01 /20 Regional Poverty and Inequality Update Spring 2024 1 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Key In 2022, poverty in Latin America and the Caribbean (LAC) reached its TRENDS lowest point of this century: 26 percent of people lived in poverty (using the US$6.85 a day 2017 PPP poverty line). According to our nowcasting models, poverty has declined even further since then. In 2023 one out of every four people in the region was poor, which remains the case as of this update. Poverty reduction patterns since 2019 have varied considerably across countries in the region. Brazil and Mexico drove the regional decline in poverty, while several other countries saw poverty rates at the end of the period under study that were higher than prepandemic levels. 1 This brief summarizes the main facts related to poverty and inequality in Latin America and the Caribbean (LAC) using the new wave of harmonized household surveys from the Socio-Economic Database for Latin America and the Caribbean (SEDLAC; Spanish: Centro de Estudios Distributivos, Laborales y Social, CEDLAS). This brief was produced by the Poverty and Equity Global Practice in the Latin America and Caribbean Region of the World Bank. The core team included Karen Barreto Herrera, Luis Eduardo Castellanos Rodriguez, Catalina Garcia Garcia, Daniela Maquera, Kelly Montoya, Hugo Ñopo, Diana Sanchez Castro, under the leadership of Hernan Winkler and the guidance of Carlos Rodriguez Castelan. Ana Carolina Leguizamo provided administrative assistance. Contact: lac_stats@worldbank.org 02 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Income inequality in LAC, as measured by the Gini coefficient, was lower in 2022 than in 2019, driven by higher household incomes in the lower and middle part of the income distribution. Labor incomes fell dramatically during the pandemic and by 2022 were still below the 2019 levels in most countries. Only El Salvador, Chile, and Mexico experienced positive labor income growth. On the other hand, even though in 2022 public transfers had declined from the height of the pandemic, they were still higher than in 2019 in most countries, and they were the main driver of poverty reduction. Traditionally vulnerable groups accounted for a smaller share of the poor population in 2022 than in 2019, likely due to the increased public transfers. 03 /20 1. Macroeconomic trends Gross domestic product (GDP) in LAC grew by 2.1 percent in 2023, 0.6 percentage points below the global level (figure 1). Regional growth in 2023 surpassed the expectations set at the beginning of the year, especially in Mexico and Brazil. Nevertheless, growth was lower than expected in other economies of the region, such as Peru, Argentina, and Colombia2. In 2024, economic growth is projected to decline to 1.6 percent in LAC, even though several central banks are expected to lower interest rates in response to decreasing inflation rates. Extreme weather events related to El Niño and conflicts in the Middle Asia and Ukraine pose a risk of higher inflation, which could affect future monetary policy decisions and economic growth. In addition, the potential economic slowdown of China threatens LAC’s future economic performance, because it may result in a decline in demand for commodities and agricultural products. Figure 1 GROWTH OF GDP IN LATIN AMERICA AND THE WORLD 2015-24 10.0 8.0 6.0 4.1 Percentage points 4.0 2.7 2.5 3.1 2.0 2.1 1.6 0.0 -2.0 -4.0 -6.0 -8.0 2024f 2023e 2015 2016 2017 2018 2019 2020 2021 2022 GDP - World GDP - Latin America & Caribbean Sources: World Bank Macro-Poverty Outlook (Spring Meetings 2024 edition). Note: e = estimate; f = forecast. 2 Country-level Poverty and Equity Briefs (PEBs) and the Macro Poverty Outlooks (MPOs) can be consulted on the World Bank LAC Equity Lab website: https://www.worldbank.org/en/topic/poverty/lac-equity-lab1/glance. 