Gustavo Márquez, RES. Coordinador General

Alberto Chong, RES; Suzanne Duryea, RES; Jacqueline Mazza, SCL; Hugo Ñopo, RES

Economic and Social Progress in Latin America, IPES 2008Inter-American Development Bank

Gustavo Márquez, RES. General Coordinator

Alberto Chong, RES; Suzanne Duryea, RES; Jacqueline Mazza, SCL; Hugo Ñopo, RES

LACEA - LAMES 2007

Bogotá, Colombia - October 5, 2007

22

Three main messages

Social exclusion is a phenomenon associated Social exclusion is a phenomenon associated with, but very different from poverty. with, but very different from poverty.

Social exclusion have significant economic Social exclusion have significant economic costs than can be measured.costs than can be measured.

Advancing social inclusion calls for public Advancing social inclusion calls for public policies that go beyond poverty alleviation policies that go beyond poverty alleviation programs.programs.

Social exclusion is a phenomenon associated with, but very different from poverty.

44

Social Exclusion …

NatureNature– Is a social, political and economic dynamics that blocks group Is a social, political and economic dynamics that blocks group

and individual access to resources and opportunities, thus and individual access to resources and opportunities, thus limiting their ability to obtain outcomes valuable in a market limiting their ability to obtain outcomes valuable in a market economyeconomy..

MechanismsMechanisms– Operates through formal and informal institutions that reduce Operates through formal and informal institutions that reduce

the liberty and functioning of the excluded, reducing their the liberty and functioning of the excluded, reducing their well-being.well-being.

ResultsResults– Affects the attainment of income, consumption, and political Affects the attainment of income, consumption, and political

and social participation by the excluded. Increase transaction and social participation by the excluded. Increase transaction costs and hinders governance agreements for society as a costs and hinders governance agreements for society as a whole. whole.

55

Why Social Exclusion?

To expand the focus of analysis and policy beyond poverty.

The concept of exclusion focuses on the multi-dimensional nature and dynamics of deprivation, on the interactions between these dimensions, and on the individual and the family as part of a community.

Our fundamental concern is the identification of the social processes where exclusion is generated and reproduced.

66

Discrimination, Stigmatization and Traditional Forms of Exclusion

The Traditional Forms of ExclusionThe Traditional Forms of Exclusion

88

Discrimination and Exclusion

Discrimination and stigmatization based on Discrimination and stigmatization based on group group identitiesidentities (gender, race, religion, ethnicity) have been (gender, race, religion, ethnicity) have been the traditional forces of exclusion in the region since the traditional forces of exclusion in the region since colonial times. colonial times.

This type of exclusion is visible through the This type of exclusion is visible through the relative relative deprivationdeprivation that these groups suffer, in terms of that these groups suffer, in terms of income, education, housing, infrastructure, and health, income, education, housing, infrastructure, and health, but also in terms of their jobs and their political but also in terms of their jobs and their political participation, among others. participation, among others.

The academic literature in the region has concentrated The academic literature in the region has concentrated in documenting this relative deprivation. More recently, in documenting this relative deprivation. More recently, the emphasis has moved towards analyzing the emphasis has moved towards analyzing the the processes that result in this relative deprivationprocesses that result in this relative deprivation. .

99

Who is Discriminated Against?

Most Discriminated-Against Groups in the Region, 2001

0 5 10 15 20 25 30

ArabsWhites

Religious groupsChinese, Japanese, Asians

Jew ishMulattos, mestizos

HIV-positiveThose belonging to an interest group

Those belonging to a particular political partyWomenYoung

HomosexualsIlliterate people

DisabledImmigrants

EldersThere is no discrimination

OthersAfro-descendants

Indigenous peoplesPoor

PercentSource: Latinobarometer (2001).Note: Figure presents responses to the question "Which groups do you think are the most discriminated against, or do you think that there is no discrimination?"

1010

Why Are They Discriminated Against?

Reasons for Discrimination That Most Affect Population, 2004 and 2005

0 5 10 15 20 25 30 35 40

Being disabled

Being an immigrant

Don't know or no reponse

Being "nobody"

Being a w oman

Everyone is treated equally

Being old

Skin color

None

Not having connections

Not having enough education

Being poor

Percent

2004 2005

Source : Latinobarometer (2004, 2005).Note: Figure reflects responses to the question "Out of all the reasons for w hich people are not treated equally, w hich one affects you most?"

