Chile Income Distribution Final 25 Agosto 2009 158498

8/12/2019 Chile Income Distribution Final 25 Agosto 2009 158498

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Re-Privatizations, Entrepreneur Income Share and theSurge in Inequality in Chile.

Jorge riedman!

"epartment o# Economics

$niversidad de Santiago de Chile

%ugust, &''(

%)stract

Chilean income distribution deteriorated sharply in the mid-seventies. Between July 1974 and June 1976the Gini increased rom .4! to .!". #he deterioration was sudden$ stron% and permanent. #he paperhi%hli%hts how income concentration was the conse&uence o the privati'ation process carried out betweenJanuary 1974 and June 1976$ which transerred an lar%e portion o wealth rom the state bac( to privatehands in a very short period o time. #his paper shows that a lar%e raction o the increase in ine&uality can

be primarily attributed to a correspondin% increase in the share o income held byEntrepreneuramilies andsecondarily$ to the concentration o income within this se%ment. #he avera%e share held o income by

Entrepreneuramilies increased by "!) ater 1974 while measures o income concentration within thisse%ment also rose substantially. #he Gini decomposition estimated subse&uently provides additional andmore precise insi%hts on the eects o the chan%e in share. *t shows that theEntrepreneursector accounts

or !9) o the raise in Gini and that the increase inEntrepreneurshare is responsible or appro+imately,) o the increase in the absolute contribution o this sector to the Gini$ while the increase in thedispersion within the sector and the increase dispersion o the sector relative to the rest p the economy theincreases in Gini correlation and in relative Gini/ account or the remainin% 1,) o the increase.

1

Jor%e.0riedmanusach.cl$ 2niversidad de 3antia%o de Chile$ 3chool o Business and conomics5pt. o conomics$ lameda ""6"$ 3antia%o$Chile.

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#here are two very distinctive eatures o the Chilean re-privati'ation process in relation with that o thetransitional economies. n the one hand$ the act that the Chilean process too( place "! years a%o$ lon%

beore the privati'ations in the transition economies$ provides inormation to hi%hli%ht on the persistenceo the ne%ative distributional eects in time. n the other hand$ the re-privati'ations too( place only !years ater the irms were sei'ed or sometimes bou%ht/ by the state$ so the comparison o the situation

beore been ac&uired by the state with the conditions ater re-privati'ation is possible.

#hose ew papers that analy'e the impact o privati'ations in income distributions 8atin mericanmostly conclude that the distributional eects over income distribution are small$ and sometime even

positive Birdsall and ellis$ ::"/$ Baer and Ban% :://$ but they mostly ocus in the eect oprivati'in% utilities$ or some additional sectors over which the state owned irms$ li(e in steel orpetrochemicals.

#he data provides inormation on how the Chilean re-privati'ation process increased ine&uality

!. Introduction

Chilean income distribution today is very une&ual. ;ith an income per capita o 23< ,9:: and a Gini o.!4 in ::6 see #able /$ the ;orld Ban( 5evelopment *ndicators ;5*/ data set would$ on one hand$ran( Chile almost in the richest &uintile o countries appro+imately 14:th out o 1,: countries/$ but inthe other$ as the 1th most une&ual country in the list. Chile=s ine&uality is disturbin%> a relatively richcountry where income distribution behaves as i it was one o the very poorest.

#he conditions in Chile were not that unair in the past. *n the !:?s$ 6:?s and early 7:?s$ incomedistribution in Chile was airly normal or even %ood or 8atin merican standards 2tho 1977/. #able1 presents a 1969 homo%enous study o amily income in si+ 8atin merican capitals where Chile=scapital city$ 3antia%o$ ran(s with the second lowest Gini.

#his situation chan%ed drastically ater 197!$ as shown in #able . #here was a permanent increase in

ine&uality in the mid-seventies that chan%ed thin%s or the very worst. #he Gini inde+ rises rom :.4! in196, to :.!" in 1976. homo%enous study o urban amily income distribution or ::! or the samecountries included in the previous study now ran(s Chilean urban areas as the second most une&ual in thesample see #able1/. *n a continent that is well (nown or its income distribution problems 0ishlow199!/$ Chile ran(s very low.

#he civilian %overnments that too( oice ater the end o the @inochet re%ime in 19,9 have e+plicitlyincluded ine&uality in their a%enda. #heir plans have compounded increased social spendin% with

pro%ressive chan%es in ta+ and labor le%islation 0rench-5avis ::"$ Aelasco 1994/. #he ailure o thesepolicies in achievin% more e&uality in a conte+t o rapid economic %rowth has been very rustratin%".

omo%enous sets o inormation on income distribution or 8atin merican countries or the 6:=s are very scarce.

*a)le !

Chilean +ini vs ther atin %merican Countries

!(/( capital Cities +ini &''01 $r)an population0 +ini

suncin :.!!4 1 @ara%uay :.!:4"

Bo%ota :.471 Colombia :.!,7"

Caracas :.491 Aene'uela :.49:"

8ima :.4,71 @erD :.471"

Euito :.!1,1 cuador :.!1"

3antia%o :.4!! Chile :.!47"

1/ 3ource> C*8$ 2rban ousehold *ncome and Consumption @atterns in 8atin merica- Comparative nalysis o Colombia$ @ara%uay$ @eru and Aene'uelaF / 3ource> C*8$studio Conunto sobre *nte%racion conomica 8atinoamericana sobre @resupuestos y@atrones de Consumo$ 3antia%o$ Har'o$ bril y Hayo 1969 "/ 3ource> C@8$ nuarioestadIstico de mrica 8atina y el Caribe$ ::6. 4/ +cept Chile ::"/ and @eru ::4/.!/+cept Aene'uela national/


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#he e+planation behind the increase in ine&uality in Chile and its persistence has evaded researchers. *n the2nited 3tates the increase in ine&uality observed since the ,:=s has been closely associated with the risin%dispersion in the wa%e distribution utor$ Kat' and Kearney$ ::!/. 3tudies or Chile yield very dierentresults. Beyer and 8e 0uolon ::/ conclude that wa%e ine&uality has not chan%ed si%niicantly durin% the

period 197:-1999. *n act they observe the very opposite$ small reductions in wa%e dispersion durin% thattime.

number o papers have studied and documented the permanent deterioration in income distribution thatoccurred in Chile in the mid-seventies. Let ew$ i one$ have determined any o the mechanisms thatundermined the distribution andMor the undamental chan%es that set o these mechanisms. #he associationsome researchers provide between the sur%e in ine&uality and the enrichment o the top decile o thedistribution is too broad to oer useul policy %uidelines4.

#his paper sets to show that in Chile the increase in ine&uality is lar%ely due to the re-privati'ation processthat too( place between 1974 and 1976$ which undamentally increased the share oEntrepreneuramilyincome$ and secondarily$ income concentration within the Entrepreneursector. #his line o research wasirst e+plored by Lotopolous 19,9/ who analy'ed the impact on the concentration o wealth that resultedrom the Chilean re-privati'ation process. ;hen comparin% irm concentration inde+es in 197, with thoseobserved in 1969 he concludes that wealth concentration increased considerably$ and that while the ive

lar%est economic con%lomerates controlled 46.!) o the assets o the 1:: lar%est irms in 1969$ by 197,they controlled 6:) o all assets. e also presents that the 0our 0irm Concentration *nde+$ the erindahl*nde+ and the @roit to Cost Har%in all increased substantially between 1967 and 1979 or virtually everyone o the 14 industrial sectors listed.!

