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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.

Suggested Citation

  • Azevedo, Joao Pedro & Inchauste, Gabriela & Olivieri, Sergio & Saavedra, Jaime & Winkler, Hernan, 2013. "Is labor income responsible for poverty reduction ? a decomposition approach," Policy Research Working Paper Series 6414, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6414
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    References listed on IDEAS

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    Cited by:

    1. Sırma Şeker & Stephen Jenkins, 2015. "Poverty trends in Turkey," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(3), pages 401-424, September.
    2. 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.
    3. Ncube, Mthuli & Brixiova, Zuzana & Bicaba, Zorobabel, 2014. "Can Dreams Come True? Eliminating Extreme Poverty in Africa by 2030," IZA Discussion Papers 8120, Institute for the Study of Labor (IZA).
    4. Irene Brambilla & Darío Tortarolo, 2015. "Growth in Labor Earnings Across the Income. Distribution: Latin America During the 2000s," CEDLAS, Working Papers 0182, CEDLAS, Universidad Nacional de La Plata.
    5. Adrian Robles & Marcos Robles, 2016. "Changes in Welfare with a Heterogeneous Workforce: The Case of Peru," IDB Publications (Working Papers) 7507, Inter-American Development Bank.
    6. Jorge Thompson Araujo & Markus Brueckner & Mateo Clavijo & Ekaterina Vostroknutova & Konstantin M. Wacker, 2014. "Benchmarking the Determinants of Economic Growth in Latin America and the Caribbean," World Bank Other Operational Studies 21318, The World Bank.
    7. Samuel Morley, 2017. "Changes in rural poverty in Perú 2004–2012," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 26(1), pages 1-20, December.
    8. Cruces Guillermo & Fields Gary S. & Jaume David & Viollaz Mariana, 2015. "The growth-employment-poverty nexus in Latin America in the 2000s: Mexico country study," WIDER Working Paper Series 079, World Institute for Development Economic Research (UNU-WIDER).
    9. Cruces Guillermo & Fields Gary S. & Jaume David & Viollaz Mariana, 2015. "The growth-employment-poverty nexus in Latin America in the 2000s: Ecuador country study," WIDER Working Paper Series 076, World Institute for Development Economic Research (UNU-WIDER).
    10. Ceriani,Lidia & Inchauste Comboni,Maria Gabriela & Olivieri,Sergio Daniel, 2015. "Understanding poverty reduction in Sri Lanka : evidence from 2002 to 2012/13," Policy Research Working Paper Series 7446, The World Bank.
    11. Jorge Thompson Araujo & Ekaterina Vostroknutova & Markus Brueckner & Mateo Clavijo & Konstantin M. Wacker, 2016. "Beyond Commodities," World Bank Publications, The World Bank, number 25321.
    12. 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.
    13. Burt, Alison & Hughes, Barry & Milante, Gary, 2014. "Eradicating poverty in fragile states: prospects of reaching the"high-hanging"fruit by 2030," Policy Research Working Paper Series 7002, The World Bank.
    14. 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.
    15. Pérez Pérez,Jorge Eduardo & Rodriguez Castelan,Carlos & Trujillo,Jose Daniel & Valderrama,Daniel, 2015. "Unpacking the MPI : a decomposition approach of changes in multidimensional poverty headcounts," Policy Research Working Paper Series 7514, The World Bank.
    16. Inchauste, Gabriela & Azevedo, João Pedro & Olivieri, Sergio & Saavedra, Jaime & Winkler, Hernan, 2012. "When Job Earnings Are behind Poverty Reduction," World Bank - Economic Premise, The World Bank, issue 97, pages 1-6, November.
    17. World Bank Group, 2016. "Moving Up the Ladder," World Bank Other Operational Studies 25173, The World Bank.
    18. World Bank Group, 2015. "Kyrgyz Republic," World Bank Other Operational Studies 22957, The World Bank.

    More about this item

    Keywords

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

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