04 /20 2. Poverty While other regions have experienced a significant reduction in poverty over the last 10 years, trends in LAC have been rather stagnant (figure 2). For instance, the share of people living in poverty—as measured by the US$6.85 a day threshold (2017 PPP)—in the East Asia and Pacific region fell from 43.6 percent in 2015 to 29.2 percent in 2022. Even Europe and Central Asia, the region with the lowest poverty levels, witnessed a decline in poverty of about 6 percentage points during the same period. In contrast, poverty in LAC was only reduced by 3.9 percentage points. While poverty reduction in LAC has been slower than in other regions, poverty did reach its lowest point in this century in 2022, 26 percent. Figure 2 POVERTY RATE (US$6.85 2017 PPP) BY REGIONS, 2015-22 90 2022 2015 80 70 60 Percentage points 50 40 30 20 10 0 Latin America World East Asia Sub-Saharan Europe & Middle Eadt & South Asia Western and & Caribbean & Pacific Africa* Central Asia North Africa Central Africa* Sources: For LAC, an elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1), and for the rest of the regions and the world, on data from the World Bank Poverty and Inequality Platform (PIP); https://pip.worldbank.org/home. Note: The LAC regional aggregate is based on 18 countries (LAC-18) in the region for which SEDLAC microdata were available. In cases where data were unavailable, values have been estimated using a combination of methods, including microsimulations, and then pooled to create regional estimates. * 2022 poverty rates are not available for Sub-Saharan Africa (SSA), Middle East & North Africa (MENA), and Western and Central Africa (WCA), so the 2019 rates were used for SSA and WCA and the 2018 rate for MENA. 05 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development According to our nowcasting model, poverty in LAC declined by about 1 percentage point from 2022 to 2023 to 25.2 percent (figure 3)3. That is, one out of every four people in LAC was poor. Poverty in 2024 is expected to decline slightly to 25 percent. Poverty reduction after the pandemic (2022 versus 2019) has been driven by LAC’s biggest economies: Brazil (-2.8 percentage points), where the change was fueled by the increase of public transfers; and Mexico (-7.0 percentage points), where the change was driven by an increase in labor earnings (see section 6). When the gains of Mexico and Brazil are excluded, poverty in the rest of LAC increased by 0.6 percentage points. In fact, poverty in Costa Rica, the Dominican Republic, Ecuador, Paraguay, Uruguay, and Peru remained above the prepandemic levels (table 1) 4. Vulnerable people—those living on US$6.85 to US$14 a day 2017 PPP (Fernandez, Olivieri, and Sanchez 2023)—face a high risk of falling into poverty in the event of economic shocks, and their share of the population is projected to remain flat at about 32 percent through 2024. Figure 3 POVERTY, VULNERABLE, AND MIDDLE-CLASS TRENDS IN LAC, 2015-24 45 39,6 40,2 40 Middle Class $14-$81 40,3 35 32,1 32,3 Vulnerable $6.85-$14 32,3 % of population 30 26,0 25,2 25 Poverty $6.85 25,0 20 15 10 5 0 2023e 2024f 2015 2016 2017 2018 2019 2020 2021 2022 Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: The LAC regional aggregate is based on 18 countries (LAC-18) in the region for which SEDLAC microdata were available. In cases where data were unavailable, values have been estimated using microsimulations from 2015 onward and then pooled to create regional estimates. e = estimate; f = forecast. 3 Annex 1 briefly discusses the nowcasting model. 4 Although there are new poverty estimates for some countries in the Caribbean, they do not allow for the evaluation of trends for this subregion (see annex 2). 06 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Table 1 POVERTY, VULNERABLE, AND MIDDLE-CLASS RATES AND CHANGES, 2019-22 Poverty $6.85 (2017 PPP) Vulnerable $6.85-$14 (2017 PPP) Middle Class $14-$81 (2017 PPP) Country 2019 2022 Change 2019 2022 Change 2019 2022 Change Argentina (urban) 12,0 10,9 -1,1 24,4 28,5 4,1 60,6 58,7 -1,9 Brazil-PNADC 26,2 23,5 -2,8 27,5 29,7 2,2 42,6 43,4 0,7 Costa Rica 13,7 14,1 0,4 29,6 30,0 0,4 52,1 52,2 0,1 Dominican Republic 20,2 21,5 1,4 39,7 41,8 2,1 38,8 36,2 -2,6 Ecuador 29,7 29,9 0,2 33,9 34,7 0,9 35,5 34,4 -1,1 El Salvador 28,8 27,5 -1,3 41,1 40,0 -1,1 29,8 32,3 2,5 Mexico 28,8 21,8 -7,0 38,7 38,6 -0,1 31,3 38,4 7,1 Paraguay 19,7 19,9 0,2 33,2 35,0 1,9 45,5 43,3 -2,2 Peru 28,8 32,2 3,4 36,9 39,4 2,5 33,7 27,9 -5,8 Uruguay 5,1 6,4 1,3 21,8 22,5 0,7 69,4 67,3 -2,0 LAC-9* 24,7 23,2 -1,5 29,3 31,5 2,2 43,0 42,6 -0,5 LAC-18* 28,1 26 -2,1 31,4 32,1 0,7 38,2 39,6 1,4 LAC-18* without BRA & MEX 29,8 30,4 0,6 30,7 30,8 0,1 37,7 37,0 -0,7 Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: The LAC regional aggregate is based on 18 countries (LAC-18) in the region for which SEDLAC microdata were available. In cases where data were unavailable, values have been estimated using microsimulations from 2015 onward and then pooled to create regional estimates. e = estimate; f = forecast. 