#he Chilean re-privati'ation process o the 7:=s was probably more e+tensive$ massive$ ast and si%niicantthan any other previous e+perience observed on any country. *n ovember 4$ 197:$ 3alvador llende

be%an his term as president o Chile and went ahead with a pro%ram o rapid and proound nationali'ations.*n the ne+t three years$ he transerred to the state almost all the medium and lar%e productiveestablishments$ in the a%ricultural$ commercial$ inancial$ ishin%$ industrial$ minin%$ telecommunications$transport and other services sector. #he above process was bro(en up by the 3eptember 11 @inochet coup197"/ and the death o 3alvador llende$ ater which economic policies were reversed and what ollowedwas a massive re-privati'ation process$ most o which too( place between 1974 and 1976.

*n many ways$ the Chilean re-privati'ation e+perience resembles the privati'ation process that thetransitional economies underwent$ iteen years later$ in the 9:=s in their path to a mar(et economy.3ubstantial amount o evidence has been now recollected on the ne%ative eects privati'ations had onincome distribution in the transitional economies. Commander$ #olstopiaten(o and Lemtsov 1999/ tracedthe raise in ine&uality in Nussia to the increase in wealth concentration brou%ht about by the assets transersand increased earnin% dispersion due to privati'ations process. Hilanovic 1999/ analyses the transition inBul%aria$ un%ary$ 8atvia$ @oland$ Nussia and 3lovenia and inds that privati'ations had very stron%ne%ative eects both on the share o labor and in wa%e concentration. Brainard 199,/ shows how muchoverall wa%e ine&uality deteriorated throu%hout the transition in Nussia. i+son and ;alters ::!/ provideevidence o the ne%ative impact o the Hon%olian privati'ation process on ine&uality. Hiec'ylan and;ieber% ::/ show that the hi%her Gini coeicient in the @olish private sector vis-O-vis the public sectore+plains why privati'ation increased ine&uality. Garner and #errel 199,/ with data or the C'ech and

3lovac Nepublics use a Gini decomposition to study the lin( between the privati'ation process$ the all inEmployeeincome share$ the increases in wa%e ine&uality and the use o %overnment transers and ta+policies to dampen these ne%ative distributional eects. *n a similar line$ Keane and @rasad ::/ ind thatprivati'ation have lar%e ne%ative distributional impact unless lar%e social transers as was the case in@oland/ dampen these eects. Ber(owit' and Jac(son ::6/ trace the disparity in the ne%ative results o

privati'ations on e&uality in Nussia and @oland to the manner irms were privati'ed$ and maintain that

"3ome relie can be ound by adustin% income or in-(ind transers. n%el$ Galetovic and Nadat' 1999/ estimate the 1996 Giniater adustin% or in-(ind income transers as :.:6 points lower. Given that these per capita transers have increased sli%htly more1!)/ than per capita income in the period 19,9-:: 0rench-5avis ::"/$ the PadustedQ Gini mi%ht be allin%.

4@oner reerencias de distribucion de in%reso no *3*.

!

Lotopolus concludes that this was a direct conse&uence o the manner that privati'ations were implemented$ where irms that werenot returned to their ori%inal owners$ were sold to those who had access to orei%n inancin% the Chilean credit mar(et was very smallat the time/. #he number o investors with access to orei%n inancin% was very limited$ osterin% the concentration o ownership inew hands.

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@oland had smaller eects because it encoura%ed the entry o small new private irms much more thanNussia.

#he evidence presented in this paper stron%ly supports the hypothesis that the Chilean re-privati'ationprocess deteriorated income distribution substantially to standards ar worst those observed beore thenationali'ation period. #he Gini decomposition estimated subse&uently permits more precise answers on

the eects over income distribution when in a si+ year period the state irst sei'es a maor portion o acountry=s wealth and then reassi%ns it bac( throu%h a privati'ation method that pays little i any/attention to the distributional eects o the process.

#his paper shows that the increase inEntrepreneuramily/ income and the increase concentration o earnin%swithin theEntrepreneurse%ment are central elements ine+plainin% the sur%e in ine&uality that too( place in Chile.#his paper also shows that the concentration o income inand within theEntrepreneuramily se%ment persists untiltoday and is one o the essential aspects that e+plain whyine&uality does not recover to the levels observed in thesi+ties and early seventies.

#he paper is or%ani'ed as ollows. 3ection describes the data set. 3ection " analy'es the path ollowedby income distribution in Chile in the last decades. 3ection 4 shows the evidence on the e+tent and speedthat income concentrated in the hands oEntrepreneurs durin% 197! and 1976. #he section then uses a Gini5ecomposition to conirm e+actly which sectors won and which lost throu%hout the time period. 3ection !shows why the privati'ation process probably was the underlyin% orce that tri%%ered the rise in ine&ualityand inally$ section 6 presents the conclusions.

&. "ata

#he data used comes rom the Encuesta de Ingresos de la Universidad de Chile EICH/$ a householdincome survey carried out annually in June since 19!7 in 3antia%o$ the capital city. standard EICHsurvey has a sample si'e o appro+imately 1.::: individuals$ which in turn involves rou%hly ":::amily units. amily unit is deined as a %roup lin(ed by (in$ marria%e or le%ally$ that live in the samehouse and share the ood bud%et.

#he survey has the advanta%e o been very homo%enous throu%hout the period and both the&uestionnaire and the methodolo%y have remained comparable throu%hout time. #he ample array o

variables included in the survey and the le+ibility inherent to micro-data analysis can be used to reorderthe inormation accordin% to re&uirements. EICHprovides annual data$ a truly undamental advanta%ethat allows comparisons in time.

#he survey has some relevant limitations$ most o which arise because it is basically directed atmeasurin% unemployment$ not income$ implyin% some imperections in income data recollection.5isadvanta%es and limitations include the ollowin%> a/ n avera%e$ 1") o the sample declares 'eroincome or reuses to %ive inormation. b/ #he survey e+cludes income rom capital and imputed rents$thus it only compromises appro+imately 7!) o total amily income 6. c/ *n %eneral amily surveys arecharacteri'ed by under-declaration o income$ especially rom richer amilies that show a hi%hertendency to conceal incomes. d/ 0inally$ the sample only covers 3antia%o$ the capital city.

6#he incomes surveyed in the &uestionnaire include wa%es and salaries$ payments in (ind$ sel-employment and employer income$retirement and %overnment pensions and other income.

*a)le &

Chilean +ini Inde2 and Income

Chile Gini *ncome per capita::6 dollars

1964 :.47 1/ 23< "",196, :.!: 1/ 23< "6!,1976 :.!" 1/ 23< "11,19,7 :.!7 / 23< "96:

1996 :.!7 "/ 23< 6,!!::: :.!, "/ 23< 7416::" :.!7 "/ 23< 7,74::6 :.!4 "/ 23< ,,,63ource> 1/ stimated romEICH. /stimated romncuesta Casen 19,7. "/ 199-::6> icialGovernment stimates rom ncuesta Casen 199$1996$ :::$ ::" and ::6.

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0amily units were %rouped accordin% to whether the main source o income earned by the amily headwas that o anEntrepreneur$ Employee$ Self Employed or Otherwise rest/.7 0ollowin% the deinitionused in theEICHsurvey$ anEntrepreneuris deined as one who employs three or more in his business.2nder Self Employedall all that employ two$ one or only themselves. ll incomplete data and data romthose amilies that declared either 'ero or ailed to declare income was e+cluded. #his study uses datarom the period 196:-::".,#he inormation provided is on income net o social security and direct

ta+es.

3. *he "eterioration o# Income "istri)ution in Chile

#his section o the paper ocuses in showin% that the maor initial setbac( in Chilean income distributiontoo( place between mid 1974 and mid 1976. #o characteri'e and time the shits in Chilean incomedistribution it is necessary to use consistent and comparable yearly income distribution estimates thatreach as ar bac(wards as possible. #he limited number o data points available beore 19,7 in mostincome distribution series ma(es this tas( diicult. #he only available income data source that possessesthese characteristics is the annualEncuesta de Ingresos de la Universidad de Chile EICH/. #he serieshas some important limitations discussed previously/$ but it starts in the late ities and has theadvanta%e o bein% reasonably homo%enous throu%hout the period.

