Greater integration into the world economy has allowed emerging economies to move to a higher and more sustainable growth path, with often impressive results in terms of economic growth, social development and poverty reduction. But the benefits of stronger growth have not always been shared equally across different socio-demographic groups, and income inequality has often increased within these countries. The current global economic crisis and its negative impact on unemployment and underemployment have exacerbated this problem and may seriously compromise past efforts to reduce chronic poverty.
Acronyms and abbreviations
Growth, employment and inequality in Brazil, China, India and South Africa: An overview
During the past two decades, Brazil, China, India and South Africa have experienced sustained economic growth, with real GDP growing at above the OECD average, particularly in China and India. The GDP per capita gap with OECD countries is decreasing, although real GDP per capita levels are still low with regard to OECD average: some 10% in India, 20% in China and around 30% in Brazil and South Africa. Strong economic growth has helped to reduce extreme poverty in all four countries, especially in China. Nonetheless, the overall benefits of economic integration have not been shared equally and income (and consumption) inequalities increased, except in Brazil recently.
The decade of falling income inequality and formal employment generation in Brazil
This chapter studies the role played by labour market outcomes and education as well as by income policies on the level and distribution of household per capita income in Brazil between 1992 and 2009. It shows a pronounced reduction in overall income inequality since 2001 due to social programmes and especially to labour improvements. The attractive feature of targeted social programmes, such as Bolsa Familia, is that in terms of GDP they cost much less than social security payments. Trends in years of schooling suggest that the decrease in income inequality observed during this decade will continue in the coming years. The 2008-09 international economic crisis has hit all earnings indicators, but by September 2009 they had once again reached pre-crisis levels.
Fast growth, but widening income distribution in China
Although the growing income inequality taking place in China since the reform and opening-up has been widely discussed, there has been little empirical evidence based on nationally-representative surveys and reliable statistical methodologies to describe trends over the past three decades. This chapter discusses the potential bias of existing estimates of income inequality in China and considers how inequality would be affected by the recent changes in labour market and social policies.
Decreasing poverty and increasing inequality in India
India’s GDP accelerated in the post-reform period, but it was accompanied by rising inequality. This growth in inequality can be partly traced to the peculiar sectoral composition of India’s growth, with the tertiary sector taking the lead in terms of both employment and value added. This rather unique feature of India’s growth can in turn be traced to the dualistic nature of India’s modern (non-household) manufacturing sector – with the two strong modes of very small-sized firms (fewer than ten workers) and very large firms (500 or more workers). The dual structure of manufacturing is partly caused by the content and implementation of labour laws, but other factors connected with education, infrastructure and industrial policies are equally, if not more, important. The resultant concentration of employment growth in the large informal sector has left policy makers struggling to build adequate systems of social protection and assistance which extend benefits to workers in this sector as well as to the formal sector of the labour market. These programmes have been enacted in various fronts, but have still not been implemented adequately.
Better employment to reduce inequality further in South Africa
This chapter explores two angles on labour markets and inequality in South Africa. Have changes in the labour market helped or hindered inequality and poverty alleviation, and have government social policies ameliorated or worsened this situation? Increasing labour participation in the 1990s combined with sluggish growth in labour demand and skill-biased technical change resulted in rising unemployment with new entrants, in particular, African women and the youth, making up the bulk of the unemployed. This rise in zero earners as well as increasing earnings inequality are shown to be the main drivers of South Africa’s rising inequality. While there is little evidence that labour market institutions are particularly inflexible, they have not protected workers or facilitated dynamic adjustments. Access to education has increased remarkably with a large commitment of public resources. However, the quality of this education remains highly heterogeneous. Given South Africa’s skills situation, this has made it hard for new participants to find employment. There is a need for further education reform that focuses on quality rather than access. Despite this bleak picture of the labour market, poverty has decreased, mainly due to an extensive expansion of social grants and increased provision of basic services.
What role for policies in tackling inequality?
In recent years, the BCIS governments have incorporated the goal of reducing poverty and inequality into their approaches to more sustainable growth and have enacted some reforms in that direction. Tackling inequality traps requires improving economic opportunities for all, and this covers a variety of policy actions. Labour market and social policies have an important role to play, as they directly or indirectly affect household incomes. In countries with significant labour market segmentation between formal and informal employment, policies and measures directed exclusively at the formal labour market have a small influence, limiting their impact on reducing poverty and inequality. But, labour market policies can have a considerable impact on maintaining this labour market duality by making employment expensive and favouring underemployment and informality. In this kind of configuration, they could even become counterproductive with respect to reducing poverty and inequality.
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