How committed are Latin American Governments to equity? Otaviano Canuto Vice President Poverty Reduction and Economic Management World Bank 1

What explains the decline in inequality? A stronger labor market associated with fewer jobless workers and higher wages for unskilled workers ◦ López-Calva and Lustig (2010), Jaramillo and Saavedra (2010) for Peru, Azevedo et al (2012) Demographic changes and greater female labor force participation ◦ Gray Molina and Yañez (2009) for Bolivia A more progressive fiscal policy including redistributive public policies through transfers. ◦ López-Calva and Lustig (2010) and Jaramillo and Saavedra (2010) for Peru A more active role in the labor market where governments took a more pro-union stance and raised minimum wages and pensions ◦ Gasparini and Lustig (2011) 2

How important were these forces to inequality reduction? 3 Source: Azevedo, Inchauste and Sanfelice, The World Bank. 45% of the reduction in inequality was due to higher labor incomes per hour. Transfers contributed 14% to the decline in inequality for the region. Pensions accounted for 7%.

Labor incomes grew much faster for lowest quintiles 4

How has policy helped to reduce inequality? Macro stability ◦ (inflation is a regressive tax) Expansion of access to education and health services Social protection / safety nets (CCTs) 5

Maintaining macroeconomic stability… 6 Source: IMF WEO, 2012.

However, this is not enough Inequality in outcomes continue to be high Inequality of opportunities perpetuate these trends 7

Boy with 4 siblings in a rural home, uneducated head of household, income at extreme poverty level Child with one sibling in an urban home, household head has secondary education, family income per capita of US$25 a day Two Latin-american children: Probability of finishing 6th grade on time

9 The Case of Brazil It is the best—largest and fastest— performer in reducing inequality Equality of opportunity is a political priority Uses evidence to guide policy

Brazil: Best performer in reducing inequality… 10

…and the president committed to flatten the slope of this graph by the end of her term... 11

12 Thank you…