#he Gini inde+ or amily income or every year rom 196: throu%h ::" is calculated and displayed in#able " and 0i%ure 1. #he data luctuates$ but shows a sudden and lar%e increase in ine&uality between197! and 1976$ what we will call the 75/7 shift. #he !"75/!"7 shiftis very abrupt> in June 1974 theGini is .4!$ it then increases to .4, June 197!/ and then sur%es to .!" in June 1976. *t dwells around thatvalue until 19,$ when it a%ain under%oes another thou%h smaller/ upward shoc( whose eect lasts until199 when it slides bac( to its pre-19, levels$ level that the series basically has maintained thereater.#he series characteri'es Chile as a country that suered a very stron% and permanent ne%ative incomedistribution shoc( between July 1974 and June 1976 that lasts until today.

#here are two maor and distinct ine&uality periods separated by an abrupt shit> the irst phase lasts until1974 while the second spans rom 197! onwards see 0i%ure 1/. *ne&uality in the 196:-1974 period$when the Gini avera%ed :$4, was undamentally dierent to the levels o ine&uality observed in the years197! throu%h ::"$ where the Gini avera%ed :.!4. #he Gini coeicients shited to :.!" by 1976 and

stayed at similar hi%h values thereater. #he increase in the Gini inde+ does not reverse itsel eventhou%h income per capita more than doubles between 19,6 and ::" see #able /.

#he increase in ine&uality that too( place in the mid seventies is well documented. Heasures oine&uality in Chile deinitively chan%ed or the very worst in the mid-seventies. es(ia 1979/ usin% the

EICHdata set$ was the irst to present conclusive evidence that income distribution had under%one ane%ative transormation ater 197!. 0rench-5avis ::"/ reviews the series o Gini coeicients usin% asimilar data set and concludes that there is a sharp and permanent reversal in income distribution in 197!.0erreira and 8itchield 1999/ and Contreras ::"/ conclude that while poverty alls$ Chilean ine&ualityremains permanently hi%h and invariable or the period 19,7-1996.

7therwise includes all others$ includin% those labeled PunclassiiedQ.,Lears ::4 and ::! are available$ but they present an anomalous reduction and a very anomalous increase both in declaredemployer income and in the number o employer amilies that reuse to provide inormation on their incomes.

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f ig. 1Gini 1960-2003

0.4

0.45

0.5

0.55

0.6

0.65

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

Gini A verage

*n the abrupt nature o the chan%e in ine&uality and its irreversibility lie the clues to identiyin% theelements behind the chan%es in ine&uality. maor share o the deterioration must be due to one or moresharp chan%es that occurred in a very short period between 1974 and 1976/ and these shoc(s were o a

permanent nature.

1. *he Increase inEntrepreneurIncome Share and Concentration

*n the 2nited 3tates increased concentration in the wa%e distribution has been studied e+tensively as oneo the most important drivin% orces behind the increase in household ine&uality observed since 19,:.s discussed earlier$ the evidence in Chilean su%%ests that wa%e distribution has not deterioratedsubstantially. * income has not concentrated within the hands o Employees$ as was the case o the2nited 3tates$ then it must have concentrated in the hands o others 9. #his section ocuses in showin%that income has indeed concentrated in the hands o a dierent cate%ory$ that o the Entrepreneurs#reerrin% to those amily heads who ully or partially own a business which provides their lar%est source

9Harcel and 3olimano 1994/ usin% the *C data set conclude that the top &uintile were the %reat beneiciaries o the @inochetre%ime 197"-19,9/ while the share held by the middle class declines and su%%est a Ppermanent re%ressive shit a%ainst the middleclass in Chile or the mar(et oriented/ reormsQ.

*a)le 3 +ini Inde2

Year Gini Year Gini Year Gini Year Gini

1960 0.47

1971 0.48

1982 0.55

1993 0.50

1961 0.48

1972 0.45

1983 0.55

1994 0.50

196

2 0.49

197

3 0.46

198

4 0.56

199

5 0.541963 0.49

1974 0.45

1985 0.54

1996 0.52

1964 0.47

1975 0.48

1986 0.54

1997 0.53

1965 0.48

1976 0.53

1987 0.62

1998 0.52

1966 0.47

1977 0.53

1988 0.58

1999 0.54

1967 0.50

1978 0.52

1989 0.56

2000 0.52

1968 0.50

1979 0.52

1990 0.58

2001 0.52

1969 0.51

1980 0.53

1991 0.56

2002 0.53

1970 0.51

1981 0.53

1992 0.52

2003 0.51

stimated rom theEICHseries usin% amily income.

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o income with three or more Employeesand that this was a direct conse&uence o the privati'ationprocess.

1.! Income Share, ('!' and ('0' Ratios.

#o see how shares o dierent %roups evolve durin% the period$ a%ain$ the 2niversidad de Chile income

survey provides the annual data. 0amily units are %rouped accordin% to whether the principal source oincome earned by the amily head is obtained as Entrepreneur or Otherwise. Entrepreneur amilyincome share or the period 196:-::" is presented in #able 4 and 0i%ure . #he data shows two clearlymar(ed periods$ one that %oes rom 196:-1974 and another that spans rom 197! onwards. 5urin% theinitial periodEntrepreneuramily share avera%es 9.!) o total amily income$ while or the period 1976-::" it avera%es 1.,). 3imilarly$ the avera%e income orEntrepreneuramilies or the period 196:-1974 is .9 times lar%er than mean income$ while the avera%e or the period 197!-::" climbs to ".9mean incomes. #he chan%es are very sudden> shares and avera%e Entrepreneur amily incomerespectively rise rom 7. ) o total income and .7! mean incomesin 1974 to 1".4) and ".7 by 1976.

Table 4. Entrepreneur Share of a!il" #n$o!e an% &atio to 'ean #n$o!e

YearEntrep.Share

Entr.Y('eanY Year

Entrep.Share

Entr.Y('eanY Year

Entrep.Share

Entr.Y('eanY Year

Entrep.Share

Entr.Y('eanY

1960 0.068 2.55 1971 0.078 2.46 1982 0.097 4.611993 0.128 3.14

1961 0.094 2.57 1972 0.070 2.05 1983 0.098 4.481994 0.095 3.17

1962 0.144 2.67 1973 0.080 2.60 1984 0.124 4.531995 0.164 3.75

1963 0.134 3.00 1974 0.072 2.75 1985 0.120 3.881996 0.132 3.39

1964 0.087 2.77 1975 0.086 3.18 1986 0.097 4.091997 0.141 3.43

1965 0.102 3.60 1976 0.134 3.72 1987 0.188 5.511998 0.127 3.61

1966 0.089 2.88 1977 0.126 3.99 1988 0.128 3.461999 0.116 4.78

1967 0.108 3.40 1978 0.102 3.25 1989 0.152 3.702000 0.077 3.07

1968 0.095 3.19 1979 0.137 3.96 1990 0.190 4.662001 0.083 3.65

1969 0.107 3.27 1980 0.134 3.45 1991 0.164 4.382002 0.123 3.55

1970 0.099 3.43 1981 0.151 4.91 1992 0.141 3.412003 0.122 5.51

Estimated from the EICHseries using family income

Table 4-b)*+era,e &atioan% Share

Share

&atioEntrp. Y'ean Y

a+era,e 1960-1974 0.095 2.879

a+era,e 1975-2003 0.128 3.938

#hou%h it is well (nown that measures o ine&uality chan%ed or the worst in Chile in the mid seventiesneither the orces behind the chan%e$ nor the underlyin% reasons that tri%%ered the chan%es have been

properly identiied. *n this section we show that the increase in Gini is the result o the rise in share oEntrepreneursand the increase in ine&uality within this sector. 3ection ! presents evidence that su%%estshow this probably resulted rom the privati'ation process that too( place between 1974 and 1976.

