CAF puts forward proposals to advance social mobility in Latin America and the Caribbean

Inequality in Latin America and the Caribbean is rampant and remains above levels observed in other regions. While the richest 10% keep 55% of income and 77% of wealth, the poorest 50% earn 10% of income and only 1% of the wealth, according to the new CAF— development bank of Latin America—Economy and Development Report (EDR 2022), entitled Inherited inequalities: The role of skills, employment and wealth in opportunities for new generations

The report was presented as part of CAF’s 176th board of directors meeting held in Montevideo, which was attended by ministers of economy and finance, central bank presidents and senior economic authorities from shareholder countries.

“For decades, perhaps centuries, Latin America and the Caribbean has been one of the most unequal regions in the world. This remains true despite economic and social progress made over the last twenty years, which has not been enough to undo the deep roots of inequality in our region. The disparities also extend to education and employment opportunities accessed by Latin Americans and Caribbeans,” said CAF executive president Sergio Díaz-Granados.

He also said that the 2022 EDR general analysis shows that social mobility is low, which poses a serious problem for equity and other development aspects in the region. “The report highlights that mobility opportunities are affected by various kinds of risks, which are not only associated with macroeconomic crises or the dangers of technological change, which threaten to erode sources of employment. In recent years we have also seen that health-related risks can have significant but unequal effects, as evidenced by the COVID-19 pandemic. Today it is also of vital importance—and in the coming decades it will be even more important—to ensure opportunities for the most vulnerable groups against the risks of climate change and the loss of biodiversity in the region,” said Díaz-Granados.

The publication shows the important educational expansion the region underwent throughout the 20th century, but which was not enough to improve the situation for children of less educated parents. This was due to the fact that expansion for the most vulnerable groups was concentrated in low educational levels, such as primary and—to a lesser extent—secondary education, while impact at higher educational levels has remained an incomplete task.

“The region requires improvements in the coverage, quality and relevance of basic, technical, professional and higher education. But among the policies that might provide a stronger boost to intergenerational mobility, there are also those that aim to alleviate the main restrictions limiting investments within households for children and adolescents, including not only financial barriers, but also in information and security,” said Dolores de la Mata, co-author of the report and chief economist of CAF’s Directorate of Socioeconomic Research.

The 2022 EDR analysis suggests that focusing efforts on demographic groups such as Afro-descendants, indigenous people, women from more vulnerable backgrounds and residents from segregated areas might help improve occupational and income mobility opportunities. “Equalizing job opportunities to a large extent requires reducing inequalities between regions and different areas within cities. Various policies might help to achieve this goal, e.g. those improving basic urban infrastructure and key facilities to provide education, healthcare and public safety services, among others,” said Lucila Berniell, co-author of the publication and chief economist at CAF’s Directorate of Socioeconomic Research

The report concludes with a set of recommendations to provide new generations with greater opportunities to accumulate skills, help labor markets function better so that they provide quality alternatives for workers, while promoting safe and profitable ways of accumulating assets for all members of society. The proposals indicate that achieving greater social mobility in the region is in the hands of multiple stakeholders from both the public and private sectors, which poses the great challenge of reaching the required consensus to expand redistributive policies that break intergenerational inequality ties.

After the report was presented, a panel of experts discussed the 2022 EDR, consisting of Carlos Felipe Jaramillo, Vice President for the World Bank Latin America and Caribbean Region; Rodrigo Arim, rector of the University of the Republic; Verónica Amarante, professor at the University of the Republic Institute of Economics; and Ana María Baiardi, CAF’s Gender, Inclusion and Diversity manager. The panel was moderated by Adriana Arreaza, Knowledge Manager and Director of Macroeconomic Studies at CAF.

Jaramillo stressed the importance of acting in a “comprehensive” manner, with education and fiscal policy as key factors. “Education is a critical issue. It is a mistake to think that because there is universal primary education and close-to-universal secondary education we will focus on tertiary education problems. However, fiscal policy also plays a pivotal role in reducing inequality in many ways, both on the taxation and the expenditure side,” he said.

It was then Amarante’s turn, who commented that exposing the low levels of social mobility is an “important contribution, since any policy designed to change tough aspects of the economy needs support coalitions achieved through citizens informed on an issue that may be unknown.”

Meanwhile, Arim focused on financing and geographic policies as the basis of higher education financing. “It is important to have differentiation so as to give an efficient response to students, who have varying requirements depending on the education paths they have chosen,” he said.

To wrap up the panel, Baiardi referred to the creation of alliances that promote common agendas to benefit the most vulnerable groups. “One aspect that I highlight is the need to implement public co-responsibility and workplace care policies, to reduce the burden carried by women,” she said.

In the final stretch of the presentation, Pablo Bartol, CAF’s Social and Human Development Manager, concluded that in order to “avoid exceptions and transform generations, a very large and massive investment in education is necessary, as was done in health during the COVID-19 pandemic,” and he emphasized the Bank’s role in “supporting countries in their cultural transformation of people so that they aspire to more.”

To wrap things up, Christian Asinelli, CAF’s Corporate Vice President of Strategic Programming, said that the bank’s mission is to create better economic and financial conditions for projects and to work with professionals to improve countries’ public policies, overcome knowledge barriers and address other problems. “Therefore, we mix knowledge with action, working towards a better quality of life for the citizens of Latin America and the Caribbean,” he concluded.