Recent Trends in Income Inequality in Latin America

Any assessment of the Latin American economies would be incomplete without reference to their high levels of socioeconomic inequalities. All countries in the region are characterized by large disparities of income and consumption levels, access to education, land, and basic services, and other socioeconomic variables. Inequality is a distinctive, pervasive characteristic of the region.

This document presents information updated through the mid-2000s and analyzes patterns and trends of income inequality in Latin America. The measurement and analysis of inequality have long been a major topic of study for economics and other social sciences in the region. However, the scarcity of reliable and consistent microeconomic data has always been an obstacle against comprehensive assessments. Most studies are based on limited sources or are constrained to cover a single country. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC), the World Bank, and the Inter-American Development Bank (IDB) have all made efforts to assemble large databases of national household surveys to support wider assessments of inequality, poverty, and other socioeconomic variables. This study is mostly based on data from the Socioeconomic Database for Latin America and the Caribbean (SEDLAC), a project developed jointly by the Center for Distributive, Labor, and Social Studies (CEDLAS) and the World Bank. This database contains information on more than 200 official household surveys in twenty-five Latin American and Caribbean countries. This paper uses data for the period from 1992 to 2006.

We confirm that income inequality increased in the 1990s as documented in the literature, but we also find that inequality decreased in the 2000s, suggesting a turning point from the unequalizing changes of the previous two decades. While the recent fall in income inequality is significant and widespread, it does not seem to be based on strong fundamentals.

The rest of this paper is organized as follows. The discussion opens with a description of the data sources and their limitations. The subsequent section represents the core of the paper, as it documents the main patterns of income inequality in Latin America, at both the country and regional levels. The paper then takes a look inside household income, discussing inequality patterns for the distribution of individual labor and nonlabor income. We also place the Latin American evidence in international perspective, using various data sources. The final section presents our concluding remarks.

The Data

The main source of data for this paper is the Socioeconomic Database for Latin America and the Caribbean (SEDLAC), developed jointly by CEDLAS at the Universidad Nacional de La Plata (Argentina) and the World Bank's Latin American and Caribbean Poverty and Gender Group. This database contains information on more than 200 official household surveys in twenty-five Latin American and Caribbean countries: the seventeen countries in continental Latin America (namely, Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, and Venezuela) plus eight countries in the Caribbean (the Dominican Republic and seven non-Hispanic Caribbean countries). The sample represents 97 percent of the total Latin American and Caribbean population, including 100 percent in continental Latin America and 55 percent in the Caribbean. The main missing country is Cuba, which does not disclosure household survey information. Our analysis starts in the early 1990s, when most countries in Latin America consolidated their household survey programs, and ends in 2006.

Table 1 lists the surveys used in this study, covering the eighteen Latin American countries in the CEDLAS database. Household surveys in most countries are nationally representative, with the exception of Argentina and Uruguay (before 2006), where surveys cover only the urban population. This nonetheless represents 88 percent and 92 percent of the total population in these countries, respectively. In these two cases, we use the urban figures as proxies for the national statistics.¹

Most countries experienced changes in their household surveys in the 1990s and 2000s. In many cases the geographical coverage was broadened, monthly surveys were replaced by annual ones, and the questionnaires were improved. Although these changes are certainly welcome, they pose significant...