0i%ure " compares Entrepreneuramily income with the Gini inde+. +amine how both series moveto%ether and how the timin% and the abruptness o the chan%e in Entrepreneur amily share coincideswith the increase in ine&uality that too( place in Chile in 1976. lso observe that both chan%es were o a

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permanent nature$ with income distribution and Entrepreneur amily share movin% into much hi%herlevels ater 197!. #he i%ure su%%ests that an important part o the increase in Gini was a conse&uence othe increase in the share oEntrepreneuramily income.

fi,. 2 Entrepreneur a!il" #n$o!e Share

0

0.05

0.1

0.15

0.2

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

Emplo yer A verage

fi,. 3 Gini +( Entrepreneur Share

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 2 00 0

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

Gini Entrepreneur Sare

#he increase in share was not the only chan%e associated with Entrepreneur income. *n addition to thechan%es in share$ concentration within theEntrepreneursector increased in the same period. #able ! and0i%ures 4 and ! show the chan%es in the 9:M1: and 9:M!: ratio or Entrepreneur income. #he 9:M1:avera%ed 6. rom 196: to 1974 and increased to ,.47 or the period 197!-::". 3imilarly the 9:M!:avera%ed .19 rom 196:-197! and increased to .74 in the period 1976-::". lthou%h these ratiosluctuate somewhat alon% these years$ they present a clear upward shi ater 197!.

3ome additional inormation can be obtained rom the coeicient o correlation between the Gini and

Entrepreneurshare$ between the Gini and meanEntrepreneur income$ between the Gini and the 9:M1:ratio and between the Gini and the 9:M!: ratio. #hese results are presented in table 6$ all showin% stron%lin(s between the variables and the Gini. #his urther conirms the close relationship between ine&ualityand the increase in both Entrepreneuramily income and income concentration within this se%ment.Hore deinite evidence can be obtained rom the Gini decomposition presented in the ollowin% section.

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fi,.5 Entrepreneur 90(50 &atio

0.00

1.00

2.00

3.00

4.00

5.00

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

90/50 !erage

ave

fi,. 4 Entrepreneur 90(10 &atio

0.10

3.10

6.10

9.10

12.10

15.10

18.10

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002

90! 10 A verage

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Table 5. 90(10 an% 90(50 Entrepreneur &atio

Year90(10Entrep.

90(50Entrep Year

90(10Entrep

90(50Entrep Year

90(10Entrep

90(50Entrep Year

90(10Entrep

90(50Entrep

1960 5.50 2.20 1971 6.00 1.88 1982 6.55 1.961993 6.60 2.61

1961 4.22 1.75 1972 4.42 1.91 1983 6.97 2.35

199

4 7.90 3.13

1962 6.27 2.19 1973 5.72 2.17 1984 9.30 3.091995 7.80 2.79

1963 5.45 2.00 1974 5.56 2.55 1985 5.78 2.301996 13.35 3.56

1964 5.07 2.31 1975 3.70 1.73 1986 11.67 2.691997 8.23 2.99

1965 5.38 2.47 1976 6.17 2.12 1987 13.46 3.371998 7.43 2.88

1966 6.76 2.14 1977 4.81 1.77 1988 7.66 2.481999 11.68 3.10

1967 8.72 2.75 1978 6.10 2.05 1989 8.35 3.012000 7.10 2.28

1968 6.03 1.72 1979 9.63 2.35 1990 7.67 2.472001 7.64 2.83

1969 10.35 2.57 1980 5.79 2.61 1991 9.12 3.37

200

2 10.70 3.26

1970 7.88 2.32 1981 11.63 3.75 1992 8.37 2.662003 14.43 3.85

Estimated from the EICHseries using family income

Table 5-b) *+era,e 90(50 90(10 Entrepreneur &atio

a+era,e 1960-1974 6.22 2.19 2.88

a+era,e 1975-2003 8.47 2.74 3.94

90(10

&atio

90(50

&atio

'ean Entrepreneur

#n$o!e/('ean total#n$o!e/

1.& +ini "ecomposition.

Gini decomposition is specially well-suited to analy'e the pro%ression o a lon% series o Gini data asthe one we are wor(in% with. #he Gini decomposition estimated in this paper ollows that derived by8erman and 3hlomo 19,!/. #he micro-data or amily income is cate%ori'ed into our$ accordin% to themain source o income o the amily head> 1Entrepreneurs# Employees# "Self Employedand 4$est.#he contribution o each cate%ory kis subse&uently divided in three> its Share %S4/$ its &ini Correlation%+4/ and its 'ithin &ini %R(/. #he Shareis deined as the ratio o a cate%ory=s income to total income$the &ini correlationis the correlation between a cate%ory and total income and the 'itin &inior sector ((R1$$"$4/ is estimated assumin% that all amilies that do not belon% to that cate%ory have 'ero income.#his division helps understand whether the chan%es in overall Gini are due to chan%es in shares betweencate%ories or increased ine&uality within or relative to other cate%ories. *t also provides inormation onhow the chan%es in income that avor one sector aect overall ine&uality.

#he decomposition is %iven by>

1

8erman and 3hlomo show that the partial derivative o the overall Gini +/ with respect to a percenta%echan%e e/ in sector kis %iven by>

5+5ekSk(RkGk- G6

#able 7 presents the absolute contributions o each o the our cate%ories to the Gini or the period 196:-::"$ while #ables ,-11 show the individual decomposition or each cate%ory and #able 1 their partialderivatives.

;e observe rom #ables 7-a and 7-b that the absolute contribution o the Entrepreneursector to the Ginisur%es in 1976 and it never a%ain lowers to anywhere near its previous levels. 0rom #ables ,-a and ,-b

1:


11/22

we obtain that the in the period 196:-1974 theEntrepreneursector on avera%e accounts or .:, pointso the Gini$ while in the period 197!-::" it increases to .11! points. #he Gini avera%es .4, in the irstand .!"6 in the later period$ implyin% that this sector accounts or a ull !9) o the raise in Gini. venthou%h there are other orces in action$ the Gini decomposition evidences that this sector is the maorcontributor to the observed increase in ine&uality.

#he increase in the absolute contribution o theEntrepreneursector to the Gini can be divided into two> onthe one hand the increase in Shareand in the other the multiplicative increases in &ini Correlationand

$elative &ini. #hese last two terms can be associated with the impact o the raise in ine&uality within thesector and the e+tent which sector ine&uality is transmitted to overall Gini. %ain rom #able ,-b we canestimate that the avera%e increase inEntrepreneur share that too( place between 197!-::" is responsibleor ,7) o the increase in the contribution o this sector to the Gini$ while the oint increases in &iniCorrelationand 'ithin &iniaccounts or the remainin% 1") o the increase. #his is airly consistent withthe data in the increase o the 9:M1: and 9:M!: ratios shown in table !-b$ and conirmin% that the ull eectoEntrepreneurson total Gini is the sum o their increase in share and more ine&uality within the sector andin its relation with the other sectors.

#he partial derivatives associated to each sector are shown in #able 1. #he Entrepreneursector is the

only one positive and by ar the hi%hest$ providin% evidence o the re%ressive nature o increasin% theshare o the richest sector. #able 1 shows another eature o how ine&uality chan%ed or the worst inChile. #he avera%e value o 5+5e1%oes rom .:"6 in the period 196:-1974 to .:47 in the period 197!-::"$ implyin% that the eect over ine&uality o increasin% the share o the Entrepreneursalon% the

period 197!-::" is now so much lar%er than beore because the richer are so much richer tan beore.