3 Annex 1 briefly discusses the nowcasting model. 4 Although there are new poverty estimates for some countries in the Caribbean, they do not allow for the evaluation of trends for this subregion (see annex 2). 07 /20 3. Inequality LAC continues to be one of the most unequal regions in the world5. Brazil as well as countries in Central America and the Andean region are among the most unequal areas (figure 4). Even countries in the Southern Cone—which have the lowest inequality levels within LAC—have very high-income inequality when compared to the rest of the world. Figure 4 GINI COEFFICIENT BY SUBREGIONS IN LAC AND SELECTED COUNTRIES, 2015-22 80 Brazil Central America 2022 2022 70 Andean Region 2022 60 Mexico 50 2022 Southern Cone 2022 40 30 20 Figure 1 10 00 Luxembourg, 2021 France, 2021 Korea, Rep., 2016 Cyprus, 2021 Fiji, 2019 Myanmar, 2017 Niger, 2021 Vanuatu, 2019 Mauritania, 2019 Estonia, 2021 Germany, 2019 West Bank and Gaza, 2016 Guinea-Bissau, 2021 Serbia, 2021 Sweden, 2021 Thailand, 2021 Georgia, 2021 Spain, 2021 Switzerland, 2020 Pakistan, 2018 Senegal, 2021 Russian Federation, 2020 Mali, 2021 Nigeria, 2018 Benin, 2021 Montenegro, 2021 Croatia, 2021 Poland, 2021 Denmark, 2021 Kiribati, 2019 Finland, 2021 Syrian Arab Republic, 2022 Czechia, 2021 United Arab Emirates, 2018 Belarus, 2020 Slovak Republic, 2021 Maldives, 2019 Hungary, 2021 Moldova, 2021 Cote d'Ivoire, 2021 Iran, Islamic Rep., 2022 Mexico 2022 Mozambique, 2019 Central America 2022 Togo, 2021 Namibia, 2015 Botswana, 2015 Rwanda, 2016 Uganda, 2019 Bulgaria, 2021 Djibouti, 2017 Philippines, 2021 Gambia, 2020 Malawi, 2019 Zambia, 2022 Turkiye, 2021 Cabo Verde, 2015 Tanzania, 2018 Gabon, 2017 Burundi, 2020 Chad, 2022 Mauritius, 2017 Lesotho, 2017 Sources: For LAC, an elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1) and for all other countries, an elaboration based on data from the World Bank PIP (https://pip.worldbank.org/home). Inequality for the whole LAC region in 2022 was very high, with the Gini coefficient reaching 49.9, a value substantially higher than those of most world economies. This is slightly above the minimum of 49.7 reached in 2020, but 1.1 5 It is important to consider some caveats when comparing inequality measures with other regions (World Bank 2016, 77–80). 08 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development points lower than the prepandemic value of 51.0 in 2019. However, Brazil significantly influenced the regional figure. As shown in figure 5, the trend for all the other LAC countries has been different since 2015. Inequality experienced a V-shaped shock during 2020–21 related to Brazil’s unprecedented cash transfer program, which reduced the 2020 Gini coefficient in the region to 49.7. However, when Brazil is excluded, LAC experienced an increase of 0.5 in the Gini coefficient in the same year. When the Brazilian government reduced the mitigation measures in 2021, the regional Gini rebounded to 50.5. Nevertheless, as of 2022 Brazil was still one of the most unequal countries in the world and drags the regional Gini coefficient upward (48.0 for LAC without Brazil vs. 49.9 for LAC with Brazil). Our nowcasting model shows that inequality in LAC declined slightly to 49.7 in 2023 and will remain at that level in 2024. Figure 5 GINI COEFFICIENT FOR LAC AND LAC SUBREGIONS, 2015–24 54 52 49,9 49,7 49,7 50 Gini Coefficient 48 48,0 48,1 4,0 46 44 42 Central America LAC (with Brazil) LAC (without Brazil) Andean Region Southern Cone 40 2015 2016 2017 2018 2019 2020 2021 2022 2023e 2024f Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: Regional and subregional Ginis are computed pooling the data for the included countries. The LAC regional aggregate is based on 18 countries (LAC-18) in the region for which SEDLAC microdata were available. In cases where data were unavailable, values have been estimated using microsimulations from 2015 onward and then pooled to create regional estimates. The Andean region is the aggregate of Bolivia, Colombia, Ecuador; and Peru; the Central America region is the aggregate of Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador, and the Dominican Republic; and the Southern Cone region is the aggregate of Argentina, Chile, Paraguay, and Uruguay. e = estimate; f = forecast. 