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Tackling inequalities
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isbn 978-92-64-08835-1 -:HSTCQE=U]]XZV:
81 2010 13 1 P
With the financial assistance
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of the European Union
Tackling Inequalities
in Brazil, China, India
and South Africa
THE ROLE OF LABOUR MARKET AND SOCIAL
POLICIES
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3
FOREWORD –
Foreword
Greater integration into the world economy has allowed emerging economies to move
to a higher and more sustainable growth path, with often impressive results in terms of
economic growth, social development and poverty reduction. But the benefits of stronger
growth have not always been shared equally across different socio-demographic groups,
and income inequality has often increased within these countries. The current global
economic crisis and its negative impact on unemployment and underemployment have
exacerbated this problem and may seriously compromise past efforts to reduce chronic
poverty.
Strong economic growth in Brazil, China, India and South Africa over the past decade
has translated into strong job creation and more labour mobility. Many workers have been
able to seize better job opportunities emerging in the formal sector, but others have
remained trapped in often low-paid and unstable informal jobs. These disparities in
employment opportunities, coupled with the limited coverage of social protection, have
been associated with persistently high earnings and income inequalities. Moreover, in a
segmented labour market it is difficult for the tax and benefit systems to redistribute
resources.
The experiences of the four emerging economies reviewed in the volume have,
however, been very diverse. Brazil, for example managed to foster economic growth
while, at the same time reduce income inequality, albeit from very high levels. High and
often persistent income inequality raises a number of policy questions. While changes in
labour market conditions, together with changes in household structures, explain a great
deal of inequality trends, the role of labour market and social policies is key in shaping
the final distribution of economic resources.
With the financial support of the European Union Directorate-General for
Employment, Social Affairs and Equal Opportunities, the OECD’s Directorate for
Employment, Labour and Social Affairs organised a high-level conference on
“Inequalities in Emerging Economies: What Role for Labour Market and Social
Policies?”, with a focus on Brazil, China, India and South Africa, held in Paris on
19 May 2010.
This publication includes the conference papers written by experts from the four
countries in question: Marcelo Cortes Neri, from Fundacao Getulio Vargas at the
Brazilian Centre for Social Policies; Du Yang, from the Institute of Population and
Labour Economics of the Chinese Academy of Sciences; Dipak Mazumdar, from the
University of Toronto and the Institute for Indian Development; and Murray Leibbrandt,
from the South Africa Labour and Development Research Unit at the University of Cape
Town. These papers deal with a number of complementary themes, focusing on the
individual country experiences: a) the main trends and factors of income inequality;
b) the links between labour market outcomes, poverty and inequality; c) the role of labour
TACKLING INEQUALITIES IN BRAZIL, CHINA, INDIA AND SOUTH AFRICA: THE ROLE OF LABOUR MARKET AND SOCIAL POLICIES © OECD 2010
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– FOREWORD
market institutions, regulations and policies; and d) the impact of social policies on
poverty and the income distribution.
The first and last chapters have been written by Elena Arnal and Michael Förster of
the OECD, with statistical assistance from Dana Blumin and discuss these issues from a
comparative perspective. The overall project has been supervised by Stefano Scarpetta
and Monika Queisser.
The discussion at the conference and this publication provide a solid foundation for
further co-operation between the OECD and Brazil, China, India and South Africa.