#he decomposition in #able ,-b shows howEntrepreneurs sur%ed rom holdin% an avera%e o 9.!) ototal income and contributin% with 17) to the overall Gini between 196:-1974 to avera%in% 1.7) ototal income and contributin% with 1.4) o total Gini between 197!-::". #able , shows how thisincrease in the contribution oEntrepreneurs has remained stubbornly stable alon% the ull 197!-::"

period$ e+cept or a transitory upward movement between 19, and 1991. #he immovability in theirshare is a%ain another ne%ative eature o the chan%es in ine&uality under%one in Chile.

*a)le /

Correlations Coe##icients

3hares 9:M1: 9:M!:ntrep. L

Gini .7:9 .!"9 .446 .,9

11


12/22

Table 7-a) Gini e$o!poition *bolute ontribution b" Group

1960 0.058 0.231 0.095 0.087 0.470 1983 0.090 0.305 0.076 0.083 0.553

1961 0.078 0.197 0.118 0.087 0.479 1983 0.091 0.300 0.065 0.089 0.5461962 0.121 0.190 0.087 0.094 0.492 1984 0.115 0.237 0.088 0.122 0.562

1963 0.116 0.205 0.092 0.076 0.490 1985 0.109 0.256 0.069 0.104 0.537

1964 0.075 0.240 0.078 0.072 0.466 1986 0.089 0.266 0.094 0.095 0.544

1965 0.093 0.252 0.087 0.050 0.482 1987 0.176 0.257 0.077 0.109 0.619

1966 0.078 0.254 0.075 0.066 0.472 1988 0.115 0.294 0.065 0.103 0.577

1967 0.096 0.246 0.104 0.057 0.503 1989 0.136 0.256 0.079 0.084 0.556

1968 0.084 0.271 0.088 0.058 0.502 1990 0.176 0.275 0.061 0.070 0.581

1969 0.095 0.279 0.091 0.048 0.513 1991 0.151 0.274 0.057 0.081 0.563

1970 0.089 0.271 0.087 0.060 0.507 1992 0.126 0.277 0.066 0.055 0.523

1971 0.064 0.277 0.058 0.077 0.476 1993 0.113 0.262 0.073 0.057 0.504

1972 0.054 0.254 0.073 0.067 0.447 1994 0.084 0.283 0.087 0.050 0.504

1973 0.067 0.252 0.091 0.045 0.455 1995 0.148 0.255 0.066 0.067 0.536

1974 0.062 0.248 0.098 0.043 0.451 1996 0.118 0.293 0.066 0.043 0.519

1975 0.077 0.239 0.095 0.065 0.476 1997 0.126 0.295 0.063 0.046 0.5311976 0.121 0.238 0.108 0.060 0.527 1998 0.114 0.289 0.078 0.040 0.521

1977 0.116 0.254 0.097 0.064 0.531 1999 0.106 0.309 0.077 0.048 0.539

1978 0.090 0.254 0.108 0.070 0.523 2000 0.064 0.333 0.084 0.038 0.519

1979 0.126 0.235 0.090 0.073 0.524 2001 0.075 0.317 0.061 0.069 0.523

1980 0.119 0.237 0.094 0.078 0.528 2002 0.110 0.298 0.074 0.045 0.527

1981 0.142 0.235 0.096 0.054 0.527 2003 0.114 0.284 0.068 0.048 0.514

&etYear E!plo"Entrep Self E!p Entrep &et

Self

E!p

Total

GiniYear E!plo"

Total

Gini

Table 7-b) *+era,e Gini e$o!poition *bolute ontribution

a+era,e 1960-1974 0.082 0.244 0.088 0.066 0.480

a+era,e 1975-2003 0.115 0.273 0.079 0.069 0.536a+era,e 1960-1981 0.092 0.244 0.091 0.066 0.493

a+era,e 1975-81 0.113 0.242 0.098 0.066 0.519

a+era,e 1982-2003 0.116 0.282 0.072 0.070 0.541

a+era,e 1982-1991 0.125 0.272 0.073 0.094 0.564

a+era,e 1992-2003 0.108 0.291 0.072 0.051 0.522

E!plo"Entrep Self E!p Total Gini&et

1


13/22

Table 8-a) Gini e$o!poition Entrepreneur

1960 0.868 0.068 0.982 0.058 12.2 0.470 1982 0.931 0.097 0.990 0.090 16.2 0.553

1961 0.855 0.094 0.976 0.078 16.3 0.479 1983 0.945 0.098 0.986 0.091 16.7 0.5461962 0.868 0.144 0.969 0.121 24.5 0.492 1984 0.941 0.124 0.984 0.115 20.4 0.562

1963 0.891 0.134 0.974 0.116 23.7 0.490 1985 0.925 0.120 0.981 0.109 20.2 0.537

1964 0.878 0.087 0.980 0.075 16.1 0.466 1986 0.930 0.097 0.986 0.089 16.3 0.544

1965 0.921 0.102 0.984 0.093 19.3 0.482 1987 0.952 0.188 0.985 0.176 28.4 0.619

1966 0.887 0.089 0.980 0.078 16.4 0.472 1988 0.920 0.128 0.978 0.115 20.0 0.577

1967 0.912 0.108 0.982 0.096 19.1 0.503 1989 0.920 0.152 0.978 0.136 24.6 0.556

1968 0.901 0.095 0.980 0.084 16.8 0.502 1990 0.947 0.190 0.978 0.176 30.2 0.581

1969 0.905 0.107 0.981 0.095 18.5 0.513 1991 0.939 0.164 0.981 0.151 26.8 0.563

1970 0.910 0.099 0.983 0.089 17.6 0.507 1992 0.915 0.141 0.976 0.126 24.0 0.523

1971 0.845 0.078 0.980 0.064 13.5 0.476 1993 0.898 0.128 0.977 0.113 22.3 0.504

1972 0.786 0.070 0.977 0.054 12.0 0.447 1994 0.896 0.095 0.983 0.084 16.6 0.504

1973 0.856 0.080 0.981 0.067 14.8 0.455 1995 0.925 0.164 0.977 0.148 27.6 0.536

1974 0.874 0.072 0.984 0.062 13.8 0.451 1996 0.909 0.132 0.979 0.118 22.6 0.519

1975 0.915 0.086 0.981 0.077 16.2 0.476 1997 0.917 0.141 0.977 0.126 23.8 0.531

1976 0.928 0.134 0.977 0.121 23.0 0.527 1998 0.916 0.127 0.982 0.114 21.9 0.521

1977 0.939 0.126 0.979 0.116 21.8 0.531 1999 0.926 0.116 0.985 0.106 19.7 0.539

1978 0.901 0.102 0.980 0.090 17.2 0.523 2000 0.847 0.077 0.980 0.064 12.4 0.519

1979 0.934 0.137 0.980 0.126 24.0 0.524 2001 0.919 0.083 0.989 0.075 14.4 0.523

1980 0.908 0.134 0.978 0.119 22.5 0.528 2002 0.912 0.123 0.980 0.110 20.9 0.527

1981 0.951 0.151 0.985 0.142 26.9 0.527 2003 0.951 0.122 0.989 0.114 22.2 0.514

Year

Gini

orre-

lation Share

ithin

Gini

*bolute

ontribu-

tion

&elati+e

ontribu-

tion Gini Year

Gini

orre-

lation GiniShare

&elati+e

ontribu-

tion

*bolute

ontribu-

tion

ithin

Gini

Table 8-b) *+era,e Gini e$o!poition Entrepreneur

a+era,e 1960-1974 0.877 0.095 0.979 0.082 17.0 0.480

a+era,e 1975-2003 0.923 0.127 0.981 0.115 21.4 0.536

a+era,e 1975-81 0.925 0.124 0.980 0.113 21.7 0.519

a+era,e 1960-1981 0.892 0.104 0.980 0.092 18.5 0.493

a+era,e 1982-2003 0.922 0.128 0.982 0.116 21.3 0.541

a+era,e 1982-1991 0.935 0.136 0.983 0.125 22.0 0.564

a+era,e 1992-2003 0.911 0.121 0.981 0.108 20.7 0.522

Gini

orre-

lation Share

ithin

Gini

*bolute

ontribu-

tion

&elati+e

ontribu-

tion Gini

0. *he Shoc4 7ehind the Change inEntrepreneurShare

3# C 88G2SSS

#he list o important shoc(s that too( place in Chile betwen1974 and 1976 that had important eects overincome distribution is lon%. #hese are the years ri%ht ater the 3eptember 197" coup where the central

plannin% orientations o 3alvador llende=s socialist %overnment were replaced with the mar(et policies othe @inochet re%ime. Let$ the underlyin% e+planation or the chan%es inEntrepreneurshare must beconsistent with the timin% and len%th o the observed alterations> an important part o the adustment mustoccur ater June 1974$ but beore June 1976$ and the shoc( should be o an irreversible nature.

