Job quality and poverty in Latin America

• DOI: http://doi.org/10.1111/rode.12512
• Date: 01 November 2018
• Author: Christopher Mann,Peter Brummund,Carlos Rodriguez‐Castelan
• Published date: 01 November 2018

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Job quality and poverty in Latin America

Peter Brummund

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Christopher Mann

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Carlos Rodriguez-Castelan

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University of Alabama

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University of Nebraska

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World Bank

Correspondence

Peter Brummund, University of Alabama,

Box 870224, Tuscaloosa, AL 35487.

Email: pbrummund@cba.ua.edu

Abstract

Labor market dynamics have played a significant role in

the remarkable social gains experienced in the recent past

across Latin America. Assessing quality of employment,

beyond the perspective of income, to include other funda-

mental aspects of jobs –such as whether jobs are secure,

provide benefits, or are satisfying –can shed light on the

sustainability of these achievements. This is particularly

pertinent given the region's current economic slowdown.

Using harmonized data for 15 countries in Latin America,

this paper connects the role of job quality with the recent

process of inclusive growth across the region, and particu-

larly with how individuals worked their way out of pov-

erty. The paper first proposes a multi-dimensional measure

for job quality, and then uses this measure to compare job

quality across countries and over time. The paper also stud-

ies correlates of job quality and the relationship between

job quality and poverty. One main finding is that job qual-

ity across the region began to increase in 2003. The best

predictors of job quality are age, gender, firm size, formal

employment, and union membership. Benefits and job sat-

isfaction are the dimensions of job quality that are best cor-

related with not living in poverty.

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INTRODUCTION

Latin American countries have achieved important social progress since the turn of the millen-

nium. Poverty fell by over 16 percentage points, from 39.5 percent to 23.3 percent of the pop-

ulation, between 2004 and 2014; while extreme poverty was more than halved (declining from

24.5 to 10.8 percent) over the same period.

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The middle class in the region expanded.

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And

income inequality, a persistent malady in Latin America, fell substantially –the regional Gini

coefficient for per capita income declined from 0.57 to 0.51 in 2000–2014 (World Bank,

DOI: 10.1111/rode.12512

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2018;22:1682–1708.

2016). The role of rising labor income stands out, among other factors contributing to these

achievements, as a key channel of transmission between growth and social gains. Indeed,

income from labor has been a central element in the reduction of poverty (Cruces et al.,

2017). For instance, Rodríguez-Castelan et al. (2016) establish labor income as the leading dri-

ver behind the reduction in poverty between 2003 and 2013 in the region. What happens in

terms of labor market dynamics is thus fundamental to understanding well-being in Latin

America, particularly if interest lies in the poorest segment of the population. As documented

by Cord et al. (2014), data from household surveys across the region show that incomes from

labor make up 60–80 percent of total household income.

The study of job quality –including characteristics such as whether jobs are stable and pay, at

the very least, a living wage –is useful to shed further light on labor market dynamics, and the

sustainability of these achievements. For more than a decade, job growth within Latin America

was strong overall, reflecting substantial economic growth. Informality rates, however, remain high

suggesting that new jobs may not be of ‘high’quality. High-quality jobs can constitute a pathway

out of poverty –contributing to the sustainability of the gains in welfare (while individuals with

low-quality jobs could be at risk of falling back into poverty). This paper thus analyzes the rela-

tionship between job quality and poverty across Latin America.

This topic is particularly relevant, considering the lower-growth juncture that the Latin

America region is traversing.

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While the region as a whole is slowing down, there is hetero-

geneity within. De la Torre, Ize, Beylis, and Lederman (2015) look at how countries in South

America, which did well during the period of economic expansion of the 2000s, have been

more affected by the deceleration in China, facing worsening terms of trade than Mexico and

those in Central America and the Caribbean, which are more influenced by the United States’

economic cycle (and which fared less positively in the 2000s). In the group of South Ameri-

can countries experiencing high growth during the boom, employment grew, attracting previ-

ously inactive workers into the market, both low- and high-skilled, accompanied by wage

increases between 2005 and 2011. Overall, during the expansion, the composition of employ-

ment shifted away from self-employment into salaried work, and from small firms to employ-

ment in medium and larger firms (i.e., on average, there was a shift towards more formal,

higher-productivity, better-paid work). With the economic slowdown, however, this trend

appears to be undergoing a reversal for some countries.

The rise of labor market income and poverty reduction has not progressed in the same way

across countries. Overall, labor income explained 58 percent of poverty reduction in Latin

America and the Caribbean between 2003 and 2008, and 49 percent between 2008 and 2013

(World Bank, 2014). Yet, this trend was not uniform: income from labor rose in the Andean

region, Brazil, and other countries in the Southern Cone, while it in fact fell in Mexico and

Central America –the countries hardest hit by the 2008–2009 global crisis, leading to an

increase in poverty.

Despite the value of labor income measures, a multidimensional approach can add valuable

information to assess job growth, and the sustainability of labor market trends. Multidi mensional

measures provide a new depth of information about the variable of interest. Notably, in terms of

poverty, these estimations consider how individuals are deprived, not only by their absence of

income, but by their lacking in other dimensions related to well-being, such as in terms of living

standards, access to services, or housing. Indeed, poverty measurement efforts in Latin America

are moving in the direction of complementary measurements of welfare as part of the shift world-

wide toward a multiple-dimension perspective over the past two decades. Within the region, Chile

(CASEN, 2013), Colombia (Salazar, Díaz and Pinzón, 2013), and Mexico (Consejo Nacional de

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