TACKLING INEQUALITIES IN BRAZIL, CHINA, INDIA AND SOUTH AFRICA: THE ROLE OF LABOUR MARKET AND SOCIAL POLICIES © OECD 2010
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TABLE OF CONTENTS –
Table of Contents
Acronyms and abbreviations ......................................................................................................... 10
Chapter 1. Growth, employment and inequality in Brazil, China, India and
South Africa: An overview ....................................................................................... 13
Introduction ................................................................................................................................... 14
1.1. Economic growth since the early 1990s: models and outcomes ............................................ 14
1.2. Labour market developments ................................................................................................. 22
1.3. Impacts on poverty and income inequality ............................................................................. 32
1.4. Conclusion .............................................................................................................................. 45
Notes ............................................................................................................................................. 46
References ..................................................................................................................................... 49
Annex 1.A1. Main sources used for the BCIS countries ............................................................... 54
Chapter 2. The decade of falling income inequality and formal employment
generation in Brazil ................................................................................................... 57
Introduction ................................................................................................................................... 58
2.1. Income policies ...................................................................................................................... 58
2.2. Describing income-based social indicators ............................................................................ 64
2.3. Determinants of income distribution changes ........................................................................ 75
2.4. Labour market performance ................................................................................................... 82
2.5. Prospective agenda for labour and education policies............................................................ 84
2.6. Conclusion .............................................................................................................................. 93
Notes ............................................................................................................................................. 95
References ..................................................................................................................................... 96
Annex 2.A1. Measurement aspects ............................................................................................... 99
Annex 2.A2. Methodological issues ............................................................................................ 101
Chapter 3. Fast growth, but widening income distribution in China .................................... 109
Introduction ................................................................................................................................. 110
3.1. Inequality trends in China .................................................................................................... 111
3.2. Labour market outcomes, poverty and inequality trends: what links? ................................. 114
3.3. Role of labour market institutions, regulations and policies ................................................ 127
3.4. The role of social assistance programmes and the pension system ...................................... 140
3.5. The impacts of other policies on inequality developments .................................................. 146
3.6. Conclusion ............................................................................................................................ 149
Notes ........................................................................................................................................... 150
References ................................................................................................................................... 151
Annex 3.A1. Studies on inequality in China ............................................................................... 155
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– TABLE OF CONTENTS
Chapter 4. Decreasing poverty and increasing inequality in India........................................157
Introduction ................................................................................................................................. 158
4.1. Growth with inequality: its nature and determinants............................................................ 159
4.2. The role of labour market and social policies ...................................................................... 181
4.3. Conclusion ............................................................................................................................ 194
Notes ........................................................................................................................................... 196
References ................................................................................................................................... 198
Annex 4.A1. The methodology of decomposing the contribution of significant
variables to income inequality ............................................................................... 201
Annex 4.A2. Calculation of the “Pseudo Gini” for different sources of income ........................ 202
Annex 4.A3. The Indian manufacturing sector ........................................................................... 204
Annex 4.A4. Heterogeneity of labour in developing countries ................................................... 206
Chapter 5. Better employment to reduce inequality further in South Africa ....................... 209
Introduction ................................................................................................................................. 210
5.1. Growth patterns and labour market outcomes ...................................................................... 212
5.2. Labour market outcomes and trends in poverty and inequality: what links? ....................... 225
5.3. The role of labour market institutions and policies .............................................................. 232
5.4. What role for social policies? ............................................................................................... 241
5.5. Other policies impacting inequality...................................................................................... 245
Notes ........................................................................................................................................... 256
References ................................................................................................................................... 257
Chapter 6. What role for policies in tackling inequality? ....................................................... 263