*t is hi%hly probable that the shoc( that brou%ht this chan%e was the privati'ation process. @rivati'ationswere sudden$ irreversible$ aectin%Entrepreneuramily share and started one period beore thedeterioration in income distribution. #he bul( o these privati'ations were implemented in 1974 and 197!.By u%ust 197" the llende %overnment had %ained control over !96 irms$ which basically implied thatvery ew medium or lar%e irms remained in private hands. #hese irms belon%ed basically to twocate%ories. #he irst cate%ory included "! irms that had either had been e+propriated 17: irms/ or had

been sei'ed by the %overnment 1!! irms/. #he second cate%ory included 71 irms that had been ac&uiredby the %overnment$ :1 o which had been bou%ht durin% the " years o the llende %overnment theremainin% 7: had been created or bou%ht by previous %overnments/.

1"


14/22

@rivati'ations be%an soon ater the 3eptember 197" coup. By the end o 1974$ : o the sei'ed irms hadbeen returned to their owners. *n the ne+t months an additional ":: irms appro+imately/ were privati'edso that by ovember 197! only ,: o the !96 irms remained under %overnment control. @rivati'ationscontinued so that by Hay 1977 solely 4! irms remained in state hands. Host o the irms and ban(s thathad been e+propriated or sei'ed were returned to their ori%inal owners and the rest were privati'ed$ so that

by the end o 197! there was little let to privati'eAaldivia$ ::1 and achette$ :::/.

s mentioned beore$ the evidence repeatedly collected rom the transition economies is that privati'ationshave very stron% ne%ative eects over income distribution. #he de%ree and ma%nitude o the Chilean re-

privati'ation process was in many dimensions similar to that o the transitional economies so that we shoulde+pect

$ and that those countries where the eects where smaller it responded to increases in pension spendin% andsocial transers.

#he (nowled%e that the increase in the share and concentration oEntrepreneuramily income is importantin e+plainin% the deterioration in Chilean income distribution in addition with the inormation on the timin%and span o time associated to the chan%es inEntrepreneurshare provide elements to identiy theunderlyin% shoc( that brou%ht about the adustment both in shares and in concentration within the

Entrepreneurse%ment.

#o a lar%e e+tent$ the 7!M76 shit in income distribution$ the correspondin% increase inEntrepreneuramilyshare andEntrepreneurincome concentration all start ew months ater the privati'ation process$ processthat be%ins beore the 7!M76 shit and is mostly completed when the measures o ine&uality sur%e in June1976. #hou%h there were a number o simultaneous shoc(s ta(in% place$ it is the privati'ation process thatcan provide the best and most consistent e+planation. *t was sudden and irreversible$ aectedEntrepreneuramily income and too( place one period beore the deterioration in income distribution. #he mode thisenormous transer in wealth rom the state bac( to private hands was implemented implied a lar%e increasein ine&uality and unchained maor irreversible eects over ine&uality that last until today. #he privati'ation

process have been repeatedly earmar(ed as the main actor that tri%%ers the deterioration in incomedistribution in transition economies. Chile was no e+ception.

14


15/22

Table 9-a) Gini e$o!poition E!plo"ee

Year

Giniorre-lation Share

ithinGini

*boluteontribu-

tion

&elati+eontribu-

tion Gini

1960 0.623 0.546 0.679 0.231 49.1 0.470

1961 0.571 0.496 0.695 0.197 41.0 0.4791962 0.571 0.458 0.728 0.190 38.7 0.492

1963 0.596 0.485 0.711 0.205 41.9 0.490

1964 0.634 0.550 0.689 0.240 51.6 0.466

1965 0.655 0.569 0.677 0.252 52.4 0.482

1966 0.652 0.565 0.689 0.254 53.7 0.472

1967 0.656 0.551 0.680 0.246 48.8 0.503

1968 0.685 0.571 0.694 0.271 54.1 0.502

1969 0.698 0.571 0.701 0.279 54.4 0.513

1970 0.685 0.569 0.694 0.271 53.4 0.507

1971 0.686 0.585 0.690 0.277 58.2 0.476

1972 0.652 0.581 0.669 0.254 56.7 0.447

1973 0.654 0.570 0.675 0.252 55.3 0.455

1974 0.647 0.575 0.665 0.248 54.9 0.451

1975 0.640 0.552 0.678 0.239 50.3 0.476

1976 0.653 0.504 0.724 0.238 45.2 0.527

1977 0.673 0.530 0.711 0.254 47.8 0.531

1978 0.669 0.524 0.726 0.254 48.7 0.523

1979 0.650 0.495 0.731 0.235 44.9 0.524

1980 0.654 0.485 0.746 0.237 44.8 0.528

1981 0.651 0.502 0.719 0.235 44.6 0.527

1982 0.736 0.551 0.752 0.305 55.1 0.553

1983 0.725 0.547 0.755 0.300 54.9 0.546

1984 0.669 0.468 0.758 0.237 42.2 0.5621985 0.680 0.505 0.747 0.256 47.7 0.537

1986 0.694 0.513 0.746 0.266 48.9 0.544

1987 0.722 0.458 0.777 0.257 41.4 0.619

1988 0.728 0.513 0.788 0.294 51.0 0.577

1989 0.688 0.502 0.741 0.256 46.0 0.556

1990 0.718 0.501 0.763 0.275 47.2 0.581

1991 0.715 0.510 0.753 0.274 48.7 0.563

1992 0.698 0.540 0.734 0.277 52.9 0.523

1993 0.676 0.546 0.711 0.262 52.0 0.504

1994 0.702 0.563 0.716 0.283 56.2 0.504

1995 0.686 0.504 0.737 0.255 47.6 0.5361996 0.723 0.560 0.723 0.293 56.4 0.519

1997 0.720 0.564 0.725 0.295 55.6 0.531

1998 0.716 0.565 0.714 0.289 55.5 0.521

1999 0.742 0.575 0.724 0.309 57.3 0.539

2000 0.749 0.614 0.725 0.333 64.1 0.519

2001 0.745 0.599 0.711 0.317 60.7 0.523

2002 0.726 0.575 0.714 0.298 56.5 0.527

2003 0.714 0.566 0.702 0.284 55.2 0.514

1!