1111

Beyond Perceptions

Perceptions are relevant only to the extent that they Perceptions are relevant only to the extent that they affect the decisions, actions and outcomes of affect the decisions, actions and outcomes of individuals.individuals.

There is a notorious difference in wage levels across There is a notorious difference in wage levels across different groups (gender, ethnic, racial).different groups (gender, ethnic, racial).

However, the literature on wage differentials reveal However, the literature on wage differentials reveal that almost half of the wage difference is explained by that almost half of the wage difference is explained by different human capital endowments.different human capital endowments.

The evidence of discrimination, as shown by wage The evidence of discrimination, as shown by wage differentials unexplained by individual characteristics, differentials unexplained by individual characteristics, is notably less than that arising from the simple is notably less than that arising from the simple comparison of wage levels.comparison of wage levels.

1212

Unobservables Factors unobservable for the authors of a study, but Factors unobservable for the authors of a study, but

readily observable for an employer, can explain part readily observable for an employer, can explain part of the difference in outcomes.of the difference in outcomes.

A group of empirical studies uses experimental A group of empirical studies uses experimental economics techniques to evidence this (economics techniques to evidence this (http://www.http://www.iadbiadb..org/res/network_studyorg/res/network_study..cfmcfm??st_id=86st_id=86 ).).

The studies conclude that the notorious differences in The studies conclude that the notorious differences in outcomes between different groups do not necessarily outcomes between different groups do not necessarily result from discrimination, and that discrimination result from discrimination, and that discrimination itself is often reduced by better information flows.itself is often reduced by better information flows.

The distinction between differences in endowments The distinction between differences in endowments associated with gender, race or ethnicity and overt associated with gender, race or ethnicity and overt discrimination is crucial for the design of anti-discrimination is crucial for the design of anti-discrimination policies.discrimination policies.

1313

Results and Processes

The region is extremely unequal, but The region is extremely unequal, but discrimination is not the only cause of discrimination is not the only cause of inequality. The confusion between relative inequality. The confusion between relative deprivation and discrimination is one of the deprivation and discrimination is one of the fundamental deficits in the literature. fundamental deficits in the literature.

The design of policies of social inclusion The design of policies of social inclusion depends on our capacity to understand depends on our capacity to understand the the processesprocesses through which social exclusion is through which social exclusion is produced and reproduced, and to look produced and reproduced, and to look beyond solely traditionally excluded groups. beyond solely traditionally excluded groups.

Democratization, Macro Stabilization, Globalization and Changes in the patterns of Inclusion and Exclusion

The Modern Forms of ExclusionThe Modern Forms of Exclusion

1515

Modern Forces of Exclusion

Exclusion is an ever changing dynamic that has been Exclusion is an ever changing dynamic that has been molded by changes in the way the State operates. molded by changes in the way the State operates.

Democratization, globalization, and economic Democratization, globalization, and economic stabilization have changed the mechanisms and the stabilization have changed the mechanisms and the capacities of the State to integrate groups, through capacities of the State to integrate groups, through expansion of employment (public and manufacturing), expansion of employment (public and manufacturing), that gave access to the benefits of the local truncated that gave access to the benefits of the local truncated version of the Welfare State.version of the Welfare State.

Modern forces of exclusion (mostly economic and Modern forces of exclusion (mostly economic and social in origin) associated with these changes expand social in origin) associated with these changes expand the impact of exclusion to larger, less identifiable the impact of exclusion to larger, less identifiable groups. groups.

1616

Inclusion in Some Grounds for Some Groups

0 5 10 15 20 25 30

Argentina

Peru

Costa Rica

Dominican Republic

Mexico

Ecuador

Boliv ia

Colombia

Uruguay

Chile

El Salvador

Nicaragua

Venezuela

Panama

Honduras

Guatemala

Brazil

Paraguay

Percentage of total members of legis lative branch b

2000 1990

Participation by Women in the Legislative Branch, 1990 and 2000

Source: Smith (2005).a

No data are available for El Salvador and Honduras for 1990.b

In the case of bicameral countries, the percentage relates to members of the lower house.

a

a

1717

Inclusion: Education and Health

5

10

15

20

25

30

35

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5

Percentage of public expenditure on health and education

received by each income quintile

Argentina (1998) Bolivia (2002) Brazil (1997) Chile (2003)

Colombia (2003) Costa Rica (2000) Guatemala (2000) Mexico (2002)

Nicaragua (1998) Peru (2000) Uruguay (1998)

Distribution of Public Social Expenditure on Education and Health in Latin America, various years

Source : ECLAC (2006a).