Introduction ................................................................................................................................. 264
6.1. Main labour market and social policies affecting redistribution .......................................... 264
6.2. Impact of selected poverty alleviation policies .................................................................... 286
6.3. Conclusion ............................................................................................................................ 297
Notes ........................................................................................................................................... 299
References ................................................................................................................................... 302
Tables
1.1. Summary table on main economic outcomes in the BCIS countries, 1990-2008 .................. 15
1.2.Growth of real GDP in selected OECD and BCIS countries .................................................. 16
1.3. Main labour market indicators in selected OECD and non-OECD countries, 1993-2008 ..... 24
1.4. Incidence of poverty in the BCIS countries by region, 1993-2008 ........................................ 35
2.1. Public budget devoted to income transfers in Brazil, 2005 .................................................... 63
2.2. Brazil’s social budget by main groups, 2005 ......................................................................... 63
2.3. Labour earnings inequality in Brazil’s six main metropolitan regions, 2002-09 ................... 67
2.4. Headcount poverty rates following different poverty lines in Brazil, 1992-2008 .................. 68
2.5. Contribution of spatial units to poverty reduction in Brazil, 2003-08 .................................... 70
2.6. Poor population by states and cities in Brazil, 2003 and 2008 ............................................... 71
2.7. Percentage of poor population in urban and rural areas in Brazil, 2003 and 2008 .................... 71
2.8. Brazil’s poverty scenarios from 2008..................................................................................... 72
2.9. Changes in economic classes in Brazil, 2003-08 ................................................................... 73
2.10. Income breakdown in Brazil, by different sources ............................................................... 75
2.11. Income breakdown in Brazil, by source and economic class, 2003 and 2008 ..................... 76
2.12. Participation of different income sources in Brazil, by type of city, 2008 ........................... 77
2.13. Participation of different income sources in Brazil, by region, 2008 ................................... 77
2.14. Participation of different income sources in inequality reduction in Brazil ......................... 79
2.15. Gross contribution to income inequality in Brazil................................................................ 80
TACKLING INEQUALITIES IN BRAZIL, CHINA, INDIA AND SOUTH AFRICA: THE ROLE OF LABOUR MARKET AND SOCIAL POLICIES © OECD 2010
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TABLE OF CONTENTS –
2.16. Net contribution to income inequalityin Brazil ................................................................... 80
2.17. Breakdown of Brazilian individual income and labour market indicators ........................... 83
2.18. Brazil’s job quality indicators .............................................................................................. 84
2.19. Brazil’s Basic Education Development Index (IDEB) 2005 and 2021 projections ................ 93
2.A1.1. Per capita household income by quintile ........................................................................ 100
2.A1.2. Interdecile ratios of income ............................................................................................ 100
2.A2.1. Dissonance between future expectations in five years time ........................................... 102
2.A2.2. Effect of the share of earnings on the change of the Gini index in terms of
distribution of household per capita income .................................................................. 106
3.1. China’s total employment and its structure, 1990-2008 ....................................................... 116
3.2. Inequality indices by population groups in China, 2005 ...................................................... 120
3.3. Overall inequality in China, 2005 ........................................................................................ 120
3.4. Decomposition of overall inequalities in China, 2005 ......................................................... 121
3.5. Rural poverty in China, 1990-2008 ...................................................................................... 122
3.6. Urban poverty and Dibao coverage ...................................................................................... 123
3.7. Regression on household per capita income in China .......................................................... 124
3.8. Decomposition based on per capita income regressions in China ........................................ 125
3.9. Minimum wage adjustments in Chinese cities, 1996-2008 .................................................. 132
3.10. Coverage of minimum wage in China: migrants versus local workers .............................. 133
3.11. Descriptive statistics of variables at Chinese city level, 2005 ............................................ 138
3.12. The role of labour market institutions on wage inequality at Chinese city level, 2005 ...... 138
3.13. Chinese poverty rates by individual level before and after the Dibao transfer .................. 142
3.14. Targeting outcomes of the Chinese urban Dibao programme ............................................ 142
3.15. Chinese poverty rates by age group at individual level, 2004 ............................................ 144
3.16. Expenditures in education in selected economies, 2005 .................................................... 146
4.1. India’s economic growth by different sources, 1983-2005 .................................................. 160
4.2. Evolution of poverty in India, 1983-2005 ............................................................................ 161
4.3. Measures of inequality of average per capita expenditure (APCE)in India......................... 162
4.4. Gini coefficient for regular and casual daily earnings in India, 1983-2004 ......................... 164
4.5. Factor inequality weights for APCE by rural and urban areas in India, 2004/05 ................. 167
4.6. India’s sectoral composition of growth, 1983-2005 ............................................................. 167
4.7. India’s employment distribution across sectors, 1983-2005 ................................................ 170
4.8. Coefficients of dummies of quantile regressions for log APCE in India, 1999/2000 .......... 172
4.9. Main Indian acts by area of labour regulation ...................................................................... 177
4.10. Distribution of workers by household welfare levels (APCE) in the Indian
informal sector ................................................................................................................... 183
4.11. India’s average daily earnings and comparison with minimum wage, 2004/05 ................. 183
4.12. Major social insurance and pension schemes in India since 2000...................................... 191