16/22

Table 9-b) *+era,e Gini e$o!poition E!plo"ee

a+era,e 1960-1974 0.644 0.549 0.689 0.244 51.0 0.480

a+era,e 1975-2003 0.699 0.532 0.733 0.273 51.0 0.536a+era,e 1975-81 0.656 0.513 0.719 0.242 46.6 0.519

a+era,e 1960-1981 0.648 0.538 0.699 0.244 49.6 0.493

a+era,e 1982-2003 0.712 0.538 0.737 0.282 52.4 0.541

a+era,e 1982-1991 0.708 0.507 0.758 0.272 48.3 0.564

a+era,e 1992-2003 0.716 0.564 0.720 0.291 55.8 0.522

Gini

Gini

orre-

lation Share

ithin

Gini

*bolute

ontribu-

tion

&elati+e

ontribu-

tion

16


17/22

Table 10-a) Gini e$o!poition Self E!plo"e%

1960 0.507 0.212 0.883 0.095 20.2 0.470 1982 0.544 0.152 0.918 0.076 13.7 0.5531961 0.609 0.214 0.903 0.118 24.6 0.479 1983 0.496 0.145 0.912 0.065 12.0 0.546

1962 0.510 0.191 0.891 0.087 17.6 0.492 1984 0.569 0.170 0.912 0.088 15.7 0.562

1963 0.529 0.194 0.897 0.092 18.8 0.490 1985 0.504 0.150 0.915 0.069 12.8 0.537

1964 0.483 0.181 0.895 0.078 16.7 0.466 1986 0.586 0.174 0.922 0.094 17.3 0.544

1965 0.529 0.182 0.901 0.087 18.0 0.482 1987 0.577 0.144 0.927 0.077 12.5 0.619

1966 0.489 0.169 0.904 0.075 15.8 0.472 1988 0.488 0.146 0.905 0.065 11.2 0.577

1967 0.578 0.199 0.908 0.104 20.8 0.503 1989 0.546 0.159 0.916 0.079 14.3 0.556

1968 0.535 0.182 0.907 0.088 17.6 0.502 1990 0.502 0.132 0.918 0.061 10.5 0.581

1969 0.545 0.185 0.908 0.091 17.8 0.513 1991 0.465 0.134 0.914 0.057 10.1 0.563

1970 0.531 0.181 0.904 0.087 17.2 0.507 1992 0.479 0.151 0.905 0.066 12.5 0.523

1971 0.415 0.155 0.900 0.058 12.2 0.476 1993 0.512 0.156 0.911 0.073 14.4 0.504

1972 0.464 0.174 0.900 0.073 16.3 0.447 1994 0.524 0.183 0.901 0.087 17.2 0.504

1973 0.512 0.198 0.893 0.091 19.9 0.455 1995 0.479 0.153 0.900 0.066 12.3 0.5361974 0.538 0.204 0.895 0.098 21.8 0.451 1996 0.487 0.148 0.912 0.066 12.7 0.519

1975 0.538 0.196 0.899 0.095 19.9 0.476 1997 0.467 0.150 0.906 0.063 11.9 0.531

1976 0.592 0.201 0.907 0.108 20.5 0.527 1998 0.500 0.174 0.896 0.078 15.0 0.521

1977 0.587 0.180 0.919 0.097 18.3 0.531 1999 0.517 0.163 0.909 0.077 14.2 0.539

1978 0.603 0.197 0.913 0.108 20.8 0.523 2000 0.544 0.169 0.910 0.084 16.1 0.519

1979 0.552 0.179 0.907 0.090 17.1 0.524 2001 0.471 0.143 0.907 0.061 11.7 0.523

1980 0.572 0.181 0.909 0.094 17.8 0.528 2002 0.527 0.153 0.919 0.074 14.1 0.527

1981 0.562 0.191 0.895 0.096 18.2 0.527 2003 0.495 0.152 0.909 0.068 13.3 0.514

&elati+e

ontribu-

tionYear

Gini

orre-

lation Share

ithin

Gini Year

Gini

orre-

lation Share

ithin

Gini

*bolute

ontribu

tion Gini

*bolute

ontribu-

tion

&elati+e

ontribu-

tion Gini

Table 10-b) *+era,e Gini e$o!poition Self E!plo"e%

a+era,e 1960-1974 0.518 0.188 0.899 0.088 18.4 0.480

a+era,e 1975-2003 0.527 0.163 0.910 0.079 14.8 0.536

a+era,e 1975-81 0.572 0.189 0.907 0.098 18.9 0.519

a+era,e 1960-1981 0.535 0.189 0.902 0.091 18.5 0.493

a+era,e 1982-2003 0.513 0.155 0.911 0.072 13.4 0.541

a+era,e 1982-1991 0.528 0.151 0.916 0.073 13.0 0.564

a+era,e 1992-2003 0.500 0.158 0.907 0.072 13.8 0.522

Gini

orre-

lation Share

ithin

Gini

*bolute

ontribu-

tion

&elati+e

ontribu-

tion Gini

17


18/22

Table 11-a) Gini e$o!poition &et

1960 0.543 0.175 0.913 0.087 18.4 0.470 1982 0.476 0.200 0.866 0.083 14.9 0.553

1961 0.498 0.196 0.887 0.087 18.1 0.479 1983 0.491 0.211 0.864 0.089 16.4 0.546

1962 0.518 0.207 0.881 0.094 19.2 0.492 1984 0.581 0.239 0.879 0.122 21.7 0.562

1963 0.463 0.187 0.883 0.076 15.6 0.490 1985 0.528 0.226 0.867 0.104 19.3 0.537

1964 0.448 0.182 0.886 0.072 15.5 0.466 1986 0.507 0.217 0.866 0.095 17.5 0.544

1965 0.381 0.146 0.894 0.050 10.4 0.482 1987 0.587 0.211 0.884 0.109 17.7 0.619

1966 0.426 0.177 0.880 0.066 14.1 0.472 1988 0.550 0.213 0.878 0.103 17.8 0.577

1967 0.438 0.143 0.908 0.057 11.3 0.503 1989 0.504 0.188 0.890 0.084 15.1 0.556

1968 0.424 0.151 0.901 0.058 11.5 0.502 1990 0.453 0.177 0.872 0.070 12.0 0.581

1969 0.385 0.137 0.899 0.048 9.3 0.513 1991 0.482 0.193 0.874 0.081 14.4 0.563

1970 0.440 0.151 0.903 0.060 11.8 0.507 1992 0.377 0.168 0.873 0.055 10.6 0.523

1971 0.472 0.182 0.893 0.077 16.1 0.476 1993 0.381 0.170 0.878 0.057 11.3 0.504

1972 0.428 0.175 0.893 0.067 15.0 0.447 1994 0.362 0.158 0.881 0.050 10.0 0.504

1973 0.334 0.151 0.891 0.045 9.9 0.455 1995 0.425 0.179 0.881 0.067 12.5 0.536

1974 0.327 0.148 0.891 0.043 9.6 0.451 1996 0.309 0.160 0.868 0.043 8.2 0.519

1975 0.436 0.166 0.899 0.065 13.6 0.476 1997 0.360 0.145 0.888 0.046 8.7 0.531

1976 0.418 0.162 0.886 0.060 11.4 0.527 1998 0.333 0.134 0.896 0.040 7.7 0.521

1977 0.439 0.164 0.890 0.064 12.0 0.531 1999 0.368 0.146 0.889 0.048 8.8 0.539

1978 0.445 0.178 0.880 0.070 13.3 0.523 2000 0.309 0.139 0.884 0.038 7.3 0.519

1979 0.445 0.189 0.871 0.073 14.0 0.524 2001 0.441 0.175 0.892 0.069 13.2 0.523

1980 0.453 0.200 0.866 0.078 14.9 0.528 2002 0.340 0.149 0.881 0.045 8.5 0.527

1981 0.396 0.155 0.882 0.054 10.3 0.527 2003 0.342 0.160 0.871 0.048 9.3 0.514

&elati+e

ontribu- GiniYear

Gini

orre- Share

ithin

Gini

*bolu

te

&elati+

e Gini Year

Gini

orre- Share

ithin

Gini

*bolute

ontribu-

Table 11-b) *+era,e Gini e$o!poition &et

a+era,e 1960-1974 0.435 0.167 0.894 0.066 13.7 0.480

a+era,e 1975-2003 0.432 0.178 0.879 0.069 12.8 0.536

a+era,e 1975-81 0.433 0.173 0.882 0.066 12.8 0.519

a+era,e 1960-1981 0.434 0.169 0.890 0.066 13.4 0.493

a+era,e 1982-2003 0.432 0.180 0.878 0.070 12.9 0.541

a+era,e 1982-1991 0.516 0.207 0.874 0.094 16.7 0.564

a+era,e 1992-2003 0.362 0.157 0.882 0.051 9.7 0.522

Gini

orre-lation Share ithinGini

*bolute

ontribu-tion

&elati+e

ontribu-tion Gini

1,


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Table 12) Partial derivative 8+6 to 8e6 in sector k

