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Is labor income responsible for poverty reduction ? a decomposition approach

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  • Azevedo, Joao Pedro
  • Inchauste, Gabriela
  • Olivieri, Sergio
  • Saavedra, Jaime
  • Winkler, Hernan

Abstract

Demographics, 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 Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6414.

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Date of creation: 01 Apr 2013
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Handle: RePEc:wbk:wbrwps:6414

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Keywords: Rural Poverty Reduction; Services&Transfers to Poor; Regional Economic Development; Poverty Monitoring&Analysis;

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  1. Ravallion, Martin, 2001. "Growth, Inequality and Poverty: Looking Beyond Averages," World Development, Elsevier, vol. 29(11), pages 1803-1815, November.
  2. Joao Pedro Azevedo & Minh Cong Nguyen & Viviane Sanfelice, 2012. "ADECOMP: Stata module to estimate Shapley Decomposition by Components of a Welfare Measure," Statistical Software Components S457562, Boston College Department of Economics.
  3. Stanislav Kolenikov & Anthony Shorrocks, 2005. "A Decomposition Analysis of Regional Poverty in Russia," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 25-46, 02.
  4. Ravallion, Martin & Shaohua Chen, 1996. "What can new survey data tell us about recent changes in distribution and poverty?," Policy Research Working Paper Series 1694, The World Bank.
  5. Datt, Gaurav & Ravallion, Martin, 1992. "Growth and redistribution components of changes in poverty measures : A decomposition with applications to Brazil and India in the 1980s," Journal of Development Economics, Elsevier, vol. 38(2), pages 275-295, April.
  6. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  7. Ravallion, Martin & Chen, Shaohua, 2007. "China's (uneven) progress against poverty," Journal of Development Economics, Elsevier, vol. 82(1), pages 1-42, January.
  8. Ricardo Paes de Barros & Mirela de Carvalho & Samuel Franco & Rosane Mendonça, 2006. "Uma Análise das Principais Causas da Queda Recente na Desigualdade de Renda Brasileira," Discussion Papers 1203, Instituto de Pesquisa Econômica Aplicada - IPEA.
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Cited by:
  1. Șeker, Sirma Demir & Jenkins, Stephen P., 2013. "Poverty Trends in Turkey," IZA Discussion Papers 7823, Institute for the Study of Labor (IZA).
  2. Narayan, Ambar & Saavedra-Chanduvi, Jaime & Tiwari, Sailesh, 2013. "Shared prosperity : links to growth, inequality and inequality of opportunity," Policy Research Working Paper Series 6649, The World Bank.
  3. Antonio David & Martin Petri, 2013. "Inclusive Growth and the Incidence of Fiscal Policy in Mauritius — Much Progress, But More Could be Done," IMF Working Papers 13/116, International Monetary Fund.
  4. Azevedo, Joao Pedro & Atamanov, Aziz, 2014. "Pathways to the middle class in Turkey : how have reducing poverty and boosting shared prosperity helped?," Policy Research Working Paper Series 6834, The World Bank.

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