Gustavo Márquez, RES. Coordinador General Alberto Chong, RES; Suzanne Duryea, RES; Jacqueline Mazza, SCL; Hugo Ñopo, RES Economic and Social Progress in Latin America, IPES 2008 Inter-American Development Bank Gustavo Márquez, RES. General Coordinator Alberto Chong, RES; Suzanne Duryea, RES; Jacqueline Mazza, SCL; Hugo Ñopo, RES LACEA - LAMES 2007 Bogotá, Colombia - October 5, 2007

2 Three main messages Social exclusion is a phenomenon associated with, but very different from poverty. Social exclusion is a phenomenon associated with, but very different from poverty. Social exclusion have significant economic costs than can be measured. Social exclusion have significant economic costs than can be measured. Advancing social inclusion calls for public policies that go beyond poverty alleviation programs. Advancing social inclusion calls for public policies that go beyond poverty alleviation programs.

Social exclusion is a phenomenon associated with, but very different from poverty.

4 Social Exclusion … Nature Nature –Is a social, political and economic dynamics that blocks group and individual access to resources and opportunities, thus limiting their ability to obtain outcomes valuable in a market economy. Mechanisms Mechanisms –Operates through formal and informal institutions that reduce the liberty and functioning of the excluded, reducing their well-being. Results Results –Affects the attainment of income, consumption, and political and social participation by the excluded. Increase transaction costs and hinders governance agreements for society as a whole.

5 Why Social Exclusion? To expand the focus of analysis and policy beyond poverty. The concept of exclusion focuses on the multi- dimensional nature and dynamics of deprivation, on the interactions between these dimensions, and on the individual and the family as part of a community. Our fundamental concern is the identification of the social processes where exclusion is generated and reproduced.

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Discrimination, Stigmatization and Traditional Forms of Exclusion The Traditional Forms of Exclusion

8 Discrimination and Exclusion Discrimination and stigmatization based on group identities (gender, race, religion, ethnicity) have been the traditional forces of exclusion in the region since colonial times. Discrimination and stigmatization based on group identities (gender, race, religion, ethnicity) have been the traditional forces of exclusion in the region since colonial times. This type of exclusion is visible through the relative deprivation that these groups suffer, in terms of income, education, housing, infrastructure, and health, but also in terms of their jobs and their political participation, among others. This type of exclusion is visible through the relative deprivation that these groups suffer, in terms of income, education, housing, infrastructure, and health, but also in terms of their jobs and their political participation, among others. The academic literature in the region has concentrated in documenting this relative deprivation. More recently, the emphasis has moved towards analyzing the processes that result in this relative deprivation. The academic literature in the region has concentrated in documenting this relative deprivation. More recently, the emphasis has moved towards analyzing the processes that result in this relative deprivation.

9 Who is Discriminated Against?

10 Why Are They Discriminated Against?

11 Beyond Perceptions Perceptions are relevant only to the extent that they affect the decisions, actions and outcomes of individuals. Perceptions are relevant only to the extent that they affect the decisions, actions and outcomes of individuals. There is a notorious difference in wage levels across different groups (gender, ethnic, racial). There is a notorious difference in wage levels across different groups (gender, ethnic, racial). However, the literature on wage differentials reveal that almost half of the wage difference is explained by different human capital endowments. However, the literature on wage differentials reveal that almost half of the wage difference is explained by different human capital endowments.  The evidence of discrimination, as shown by wage differentials unexplained by individual characteristics, is notably less than that arising from the simple comparison of wage levels.

12 Unobservables Factors unobservable for the authors of a study, but readily observable for an employer, can explain part of the difference in outcomes. Factors unobservable for the authors of a study, but readily observable for an employer, can explain part of the difference in outcomes. A group of empirical studies uses experimental economics techniques to evidence this ( ). A group of empirical studies uses experimental economics techniques to evidence this ( ). The studies conclude that the notorious differences in outcomes between different groups do not necessarily result from discrimination, and that discrimination itself is often reduced by better information flows. The studies conclude that the notorious differences in outcomes between different groups do not necessarily result from discrimination, and that discrimination itself is often reduced by better information flows.  The distinction between differences in endowments associated with gender, race or ethnicity and overt discrimination is crucial for the design of anti-discrimination policies.

