relative increases in terms of educational levels or job opportunities. This may suggest that educational progress has not been sufficient or that the region’s economic structure is failing to absorb or reward it.
Latin America and the Caribbean also presents a low intergenerational dynamism in occupations and income. For example, the evidence collected in RED 2022 indicates that the region has a high percentage of people who share the occupational category with their father.
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Regarding job opportunities, it is noted that family origin is an important determinant of decisions, making the employment channel another source of reproduction of inequalities. An extreme case of the influence that the family has on the employment destiny of the children is that they work as employees in the same companies that employ or employed their parents. The ECAF 2021 survey shows that 7.5% of wage earners in the private sector work for an employer for which their parents worked, with no substantial differences based on family socioeconomic status.
The geographical location of the parents also determines the employment opportunities of the children. A good part of the new generations lives in the same neighborhood in which their parents lived. This is stated by 45% of those surveyed by CAF, 34% even live in the same house as their parents.
The gap is greater when it is observed that residents in rural areas and in smaller cities by number of inhabitants have low levels of upward mobility, in addition, wage differences between rural and urban areas are on average of the order of 40%.
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For Lucila Berniell, co-author of the publication and chief economist at CAF’s Directorate of Socioeconomic Research, equalizing job opportunities requires reducing inequalities between regions, which could be achieved by providing the different regions with basic urban infrastructure and equipment for the provision education, health, public security services, as well as social transfers. “The very high rate of urbanization in the region represents great potential for policies that equalize job opportunities between city neighborhoods. This fundamentally implies investments in mass public transport that decrease the distance to jobs, among others”.
The RED 2022 diagnosis suggests that focusing efforts on population groups such as Afro-descendants, indigenous people, women from the most vulnerable backgrounds, and residents of segregated areas could help improve opportunities for occupational and income mobility.
Wealth
The most direct mechanism that connects the wealth of parents and children is that of inheritance. The report indicates that “the region collects relatively little from inheritance taxes, which opens a space to explore alternatives in the use of this redistributive instrument.”
“Based on the diagnosis on the distribution of wealth, the differences in the composition of the portfolio and the financial knowledge of households of different socioeconomic levels and the persistence of wealth between parents and children in the region, five actions of policies to favor greater intergenerational mobility: inheritance taxation, the development of mortgage credit markets, home ownership, the promotion of financial knowledge and the strengthening of social protection schemes”, added Berniell.
In addition, it is considered that access to housing financing is very limited in the region and that its expansion could improve intergenerational mobility in different ways, since it could not only enable people from more disadvantaged contexts to access housing, but would also help that these are of better quality and are better located within the cities. (YO)
Source: Eluniverso
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