1818

Exclusion: Pensions

0

10

20

30

40

50

60

70

80

90

Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5

Percentage of public spending on pensions

received by each income quintile

Argentina (1998) Bolivia (2002) Brazil (1997) Colombia (2003) Costa Rica (2000)

Ecuador (1999) Guatemala (2000) Mexico (2002) Uruguay (1998)

Distribution of Public Spending on Social Security (Pensions) in Latin America, Various Years

Source: ECLAC (2006a).

1919

Low-Wage Jobs and Exclusion

Employment is the principal —if not the only– source Employment is the principal —if not the only– source of income for the majority of the population. Being of income for the majority of the population. Being unemployed or having a job without benefits or unemployed or having a job without benefits or documentation excludes these workers and their documentation excludes these workers and their families from mechanisms of protection normally families from mechanisms of protection normally associated with formal employment. associated with formal employment.

The proportion of workers with low wages and The proportion of workers with low wages and productivity has increased in the last 15 years. productivity has increased in the last 15 years.

This phenomenon has begun to affect larger and more This phenomenon has begun to affect larger and more diverse groups than those traditionally excluded. diverse groups than those traditionally excluded.

2020

The Number of Low-Wage Jobs has Grown in Most Countries in the Region

Evolution of the Percentage of Workers in Low-Wage Jobs 1990-1997 versus 1998-2004

Argentina

Bolivia Brazil

Chile

Colombia

Costa Rica

Ecuador

Honduras

Mexico Nicaragua

Panama

Peru

Paraguay

El Salvador

Uruguay

Venezuela LatinAmerica

-

10

20

30

40

50

- 10 20 30 40 50

First Period 1990-1997

Second Period: 1998-2004

Source: Márquez and Prada (2007) .

2121

Education and Low-Wage Jobs

-100 -50 0 50 100 150 200 250 300

Chile

Uruguay

Costa Rica

Honduras

Panama

Peru

El Salvador

Mexico

Bolivia

Ecuador

Brazil

Venezuela

Paraguay

Colombia

Nicaragua

Argentina

Percentage change in share of unskilled workers Percentage change in share of skilled workers

Source: Pagés and Prada (2007).

Percentage Change in Share of Workers in Low-Wage J obs by Skill Level, 1990–1997 versus 1998–2004

2222

Female labor force participation and Low-Wage Jobs

-100 -50 0 50 100 150 200 250

Chile

Costa Rica

El Salvador

Honduras

Mexico

Brazil

Nicaragua

Uruguay

Peru

Panama

Boliv ia

Ecuador

Colombia

Venezuela

Paraguay

A rgentina

Female Male

Percentage Change in the Share of Workers in Low-Wage Jobs by Gender, 1990–1997 versus 1998–2004

Source : Pagés and Prada (2007).

2323

Low-Wage Jobs and Exclusion

The expansion in the number and proportion The expansion in the number and proportion of low wage jobs is associated with the of low wage jobs is associated with the growth of unemployment, low growth rates growth of unemployment, low growth rates and an increase in the demand for education. and an increase in the demand for education.

Phenomena such as the change in the Phenomena such as the change in the sectoral structure of employment (more sectoral structure of employment (more services) and the increased participation of services) and the increased participation of women in the work force have smaller roles women in the work force have smaller roles in the explanation of this process. in the explanation of this process.

Social exclusion have significant economic costs than can be measured.

2525

Cooperation, Social Distance and Exclusion

Within the problem of exclusion is the problem of lack of Within the problem of exclusion is the problem of lack of confidence, limiting collective action and cooperation.confidence, limiting collective action and cooperation.

With a number of economic experiments, applied to With a number of economic experiments, applied to representative samples of 6 capital cities in the region, we representative samples of 6 capital cities in the region, we explored questions such as: To what extent do Latin explored questions such as: To what extent do Latin Americans collaborate with each other? What role does social Americans collaborate with each other? What role does social distance play in the determination of these egoistic or distance play in the determination of these egoistic or cooperative behaviors ?cooperative behaviors ?