13 Results and Processes The region is extremely unequal, but discrimination is not the only cause of inequality. The confusion between relative deprivation and discrimination is one of the fundamental deficits in the literature. The region is extremely unequal, but discrimination is not the only cause of inequality. The confusion between relative deprivation and discrimination is one of the fundamental deficits in the literature. The design of policies of social inclusion depends on our capacity to understand the processes through which social exclusion is produced and reproduced, and to look beyond solely traditionally excluded groups. The design of policies of social inclusion depends on our capacity to understand the processes through which social exclusion is produced and reproduced, and to look beyond solely traditionally excluded groups.

Democratization, Macro Stabilization, Globalization and Changes in the patterns of Inclusion and Exclusion The Modern Forms of Exclusion

15 Modern Forces of Exclusion Exclusion is an ever changing dynamic that has been molded by changes in the way the State operates. Exclusion is an ever changing dynamic that has been molded by changes in the way the State operates. Democratization, globalization, and economic stabilization have changed the mechanisms and the capacities of the State to integrate groups, through expansion of employment (public and manufacturing), that gave access to the benefits of the local truncated version of the Welfare State. Democratization, globalization, and economic stabilization have changed the mechanisms and the capacities of the State to integrate groups, through expansion of employment (public and manufacturing), that gave access to the benefits of the local truncated version of the Welfare State. Modern forces of exclusion (mostly economic and social in origin) associated with these changes expand the impact of exclusion to larger, less identifiable groups. Modern forces of exclusion (mostly economic and social in origin) associated with these changes expand the impact of exclusion to larger, less identifiable groups.

16 Inclusion in Some Grounds for Some Groups

17 Inclusion: Education and Health

18 Exclusion: Pensions

19 Low-Wage Jobs and Exclusion Employment is the principal —if not the only– source of income for the majority of the population. Being unemployed or having a job without benefits or documentation excludes these workers and their families from mechanisms of protection normally associated with formal employment. Employment is the principal —if not the only– source of income for the majority of the population. Being unemployed or having a job without benefits or documentation excludes these workers and their families from mechanisms of protection normally associated with formal employment. The proportion of workers with low wages and productivity has increased in the last 15 years. The proportion of workers with low wages and productivity has increased in the last 15 years. This phenomenon has begun to affect larger and more diverse groups than those traditionally excluded. This phenomenon has begun to affect larger and more diverse groups than those traditionally excluded.

20 The Number of Low-Wage Jobs has Grown in Most Countries in the Region

21 Education and Low-Wage Jobs

22 Female labor force participation and Low-Wage Jobs

23 Low-Wage Jobs and Exclusion The expansion in the number and proportion of low wage jobs is associated with the growth of unemployment, low growth rates and an increase in the demand for education. The expansion in the number and proportion of low wage jobs is associated with the growth of unemployment, low growth rates and an increase in the demand for education. Phenomena such as the change in the sectoral structure of employment (more services) and the increased participation of women in the work force have smaller roles in the explanation of this process. Phenomena such as the change in the sectoral structure of employment (more services) and the increased participation of women in the work force have smaller roles in the explanation of this process.

Social exclusion have significant economic costs than can be measured.

25 Cooperation, Social Distance and Exclusion Within the problem of exclusion is the problem of lack of confidence, limiting collective action and cooperation. Within the problem of exclusion is the problem of lack of confidence, limiting collective action and cooperation. With a number of economic experiments, applied to representative samples of 6 capital cities in the region, we explored questions such as: To what extent do Latin Americans collaborate with each other? What role does social distance play in the determination of these egoistic or cooperative behaviors ? With a number of economic experiments, applied to representative samples of 6 capital cities in the region, we explored questions such as: To what extent do Latin Americans collaborate with each other? What role does social distance play in the determination of these egoistic or cooperative behaviors ?

