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The slippery slope : explaining the increase in extreme poverty in urban Brazil, 1976-96

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  • Ferreira, Francisco H. G.
  • Paes de Barrios, Ricardo

Abstract

Despite tremendous macroeconomic instability in Brazil, the country's distributions of urban income in 1976 and 1996 appear, at first glance, deceptively similar. Mean household income per capita was stagnant, with minute accumulated growth (4.3 percent) over the two decades. The Gini coefficient hovered just above 0.59 in both years, and the incidence of poverty (relative to a poverty line of R$60 a month in 1996 prices) remained effectively unchanged over the period, at 22 percent. Behind this apparent stability, however, a powerful combination of labor market, demographic, and educational dynamics was at work, one effect of which was to generate a substantial increase in extreme urban poverty. Using a decomposition methodology based on micro-simulation, which endogenizes labor incomes, individual occupational choices, and decisions about education, the authors show that the distribution of income was being affected by: 1) Three factors that tended to increase poverty-a decline in average returns to education and experience, a negative"growth"effect, and unfortunate changes in the structure of occupations and participation in the labor force. 2) Two factors that tended to reduce poverty-improved educational endowments across the board, and a progressive reduction in dependency ratios. The net effect was small and negative for measured inequality overall, and negligible for the incidence of poverty (relative to"high"poverty lines). But the net effect was to substantially increase extreme poverty-suggesting the creation of a group of urban households excluded from any labor market and trapped in indigence. Above the 15th percentile, urban Brazilians have"stayed put"only by climbing hard up a slippery slope. Counteracting failing returns in both self-employment and the labor market required substantially reduced fertility rates and an average of two extra years of schooling (which still left them undereducated for that income level).

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2210.

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Date of creation: 31 Oct 1999
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Handle: RePEc:wbk:wbrwps:2210

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Keywords: Economic Theory&Research; Health Economics&Finance; Environmental Economics&Policies; Public Health Promotion; Health Monitoring&Evaluation; Inequality; Health Economics&Finance; Environmental Economics&Policies; Governance Indicators; Poverty Assessment;

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Cited by:
  1. Bourguignon, Francois, 2005. "The Effect of Economic Growth on Social Structures," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 27, pages 1701-1747 Elsevier.
  2. David Bravo & Dante Contreras & Sergio Urzúa, 2002. "Poverty and Inequality in Chile 1990-1998: Learning from Microeconomic Simulations," Working Papers wp198, University of Chile, Department of Economics.
  3. François Bourguignon & Francisco de Hollanda Guimarães Ferreira, 2000. "Understanding inequality in Brazil: a conceptual overview," Textos para discussão 434, Department of Economics PUC-Rio (Brazil).
  4. Bigsten , Arne & Levin, Jörgen, 2000. "Growth, Income Distribution, and Poverty: A Review," Working Papers in Economics 32, University of Gothenburg, Department of Economics.
  5. Arbache, Jorge Saba, 2004. "Do Structural Reforms always Succeed? Lessons from Brazil," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Claudia Gutierrez, 2008. "Analysis of Poverty and Inequality in Bolivia,1999-2005: A Microsimulation Approach," Development Research Working Paper Series 01/2008, Institute for Advanced Development Studies.
  7. Ferreira , Francisco H. G., 2010. "Distributions in motion: economic growth, inequality, and poverty dynamics," Policy Research Working Paper Series 5424, The World Bank.
  8. Bourguignon, François & Ferreira, Francisco & Menéndez, Marta, 2007. "Inequality of Opportunity in Brazil," Economics Papers from University Paris Dauphine 123456789/1552, Paris Dauphine University.
  9. World Bank, 2010. "Ethiopia : Re-Igniting Poverty Reduction in Urban Ethiopia through Inclusive Growth," World Bank Other Operational Studies 2921, The World Bank.
  10. Kanbur, Ravi & Squire, Lyn, 1999. "The Evolution of Thinking About Poverty: Exploring the Interactions," Working Papers 127697, Cornell University, Department of Applied Economics and Management.
  11. Hasan, Rana & Jandoc, Karl Robert L., 2009. "Quality of Jobs in the Philippines: Comparing Self-Employment with Wage Employment," ADB Economics Working Paper Series 148, Asian Development Bank.

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