Condemned to Poverty? 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 consistently above levels observed in other regions. In the region today, while the richest 10% hold 55% of the income and 77% of all wealth, the poorest 50% earn 10% of the income and only 1% of the wealth. Other approaches to measuring economic inequality attest to the same pattern, which is analyzed in detail in the new CAF Economy and Development Report (EDR2022), entitled Inherited inequalities: the role of skills, employment and wealth in opportunities for new generations.

This persistently high inequality has deep roots that involve generation to generation legacies. Lack of opportunities for building human capital, securing good jobs in labor markets and accumulating assets are all key factors behind intergenerational inequalities. The report presents abundant evidence showing that opportunities in these three areas in the region are distributed very unevenly among people from families with different socioeconomic levels.

“Low social mobility is a major problem for Latin America and the Caribbean. And this is the case not only because of the impact on equality, but also because of the consequences on other core components of economic development, such as growth and political-institutional stability. The lack of social mobility tends to alter incentives to apply effort and distorts human talent allocation, thereby impinging on productivity and growth. Furthermore, high intergenerational persistence deriving from inequality of opportunities may undermine trust among citizens and in institutions,” explained Dolores de la Mata, co-author of the report and chief economist at CAF’s Socioeconomic Research Directorate

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 educational 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 a pending task. For example, the proportion of children of parents with no university education who manage to complete university studies  is still dismal in the region, barely exceeding  10%.

According to EDR2022, those who managed to outdo their parents in educational attainment did not necessarily achieve similar progress with their job opportunities. This may suggest both that educational progress has not been sufficient, and that the region’s economic structure is failing to absorb or reward these higher levels of education. These results are consistent with low intergenerational income mobility, which positions Latin America and the Caribbean as the region with the greatest persistence of this issue worldwide.

“The region requires improvements in coverage, quality and relevance of basic, technical-professional and higher education. However, policies that may provide a larger boost to intergenerational mobility include those that aim to ease the largest restrictions limiting investments at home for children and adolescents , including not only financial investments, but also informational and insurance related factors,” added De la Mata.

Job and savings opportunities

The analysis of 2022 EDR 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. The report points out that focusing on policies with spatial or geographical criteria is important, since the parents’ geographical location may also determine their children’s job opportunities. Many new generations live in the same neighborhood where their parents lived, as indicated by the 45%  of those surveyed by CAF, while more than a third of them even reside in the same dwelling as their parents.

“Equalizing job opportunities requires largely a reduction of inequalities between regions and different areas within the region’s 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

From the perspective used in the report, policies not usually conceived as promoters of social mobility could well become core elements in the range of equal opportunity policies. This is the case, for instance, with public transport infrastructure improvements, which have the potential of bringing high-quality job opportunities to populations residing in disenfranchised areas far from productive centers.

In terms of saving and accumulating assets, the EDR 2022 shows the pivotal role played in the region by legacy and the problems related to unequal financial inclusion. “Analyzing the causes of this phenomenon enables us to propose several policy areas that might be of benefit to better wealth mobility. For example, we analyze the potential of taxation systems, the development of mortgage credit markets, interventions to improve home ownership conditions, as well as promoting greater financial knowledge and strengthening social and private insurance schemes that protect the most vulnerable families against the greatest risks affecting their assets, such as climate and macroeconomic factors,” added Berniell.

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 all 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.

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