09 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development The decline in income inequality observed since 2020 in LAC is explained by higher income growth among the lowest deciles of the population (figure 6, panel a). By 2022, most deciles had achieved income slightly higher than the prepandemic levels. However, the picture changes drastically when Brazil is excluded from the regional aggregates (figure 6, panel b). The negative income growth in 2020 affected poorer households disproportionately. By 2022, households in the poorest and richest deciles had returned to the prepandemic income levels. Households in the middle of the income distribution saw slightly higher incomes in 2022 when compared to 2019. Figure 6 GROWTH INCIDENCE CURVES AND LABOR IN LAC WITH AND WITHOUT BRAZIL (2019–20 AND 2019–22) Panel A Panel B LAC (with Brazil) LAC (without Brazil) 4,0 2,9 04 2,4 1,9 1,6 1,4 1,4 1,5 1,4 1,2 1,1 1,4 1,3 0,9 0,8 0,6 0,5 0,5 -0,2 0,0 0,0 0,0 1,7 00 0,9 -0,3 -1,1 Growth Rate (Annualized) Growth Rate (Annualized) -4,0 -2,3 -04 -3,2 -4,6 -8,0 -5,4 -8,5 -8,2 -8,0 -6,2 -08 -9,4 -9,0 -9,0 -7,6 -10,1 -11,2 -12,7 -12,0 -12 2022-19 -16,0 2020-19 2022-19 -16 -19 2020-19 -20,0 -20 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 Deciles of per capita Household Income Deciles of per capita Household Income Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: The LAC aggregate is based on 18 countries in the region for which microdata were available. In cases where data were unavailable for a given country in a given year, values have been interpolated using WDI data to calculate regional measures and microsimulations. 10/20 4. Sources of Income Transfers were an important driver of poverty reduction from 2019 to 2022, because their growth was higher among poorer deciles. Labor income growth was also pro-poor during this period, but did not achieve levels as high as its non-labor-income counterpart (figure 7). Figure 7 ANNUALIZED PER CAPITA INCOME GROWTH BY SOURCE, 2019–22 3,5 2.9 3,0 2.4 2,5 % change compared to 2019 1.9 2,0 1.9 1.9 1.6 1,5 1.3 1.2 1.1 1.1 1.0 1,0 0.9 1.1 0.8 0.8 1.0 0,6 0.5 0,5 0,5 0.3 0.3 0,3 0,3 0,2 0,2 0.1 -0.2 -0.1 -0.2 0,0 -0.1 -0,5 1 2 3 4 5 6 7 8 9 10 Labor income Non-labor income Total Growth Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: The LAC aggregate is based on 18 countries in the region for which microdata were available. In cases where data were unavailable for a given country in a given year, values were interpolated using WDI data to calculate regional measures and microsimulations. 2020-19 2022-19 11/20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development LAC economies suffered a severe reduction in labor income during the pandemic and by 2022 they had not returned to prepandemic levels. Between 2019 and 2020, total labor income in the region was reduced by 7.7 percentage points; by 2022, it was still 5.0 percentage points below 2019 levels (figure 8). The Dominican Republic, Argentina, Peru, and Panama are the countries that saw the steepest reductions in total labor income. El Salvador, Chile, and Mexico are the only economies where total labor income surpassed prepandemic levels. In contrast, average labor income was 8 to 13 percentage points lower in the Dominican Republic, Argentina, Peru, and Panama in 2022 compared to 2019. Figure 8 CHANGE IN TOTAL LABOR INCOME, 2019–20 AND 2019-22 4,8 5,0 % Change compared to 2019 3,5 3,5 1,5 -2,0 -1,7 -4,5 -4,1 -5,0 -5,0 -4,9 -6,2 -6,9 -6,9 -7,9 -7,7 -7,9 -8,1 -9,7 -9,6 -10,9 -11,0 -11,9 -13,6 -13,0 - 13,0 LAC region (pop. weighted) Dominican Republic Colombia Paraguay Argentina (Urban) Uruguay El Salvador Bolivia Panama Brazil Mexico Ecuador Chile Peru Costa Rica Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: These numbers may differ from official statistics. Labor income refers to the labor income in all occupations of workers. The LAC aggregate is based on 11 countries in the region for which microdata were available (ARG, BRA, CRI, DOM, ECU, MEX, PER, PRY, URY, PAN, and SLV). For Mexico, 2019 data were not available, so we used 2018 data. Panama 2020 data were simulated using the LAC average and 2022 data were not available, so 2023 data were used. El Salvador 2020 data were simulated using the LAC average. Uruguay 2019 data were not strictly comparable with 2020 and 2022. Argentina had only urban coverage. 