4.13. Expenditure on the social sector in India, 2002-08 ............................................................ 193
4.A2.1. Sectoral contribution to household inequality, 1983-2005 ............................................. 203
4.A3.1. Employment and value added in manufacturing by type of establishment, 2000/01 ..... 204
5.1. South Africa’s annual economic growth, 1993-2008 ........................................................... 212
5.2. South Africa’s labour force participation rates, 1993-2008 ................................................. 213
5.3. South Africa’s labour participation rates by age category, 1993-2008 ................................ 214
5.4. South Africa’s labour participation rates by educational level, 1993-2008 ......................... 214
5.5. South Africa’s labour participation rates by race, 1993-2008 .............................................. 215
5.6. South Africa’s unemployment rates, 1993-2008 .................................................................. 216
5.7. South Africa’s unemployment rates by age group, 1993-2008 ............................................ 216
5.8. South Africa’s unemployment rates by race, 1993-2008 ..................................................... 217
5.9. South Africa’s average monthly wage by race, 1993-2008 .................................................. 217
5.10. South Africa’s unemployment rates by province, 1993-2008 ............................................ 218
5.11. South Africa’s unemployment rates by education, 1993-2008 .......................................... 219
5.12. South Africa’s employment share by education, 1993-2008 ............................................. 219
TACKLING INEQUALITIES IN BRAZIL, CHINA, INDIA AND SOUTH AFRICA: THE ROLE OF LABOUR MARKET AND SOCIAL POLICIES © OECD 2010
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– TABLE OF CONTENTS
5.13. Job creation in South Africa by education, between 1993 and 2008.................................. 219
5.14. South Africa’s share of informal employment by gender, 1997-2008 ............................... 221
5.15. South Africa’s share of informal employment for each racial group, 1997-2008 ................. 222
5.16. Self-employment rates in South Africa by race, 1993-2008 .............................................. 223
5.17. Gini coefficients of per capita income, aggregate and by racial group,
South Africa, 1993-2008 .................................................................................................... 226
5.18. Poverty headcount ratios in South Africa, 1993-2008 ....................................................... 227
5.19. South African wage inequality by decile ratios, 1997-2008 .............................................. 230
5.20. South African real average monthly wages by decile, 1997-2008 ..................................... 230
5.21. Coverage of South African labour legislation .................................................................... 234
5.22. Levels of bargaining in South Africa under the Labour Relations Act .............................. 235
5.23. South African household labour market attachment and access to grants of
the unemployed .................................................................................................................. 241
5.24. Work opportunities and budget for the South African Expanded Public
Works Programme (EPWP), 2004/05-2008/09 .................................................................. 243
5.25. Percentage of households reporting income from social grants in South Africa
by quintile, 2008 ................................................................................................................. 244
5.26. South African literacy standards for grade 5 learners in 2006 ........................................... 246
5.27. Grade 3 standardised assessment scores by province in South Africa ............................... 247
5.28. Proportion of working-age population with a degree or higher in South Africa,
by race, 1993-2008 ............................................................................................................. 248
5.29. Medical scheme coverage in South Africa by racial group ................................................ 252
5.30. South African concentration ratios by social sector ........................................................... 255
6.1. Instruments more often used in BCIS countries to reduce poverty and inequality ................. 268
6.2. Comparison of unemployment compensation schemes in BCIS .......................................... 272
6.3. Main non-contributory social assistance schemes for low-income households ................... 290
Figures
1.1. High levels of real GDP growth in BCIS countries compared to OECD ............................... 16
1.2. GDP per capita in BCIS countries, 1990-2008 ....................................................................... 17
1.3. Value added by sector of activity in BCIS countries, 1990-2008 ........................................... 18
1.4. Foreign direct investment in BCIS countries, 1990-2008 ...................................................... 20
1.5. Trade openness in OECD G7 and BCIS economies, 1980-2008............................................ 21
1.6. Labour force participation and employment rates are higher in China and Brazil ................. 23
1.7. Urbanisation process in Brazil, China, India and South Africa, 1980-2010 ........................... 27
1.8. Extreme poverty has decreased but is still high in the BCIS countries .................................. 33
1.9. Relative poverty in Brazil, India and South Africa, 1993-2008 ............................................. 36
1.10. Children are at higher risk of poverty, 1993 and 2008 ......................................................... 36
1.11. Change in inequality levels, BCIS and OECD countries, 1990s versus 2000s .................... 37
1.12. Inequality in the BCIS countries by region, 1993-2008 ....................................................... 38
1.13. Change in real household income by quintile in the BCIS countries ................................... 40
1.14. Per capita income shares by quintile in the BCIS countries ................................................. 41
1.15. Earnings inequality by decile ratios in Brazil, South Africa and India, 1993-2008 ............. 42
2.1. Brazil’s real minimum wage monthly trend since 1992 ......................................................... 61
2.2. Public social expenditure as a percentage of GDP in Brazil, 1980-2005 ............................... 64
2.3. Gini index of per capita household income in Brazil, 1992-2008 .......................................... 65
2.4. Accumulated variation of average income by income decile in Brazil, 2001-08 ................... 65
2.5. Brazil’s average and equivalent household per capita income, 1992-2008 ............................ 66
2.6. Pre- and post-crisis inequality change in Brazil ..................................................................... 67
2.7. Proportion of poor in the Brazilian population, 1992-2008 .................................................... 69
2.8. Headcount poverty rates by regions in Brazil, 1992-2008 ..................................................... 69
2.9. Variation of the Brazilian population share by economic class before and after the crisis .... 74
TACKLING INEQUALITIES IN BRAZIL, CHINA, INDIA AND SOUTH AFRICA: THE ROLE OF LABOUR MARKET AND SOCIAL POLICIES © OECD 2010