2626

Cooperation and Social Distance

Trust, Education Gap, and Welfare Generation

40

41

42

43

44

45

46

Betw een -17 and -9 Betw een -8 and -3 Betw een -2 and 2 Betw een 3 and 8 Betw een 9 and 17

Education gap between player 1 and player 2

Percentage of initial stake offered by

player 1 (bars)

50

55

60

Foregone welfare generation (line)

(percent)

Source : Cárdenas, Chong, and Ñopo (2007).

2727

Heterogeneity and ConfidenceHeterogeneity of Session and Likelihood of Trust in Group

Bogotá

Buenos Aires

Caracas

Lima

MontevideoSan José

R2 = 0.0679

0

10

20

30

40

50

60

70

80

90

0 1 2 3 4 5 6 7 8

Standard deviation of years of education, per session

Percentage of participants who invested in

group account, per session

Source : Cárdenas, Chong and Ñopo (2007).

2828

What do We Find? Latin Americans have a natural propensity to trust and Latin Americans have a natural propensity to trust and

cooperate, but with some limitationscooperate, but with some limitations

This propensity to trust and cooperate is reduced with “social This propensity to trust and cooperate is reduced with “social distance” (ie: education), and emerges as a behavior distance” (ie: education), and emerges as a behavior consistent with people’s expectations. Reciprocity is an consistent with people’s expectations. Reciprocity is an important ingredient within this. important ingredient within this.

The limitations of trust and cooperation imply friction in The limitations of trust and cooperation imply friction in markets and increased transaction costs. As a result, market markets and increased transaction costs. As a result, market efficiency and value generation are reduced.efficiency and value generation are reduced.

Our experiments found that increases in trust and cooperation Our experiments found that increases in trust and cooperation among Latin Americans could imply increases in the among Latin Americans could imply increases in the generation of social value that range from 20% to 70%.generation of social value that range from 20% to 70%.

Advancing social inclusion calls for public policies that go beyond poverty alleviation programs.

3030

Public Policy and Social Inclusion

Inclusion is not a policy objective, but a societal Inclusion is not a policy objective, but a societal process that public policy can stimulate.process that public policy can stimulate.

Exclusion is a multi-dimensional, changing and Exclusion is a multi-dimensional, changing and dynamic phenomenon. Social inclusion shares dynamic phenomenon. Social inclusion shares these characteristics.these characteristics.

The policies of inclusion ARE NOT a new set of The policies of inclusion ARE NOT a new set of programs, but rather a new way of designing, programs, but rather a new way of designing, implementing, and evaluating public policies implementing, and evaluating public policies that aims at fostering equality of opportunities, that aims at fostering equality of opportunities, fighting discrimination, and increasing fighting discrimination, and increasing diversity. diversity.

3131

Inclusion and Public Policy

The policies of inclusion involve action at the The policies of inclusion involve action at the normative and institutional level, as well as in the normative and institutional level, as well as in the implementation of policies. The objective of these implementation of policies. The objective of these actions is to change the manner in which resources actions is to change the manner in which resources are allocated, institutions are governed and are allocated, institutions are governed and opportunities are accessed.opportunities are accessed.

Inclusion changes outcomes and the processes Inclusion changes outcomes and the processes through which people obtain them. Changes in the through which people obtain them. Changes in the functioning of, and access to institutions are crucial.functioning of, and access to institutions are crucial.

Inclusion is a range of advances in different areas in Inclusion is a range of advances in different areas in varying moments. varying moments.

The process of inclusion is dynamic and multi-The process of inclusion is dynamic and multi-dimensional: changes in education are necessary, but dimensional: changes in education are necessary, but not sufficient, nor substitutes for changes in other not sufficient, nor substitutes for changes in other dimensions (ie: labor market).dimensions (ie: labor market).

3232

In Summary

Social exclusion is a phenomenon associated with, but Social exclusion is a phenomenon associated with, but different than poverty. Inclusion requires different public different than poverty. Inclusion requires different public policies than those traditionally used to combat poverty.policies than those traditionally used to combat poverty.

Social exclusion has significant economic costs. Advances Social exclusion has significant economic costs. Advances in social inclusion reduce transaction costs and facilitate in social inclusion reduce transaction costs and facilitate the achievement of governance agreements.the achievement of governance agreements.

Progress in the process of inclusion requires fundamental Progress in the process of inclusion requires fundamental changes in the ways institutions are managed and in the changes in the ways institutions are managed and in the design, analysis and implementation of public policies.design, analysis and implementation of public policies.