12 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Transfers moderated in the region after the pandemic, but were still higher than in 2019 across most LAC economies (figure 9). Figure 9 CHANGE IN PUBLIC TRANSFERS RELATIVE TO 2019 8,0 8,0 % change compared to 2019 5,0 4,7 4,1 3,4 1,5 1,4 1,4 1,5 1,0 1,2 1,1 1 1,2 1 0,9 0,7 0,6 0,3 0,1 0,0 -0,1 -0,2 Dominican Republic Argentina (Urban) El Salvador Costa Rica Paraguay Panama Ecuador Uruguay LAC region (pop. weighted) Mexico Brazil Peru 2020-19 2022-19 Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: These numbers may differ from official statistics. Labor income refers to the labor income in all occupations of workers. The LAC aggregate is based on 11 countries in the region for which microdata were available (ARG, BRA, CRI, DOM, ECU, MEX, PER, PRY, URY, PAN, and SLV). Mexico 2019 data were not available, so we used 2018 data. Panama 2020 data corresponded to the LAC mean, and 2022 data were not available, so 2023 data were used. El Salvador 2020 data corresponded to the LAC mean. Uruguay 2019 data were not strictly comparable with 2020 and 2022. Argentina had only urban coverage. 13/20 5. Poverty Profiles In LAC between 2019 and 2022, groups that typically face lower poverty rates saw their share of the poor population increase. This was the case for people with higher levels of education, those living in urban areas, and those with formal and salaried jobs in services (table 2). This is likely driven by the increased generosity of public transfers, which tend to be targeted to more-vulnerable groups. Table 2 DEMOGRAPHIC COMPOSITION OF PEOPLE IN POVERTY IN LAC (US$6.85 2017 PPP), 2019 VS. 2022 2019 2022 2022-19 Age Groups 0-14 36,0 36,2 0,2 15-24 18,8 17,5 -1,3 25-64 41,7 42,4 0,7 65+ 3,5 4,0 0,4 Education Complete Primary 51,2 46,6 -4,6 Complete Secondary 27,7 31,1 3,5 Complete Tertiary 3,6 4,7 1,1 Never attended 17,5 17,6 0,1 Area Urban 69,7 72,8 3,1 Rural 30,3 27,2 -3,1 Informality Informal Workers 76,9 76,3 -0,6 Formal Workers 23,1 23,7 0,6 Sector Agriculture 31,3 30,1 -1,2 Industry 19,3 19,4 0,1 Services 49,4 50,5 1,1 Type of employment Employer 0,7 0,9 0,1 Not salaried 9,3 9,5 0,2 Salaried worker 38,5 40,4 1,9 Self-employed 28,5 29,8 1,3 Unemployed 23,0 19,5 -3,5 Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: The LAC aggregate is based on 9 countries in the region for which microdata were available in 2019 and 2022 (ARG, BRA, CRI, DOM, ECU, SLV, PRY, PER, and URY). Uruguay 2022 data were not strictly comparable to 2019. Informal workers are defined as workers who do not receive work-related pension insurance. In Argentina, informal workers are salaried workers who do not receive work-related pension insurance and nonsalaried workers who have not completed tertiary education. Data for 2020 for El Salvador were obtained via microsimulations. 14 /20 6. Drivers of Poverty Reduction The drivers of poverty reduction in LAC have varied across countries. At the regional level, the poverty decline was mostly driven by public transfers, while the decline in labor earnings tended to raise poverty by about 0.4 percentage points (figure 10, panel a). However, these aggregate estimates mask substantial differences between countries. In Brazil, poverty reduction was associated with social benefits such as the Bolsa Familia transfer program, a small improvement in labor earnings (especially in the services sector), and increased employment rates (figure 10, panel b). In Mexico, labor earnings were the principal factor in reducing poverty after a significant increase in the minimum wage and a slight decrease in unemployment and informality (figure 10, panel c). Figure 10 CONTRIBUTION TO CHANGES IN POVERTY RATE IN LAC, BRAZIL, AND MEXICO (SHAPLEY DECOMPOSITION), 2019–22 Panel A Contribution to changes in poverty rate Contribution to changes in poverty rate Percentage Points Labor earnings 00 0,4 00 income Other non-labor 0,2 Public transfers -1,4 00 00 00 Remittances 00 -0,1 Retirement and pensions -0,1 Share of individuals 15-64 -01 -02 -0,1 Share Labor who are earnings employed Other non- Public transfersRemittances Retirement and Share