Will social mobility continue in Latin America?

Social mobility
Demographic Economics - Migration
Fiscal Policy - Public and Welfare Economics

The group of Latin Americans still vulnerable to fall back into poverty has moved tantalizingly close to middle class status in the past decade. The so-called vulnerable, who have escaped poverty but have not yet made it to the middle class, remain the largest socio-economic group in Latin America. In fact, their share of the population increased slightly (38 percent in 2013, up from 35 percent in 2003). But, importantly, their living conditions improved significantly in the same period. The incomes of the vulnerable are today much closer to those of the middle class – even if their growth in incomes was not enough to cross over to the middle class.

As the chart above shows, a decade ago it was very common for the vulnerable to have incomes that barely put them above the poverty line. By 2013, their income distribution had shifted to the right, putting a majority much closer to achieving middle class status.

This subtle change in the income distribution within the vulnerable, illustrated in the above chart, is an important but often overlooked development. It is particularly relevant when thinking about how the current economic slowdown may affect poverty in the region. It is possible that many vulnerable households would see their incomes affected, but being further away from the poverty line gives them a buffer. This suggests that poverty rates may not grow as much as in past economic contractions.

This may be of little consolation to households that had started to enjoy some socio-economic mobility. Just as this large group came within reach of the middle class, the economic slowdown hit the region. Now, the question is: even if they do not slide back into poverty, when will they be able to make it into the middle class?

Note: This blog is part of the 'lacfeaturegraph' monthly series from the LAC Equity Lab team. To look at past posts, please visit here.

This article was originally published on the World Economic Forum Blog, on January 27, 2016.

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