Is labor income responsible for poverty reduction ? a decomposition approach
AbstractDemographics, labor income, public transfers, or remittances: Which factor contributes the most to observed reductions in poverty? Using counterfactual simulations, this paper accounts for the contribution labor income has made to the observed changes in poverty over the past decade for a set of 16 countries that have experienced substantial declines in poverty. In contrast to methods that focus on aggregate summary statistics, the analysis generates entire counterfactual distributions that allow assessing the contributions of different factors to observed distributional changes. Decompositions across all possible paths are calculated so the estimates are not subject to path-dependence. The analysis shows that for most countries in the sample, labor income is the most important contributor to changes in poverty. In ten of the countries, labor income explains more than half of the change in moderate poverty; in another four, it accounts for more than 40 percent of the reduction in poverty. Although public and private transfers were relatively more important in explaining the reduction in extreme poverty, more and better-paying jobs were the key factors behind poverty reduction over the past decade.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6414.
Date of creation: 01 Apr 2013
Date of revision:
Rural Poverty Reduction; Services&Transfers to Poor; Regional Economic Development; Poverty Monitoring&Analysis;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-DEV-2013-04-27 (Development)
- NEP-LAM-2013-04-27 (Central & South America)
- NEP-LTV-2013-04-27 (Unemployment, Inequality & Poverty)
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