Understanding The Income And Efficiency Gap In Latin America And The Caribbean

The countries of the Latin America and Caribbean region (LAC), like other emerging economies, have benefited from a decade of remarkable growth and some income per capita convergence towards the United States and other industrialized countries. However, even nearly ten years of solid growth in the first decade of the 21st century could not guarantee that LAC would move on to a sustained long-term income convergence path. In fact, despite this recent progress, LAC still faces a significant per capita income gap with the developed world. The papers in this volume contribute to the ongoing debate on the reasons for this persistent income gap and the potential drivers of convergence, and propose some broad avenues for reform. This volume presents new macro-, sectoral-, and micro-level evidence that: (i) differences in total factor productivity (TFP), or efficiency in using the production factors, such as physical and human capital, explain a large part of LAC's persistent income gap; and (ii) resource misallocation is the main factor behind LAC's large efficiency gap. At the same time, the findings of this volume indicate there is significant room for further economic growth gains from technology adoption and innovation more broadly. In fact, the quality of the available technology in LAC is low, and there is very little innovation. Although firms can use innovation to reach productivity at the global productivity frontier, weak institutions reduce incentives to innovate. This volume also proposes that the main priorities for improving resource allocation and the incentives to innovate include: (i) enhancing market competition in key network industries (transport, financial, telecommunications, logistics, communication and distribution services); (ii) increasing labor market flexibility (including skill-mismatches and social barriers); (iii) removing informational frictions (including complex tax regimes and credit rationing); (iv) strengthening property rights; and (v) improving the rule of law.

Recoge: Poverty and distribution; productive job creation; social integration; reforms now under way; economic reforms; social reforms; economic policies;social policies.

After a sustained economic growth period at the end of the last century and the beginning of this one, Latin America still faces high inequality and lower well-being indicators among women, afro-descendants, and indigenous peoples. This is a period in which the world and particularly Latin America has experienced important changes regarding the role of women and men. Marriage, education and work decisions have evolved and, as a result, women's visibility at home, at school, in the labor markets and in society have evolved as well. But there are still, however, important challenges in the labor markets. Earnings differentials as well as occupational and hierarchical segregation are commonly accepted as the norm in the region's labor markets. For the diverse racial and ethnic groups the situation has been less auspicious than for women. Statistics reveal that traditionally excluded ethnic groups have worse poverty and income outcomes, reflected in issues such as restricted access to public services, poorer health conditions, lack of political representation, confinement into low productivity activities and prevalent discrimination. The evidence points that in Latin America, a racially and ethnically diverse region, the benefits of the recent progress have not reached equally indigenous peoples and Afro-descendants. This pattern can be traced to lower human capital endowments, manifested in poorer educational performance and fewer years of job experience. In this way, these groups have been less able to benefit from the economic opportunities generated within this prosperous period. This book is about gender and ethnic differences in labor markets earnings. It revolves around the question: to what extent the gender (ethnic) differences in earnings are a result of gender (ethnic) differences in observable individuals' characteristics that the labor markets reward? Such question is answered with a novel methodological approach based on matching comparisons, resembling the Oaxaca Blinder (OB) decompositions, extending their scope. What would the distribution of females' and males' earnings be if they had equal levels of education, if they worked the same quantity of hours per week, if they worked in the same kind of formal jobs, or in firms of the same size? What would happen with the earnings gap, for instance, if men and women had the same occupations or were distributed equally through economic sectors? Further on, what would happen if all men and women in the labor markets were equally distributed along all of these characteristics at the same time? The novelty of the methodology introduced in this book is that it allows us to create fictional labor markets where these counterfactuals are true. Furthermore, this book addresses not only the extent to which those differentials can be explained by individuals' characteristics, but also how have these gaps evolved during the last two decades. In this way, it allows the discussion of policy options for these pressing issues in the region.

This paper brings together the main findings and policy implications of two recent World Bank regional reports on economic growth in Latin America and the Caribbean: Araujo, Vostroknutova, Wacker and Clavijo, eds. (2016) and Araujo, Vostroknutova, Brueckner, Clavijo, and Wacker (2016). In doing so, the paper focuses on finding the right balance between micro- and macro-inference when thinking about growth in Latin America and the Caribbean. The paper documents the region's growth performance over the past decade, highlighting the roles played by the commodity boom, macroeconomic stabilization and structural reforms. It notes that, despite faster growth during the first decade of this century, the region failed to achieve sustained convergence towards higher income levels. The paper points out that the persistent income gap could be reduced through: (i) increasing focus on closing the efficiency gap - beyond mere factor accumulation; (ii) eliminating distortions that cause misallocation of resources will also improve the incentives to innovate; (iii) identifying the main country-specific constraints to growth instead of looking for universal recipes; (iv) containing macroeconomic volatility, thereby alleviating the negative impact of persistent poverty on growth; and (v) improving the composition of public spending.

This third edition of Government at a Glance Latin America and the Caribbean provides the latest available evidence on public administrations and their performance in the LAC region and compares it to OECD countries. This publication includes indicators on public finances and economics, public employment, centres of government, regulatory governance, open government data, public sector integrity, public procurement and for the first time core government results (e.g. trust, inequality reduction).

Several countries in Latin America and the Caribbean are suffering severe economic downturns and the success of market-oriented reforms is being called into question. This report seeks to contribute to the debate by examining the nature of economic growth in the region. The aim is threefold: to describe the basic characteristics of growth; explain differences across countries and to forecast changes over the next decade.