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CAF presents proposals to boost social mobility in Latin America and the Caribbean

Although many people in the region today surpass their parents in terms of education, progress is not equal in terms of employment or income
CAF

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Inequality in Latin America and the Caribbean is very high and remains consistently higher than in other regions. Today, in the region, while the richest 10 per cent take 55 per cent of the income and 77 per cent of the wealth, the poorest 50 per cent take 10 per cent of the income and only 1 per cent of the wealth. Other ways of measuring economic inequality attest to the same pattern, which is analysed in detail in the new Economy and Development Report (RED2022) of CAF - Development Bank of Latin America, entitled "Inherited inequalities: the role of skills, employment and wealth in the opportunities of new generations".

The report was presented during CAF's 176th Board of Directors meeting, held in Montevideo, with the participation of Ministers of Economy and Finance, presidents of central banks and senior economic authorities from shareholder countries.

"Latin America and the Caribbean has for decades and perhaps centuries been one of the most unequal regions in the world. This remains true despite the economic and social progress of the last twenty years, which has not been enough to undo the deep roots of inequality in our region. Disparities also extend to the educational and employment opportunities available to Latin Americans and Caribbeans," commented Sergio Díaz-Granados, CAF's Executive President.

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On the other hand, he said that the general diagnosis of RED 2022 shows that social mobility in the region is low, which represents a serious problem for equity and other aspects of the region's development. "The report highlights that opportunities for mobility are affected by different types of risks, which are not only associated with macroeconomic crises or the dangers of technological change, which threatens to destroy sources of employment. Recent years have shown us that health-related risks, as manifested by the COVID-19 pandemic, can also have significant inequality effects. Moreover, it is vitally important today, and will be even more so in the coming decades, to secure the opportunities of the most vulnerable against the risks of climate change and biodiversity loss in the region," said Díaz-Granados.

This persistent and high inequality is rooted in deep-seated inequalities that are transmitted from generation to generation. Lack of opportunities to build human capital, obtain good jobs in labour markets and accumulate assets are key factors behind the intergenerational connection of inequalities. The report presents abundant evidence indicating that in Latin America and the Caribbean, opportunities in these three areas are very unevenly distributed among people from families of different socio-economic levels.

"Poor social mobility is a major problem for Latin America and the Caribbean. This is not only because of its consequences for equity, but also because of its impact on other central components of economic development, such as growth and political-institutional stability. Lack of social mobility tends to alter incentives for effort and distort the allocation of human talent, thereby affecting productivity levels and growth. In addition, the high intergenerational persistence derived from inequality of opportunities can corrode trust among citizens and in institutions," explained Dolores de la Mata, co-author of the report and senior economist at CAF's Socioeconomic Research Directorate.

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The publication highlights the important educational expansion that the region experienced throughout the 20th century, which, however, was not enough to improve the relative situation of the children of the least educated. This was due to the fact that the expansion of education for the most vulnerable groups was concentrated in low levels of education, such as primary and, to a lesser extent, secondary, while achieving higher levels of education is still a pending task. For example, the fraction of children of non-university parents who do manage to complete university studies is still very low in the region, at just over 10 per cent.

According to RED2022, those who did manage to surpass their parents in educational attainment did not necessarily achieve similar progress in their employment opportunities. This may suggest both that educational progress has not been sufficient, and that the region's economic structure is failing to absorb or reward these higher levels of education. Moreover, these results are consistent with low intergenerational income mobility, which positions Latin America and the Caribbean as the region with the highest persistence in this dimension worldwide.

"The region needs to improve the coverage, quality and relevance of basic, technical-vocational and higher education. But among those policies that can provide a greater boost to intergenerational mobility are also those that aim to alleviate the main constraints that limit intra-household investments in children and adolescents, which include not only financial, but also informational and insurance constraints," added Dolores de la Mata.

Employment and savings opportunities

The RED 2022 diagnostic suggests that focusing efforts on population groups such as Afro-descendants, indigenous people, women from more vulnerable backgrounds and residents of segregated areas could help improve opportunities for occupational and income mobility. The report points out that targeting policies with spatial or geographic criteria is important because the geographic location of parents also conditions the employment opportunities of their children. A large proportion of the new generations live in the same neighbourhood as their parents did. This is reported by 45% of those surveyed by CAF, while more than a third of them even live in the same house their parents lived in

"Equalising job opportunities requires, to a large extent, reducing inequalities between regions and between different areas within cities in the region. Different policies can contribute to this objective, such as those that improve basic urban infrastructure and key facilities for the provision of education, health and public safety services, among others," said Lucila Berniell, also co-author of the publication and senior economist at CAF's Socioeconomic Research Directorate.

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From the perspective set out in the report, policies that are not usually thought of as promoting social mobility become central pieces in the range of policies for equal opportunities. This is the case, for example, of improvements in public transport infrastructure, which have the potential to bring quality job opportunities closer to populations living in disadvantaged areas and far from productive centres.

In terms of possibilities to save and accumulate assets, RED 2022 shows the important role played in the region by inheritances and problems related to unequal financial inclusion. "The analysis of the causes of this phenomenon allows us to propose several policy spaces that could favour greater wealth mobility. For example, we analyse the potential of taxation systems, the development of mortgage credit markets, interventions to improve the conditions of home ownership, as well as the promotion of greater financial literacy and the strengthening of social and private insurance schemes that protect the most vulnerable families against the risks that most affect their assets, such as climate and macroeconomic risks," added Lucila Berniell. 

The report concludes with a series of recommendations to provide new generations with greater opportunities to accumulate skills, improve the functioning of labour markets so that they provide quality alternatives for all workers, and promote safe and profitable forms of asset accumulation for all members of society. The proposals indicate that the achievement of greater social mobility in the region is in the hands of multiple actors, both in the public and private sectors, thus imposing the great challenge of achieving the necessary consensus to expand redistributive policies that break the intergenerational bonds of inequality.