26 Cooperation and Social Distance

27 Heterogeneity and Confidence

28 What do We Find? Latin Americans have a natural propensity to trust and cooperate, but with some limitations Latin Americans have a natural propensity to trust and cooperate, but with some limitations This propensity to trust and cooperate is reduced with “social distance” (ie: education), and emerges as a behavior consistent with people’s expectations. Reciprocity is an important ingredient within this. This propensity to trust and cooperate is reduced with “social distance” (ie: education), and emerges as a behavior consistent with people’s expectations. Reciprocity is an important ingredient within this. The limitations of trust and cooperation imply friction in markets and increased transaction costs. As a result, market efficiency and value generation are reduced. The limitations of trust and cooperation imply friction in markets and increased transaction costs. As a result, market efficiency and value generation are reduced. Our experiments found that increases in trust and cooperation among Latin Americans could imply increases in the generation of social value that range from 20% to 70%. Our experiments found that increases in trust and cooperation among Latin Americans could imply increases in the generation of social value that range from 20% to 70%.

Advancing social inclusion calls for public policies that go beyond poverty alleviation programs.

30 Public Policy and Social Inclusion Inclusion is not a policy objective, but a societal process that public policy can stimulate. Inclusion is not a policy objective, but a societal process that public policy can stimulate. Exclusion is a multi-dimensional, changing and dynamic phenomenon. Social inclusion shares these characteristics. Exclusion is a multi-dimensional, changing and dynamic phenomenon. Social inclusion shares these characteristics. The policies of inclusion ARE NOT a new set of programs, but rather a new way of designing, implementing, and evaluating public policies that aims at fostering equality of opportunities, fighting discrimination, and increasing diversity. The policies of inclusion ARE NOT a new set of programs, but rather a new way of designing, implementing, and evaluating public policies that aims at fostering equality of opportunities, fighting discrimination, and increasing diversity.

31 Inclusion and Public Policy The policies of inclusion involve action at the normative and institutional level, as well as in the implementation of policies. The objective of these actions is to change the manner in which resources are allocated, institutions are governed and opportunities are accessed. The policies of inclusion involve action at the normative and institutional level, as well as in the implementation of policies. The objective of these actions is to change the manner in which resources are allocated, institutions are governed and opportunities are accessed. Inclusion changes outcomes and the processes through which people obtain them. Changes in the functioning of, and access to institutions are crucial. Inclusion changes outcomes and the processes through which people obtain them. Changes in the functioning of, and access to institutions are crucial. Inclusion is a range of advances in different areas in varying moments. Inclusion is a range of advances in different areas in varying moments. The process of inclusion is dynamic and multi-dimensional: changes in education are necessary, but not sufficient, nor substitutes for changes in other dimensions (ie: labor market). The process of inclusion is dynamic and multi-dimensional: changes in education are necessary, but not sufficient, nor substitutes for changes in other dimensions (ie: labor market).

32 In Summary Social exclusion is a phenomenon associated with, but different than poverty. Inclusion requires different public policies than those traditionally used to combat poverty. Social exclusion is a phenomenon associated with, but different than poverty. Inclusion requires different public policies than those traditionally used to combat poverty. Social exclusion has significant economic costs. Advances in social inclusion reduce transaction costs and facilitate the achievement of governance agreements. Social exclusion has significant economic costs. Advances in social inclusion reduce transaction costs and facilitate the achievement of governance agreements. Progress in the process of inclusion requires fundamental changes in the ways institutions are managed and in the design, analysis and implementation of public policies. Progress in the process of inclusion requires fundamental changes in the ways institutions are managed and in the design, analysis and implementation of public policies.