5+5ekSk(RkGk- G6

"ear Entrep E!pl. Self E!. &et

1960 0.026 - 0.026 - 0.005 0.005

1961 0.033 - 0.041 0.015 - 0.007

1962 0.050 - 0.035 - 0.007 - 0.008

1963 0.051 - 0.032 - 0.003 - 0.015

1964 0.034 - 0.016 - 0.006 - 0.012

1965 0.043 - 0.022 - 0.001 - 0.021

1966 0.035 - 0.013 - 0.005 - 0.017

1967 0.042 - 0.032 0.004 - 0.015

1968 0.036 - 0.015 - 0.003 - 0.018

1969 0.040 - 0.014 - 0.003 - 0.023

1970 0.039 - 0.017 - 0.005 - 0.016

1971 0.027 - 0.001 - 0.016 - 0.010

1972 0.022 - 0.006 - 0.005 - 0.011

1973 0.031 - 0.008 0.001 - 0.024

1974 0.030 - 0.012 0.006 - 0.024

1975 0.036 - 0.024 0.001 - 0.014

1976 0.051 - 0.027 0.002 - 0.025

1977 0.049 - 0.027 0.001 - 0.023

1978 0.037 - 0.019 0.006 - 0.023

1979 0.054 - 0.024 - 0.004 - 0.026

1980 0.048 - 0.019 - 0.001 - 0.027

1981 0.062 - 0.030 - 0.005 - 0.028

1982 0.036 0.000 - 0.008 - 0.028

1983 0.038 0.001 - 0.013 - 0.026

1984 0.045 - 0.026 - 0.007 - 0.012

1985 0.044 - 0.015 - 0.011 - 0.0181986 0.036 - 0.013 - 0.001 - 0.023

1987 0.060 - 0.027 - 0.012 - 0.021

1988 0.041 - 0.002 - 0.020 - 0.020

1989 0.052 - 0.023 - 0.009 - 0.020

1990 0.065 - 0.017 - 0.016 - 0.033

1991 0.059 - 0.013 - 0.018 - 0.027

1992 0.052 - 0.006 - 0.013 - 0.033

1993 0.048 - 0.013 - 0.006 - 0.029

1994 0.036 - 0.001 - 0.006 - 0.029

1995 0.060 - 0.015 - 0.016 - 0.029

1996 0.049 0.002 - 0.011 - 0.040

1997 0.051 - 0.005 - 0.016 - 0.031

1998 0.048 - 0.005 - 0.013 - 0.030

1999 0.043 - 0.001 - 0.011 - 0.031

2000 0.024 0.014 - 0.004 - 0.034

2001 0.032 0.004 - 0.014 - 0.023

2002 0.045 - 0.005 - 0.007 - 0.034

2003 0.052 - 0.007 - 0.010 - 0.035

Entrep E!pl.SelfE!. &et

a+era,e 1960-1974 0.036 -0.019 -0.002 -0.014

a+era,e 1975-2003 0.047 -0.012 -0.008 -0.027

19


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:


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/. Conclusions

Chilean income distribution deteriorated sharply in the mid seventies. Between July 1974 and June 1976the Gini increased rom .4! to .!". #he deterioration was sudden$ stron% and never reversed thereater$when the Gini increased rom an avera%e o .4, in the period 196:-1974 to an avera%e o .!4 in the

period 197!-::". #he shoc( that brou%ht this chan%e almost surely was the re-privati'ation process thattoo( place between 1974 and mid 1976. #he privati'ations process was ast$ irreversible$ directlyaectin% Entrepreneur amily share and too( place e+actly beore the deterioration in incomedistribution. #he privati'ation process transerred bac( to private hands most o the medium and lar%eirms in the country.

#his paper shows that a lar%e raction o the increase in ine&uality can be attributed primarily to anincrease in the share o income held by Entrepreneuramilies and secondarily to a subse&uent raise inthe concentration o income within this se%ment and in their relative concentration. Entrepreneur

amilies are appro+imately ") o total amilies and correspond with the richest se%ment in the economysociety and are associated to business owners. #he share held by Entrepreneuramilies o total amilyincome increased rom an avera%e o 9.!) in the period 196:-1974 to 1.,) in the period 197!-::".#he concentration within this se%ment also increased. #he 9:M1: and 9:M!: ratio in the Entrepreneur

amily units increased rom an avera%e o 6. and .19 or 196:-1974 to ,.47 and .74 or 197!-::"respectively. #he eect o chan%es in the share o Entrepreneuramilies over ine&uality is particularlystron% because these amilies earn considerably more than the mean income. #his is why relatively small

permanent increase in the share o Entrepreneuramily income that too( place between 1974 and 197!implied permanent si%niicant increases in the Gini thereater. Ha(in% the richer richer has prooundimpact in ine&uality.

#he Gini decomposition provides urther and more detailed evidence. ;hile theEntrepreneuramilies onavera%e had an absolute contribution o .:, to the Gini durin% the period 196:-1974$ they increased theircontribution to .11! durin% the period 197!-::"$ ully e+plainin% !9) o the observed increase in Gini.#hou%h the maor part o this chan%e directly derives rom the documented increase in share$ the partialderivative o the overall Gini with respect to a percenta%e chan%e inEntrepreneurincome rises rom anavera%e o .:"6 to .:47$ showin% that the eect o the increasin% ine&uality both within the sector and in its

relative position with respect to the other sectors also accounts or a noteworthy raction o the increase inGini. number o papers have studied and documented the permanent deterioration in income distribution thatoccurred in Chile in the mid-seventies. Let ew$ i any$ have determined the mechanisms that underminedthe distribution andMor the undamental chan%es that set o these mechanisms. By matchin% chan%es in theGini with the privati'ation process and with correspondin% chan%es in amily income shares or dierentcate%ories o earners$ part o the obscurity associated to the deterioration o income distribution in Chile can

be lited.

Re#erences

%utor, "avid 9.: ;atz, a Neassessin% theNevisionists.Q BN ;or(in% @aper 1167$ ational Bureau o conomic Nesearch$ Cambrid%e$ H$ 3eptember::!.

Baer, Werner and Bang, James,P@rivati'ation and &uity in Bra'il and Nussia.Q)*)+OS,::$ 55(4).7eyer, 9arold and e oulon, Carmen,Q2n Necorrido por las 5esi%ualdades 3alariales en Chile.Q Estudios ,-.licos#verano ::$ ,!.7rainerd, Eliza)ethP;inners and 8osers in Nussia=s conomic #ransition.Q he 0merican Economic $eview,5ec199,$ ,,!/.

Commander, Simon: *olstopiaten4o, %ndrei: >emtsov, Ruslan, PChannels o Nedistribution *ne&ualityand poverty in the Nussian transition.Q $Economics of ransition !"""# 7%12Contreras, "ante, P@overty and ine&uality in a rapid %rowth economy> Chile 199:T1996.Q 3ournal of 4evelopmentStudies# 0ebruary ::"$ "9"/.Ed


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Ed someunpleasant redistributive arithmetic.Q3ournal of 4evelopment Economics# 1999$ !9.erreira, rancisco 9 and itch#ield, Julie %, Calm 0fter the Storm6 Income 4istri.ution and 'elfare in Chile#!"78!""9:; he 'orld

Chile Income Distribution Final 25 Agosto 2009 158498

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