of Share who areTotal Change labor income -0,5 individuals 15- employed pensions Total Change -1,5 64 15/20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Panel B Contribution to changes in poverty rate - Brazil Percentage Points Labor earnings -0,2 Other non-labor income 0,2 Public transfers - 1,7 Remittances 0,2 Retirement and pensions -0,4 Share of individuals 15-64 0,1 Share who are employed -0,8 Total Change - 2,8 Panel C Contribution to changes in poverty rate - Mexico Percentage Points Labor earnings -3,2 Other non-labor income -1,3 Public transfers -0,9 Remittances -0,1 Retirement and pensions -0,4 Share of individuals 15-64 -0,9 Share who are employed -0,2 Total Change -7,0 Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1). Note: These numbers may differ from official statistics. The LAC aggregate is based on 9 countries in the region for which microdata were available from 2019 and 2022 (ARG, BRA, CRI, DOM, ECU, SLV, PRY, PER, and URY). Changes in income and its distribution have a direct effect on poverty. Because incomes are composed of several elements, we can analyze the indirect effect of each element on poverty. In this chart, incomes are divided into labor income (for example, wages) and non-labor income (for example, pensions and public transfers). Uruguay 2022 data were not strictly comparable to 2019. The decomposition of Mexico refers to the change in poverty between 2022 and 2018. 16 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Annex 1 NOWCASTING POVERTY AND INEQUALITY IN LAC Projecting poverty and inequality levels in developing countries can be challenging due to the extensive data inputs needed for accurate estimates. The LAC Regional Statistics team has developed a static microsimulation model that predicts poverty and inequality indicators with minimal information requirements (Montoya, Olivieri, and Braga 2023). This model utilizes the latest household surveys from LAC countries and forecasts poverty and inequality by creating a simulated household survey that incorporates changes to employment and earnings consistent with sectoral and macroeconomic projections. More specifically, the model translates forecasted macroeconomic changes into employment and labor market income changes while accounting for characteristics of the LAC region such as high informality. It also simulates changes to non-labor income such as remittances and public transfers to households. Using the simulated household survey, the model calculates a host of welfare measures, for example household incomes per capita, poverty, and inequality. The performance of the model is evaluated periodically for quality control and to incorporate adjustments if needed. For instance, when new household surveys and poverty numbers are released, they are compared against the values forecast in the past. When considering the new poverty numbers released for 2022, the model had a relatively low projection error, within a +/-1 percentage point of the real value. Finally, the directions of the predicted changes in poverty coincided with what had actually taken place (that is, poverty was accurately projected to increase or decline) in all countries except El Salvador (where poverty was projected not to change, but actually fell). 17/20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Annex 2 POVERTY AND INEQUALITY IN THE CARIBBEAN According to the World Bank Statistical Performance Indicator (SPI), the Caribbean ranks lowest globally in statistical performance. Several countries lack recent poverty estimates, hindering the tracking of Sustainable Development Goals 1 and 10 and the development of effective poverty alleviation strategiesa. In this context, the World Bank, along with other international development agencies, has supported steps to close data gaps in Caribbean countries. An important effort along these lines has been the harmonization of data from household budget and living conditions surveys for Grenada, Jamaica, Saint Lucia, and Surinameb. Overall, Caribbean countries have low to moderate poverty rates compared to other upper-middle-income countries. Of the four countries mentioned above, the most-recent data available via the harmonization effort are from Suriname (2022) and Jamaica (2021), where the poverty rates (using the poverty line of US$6.85 a day) were 17.5 percent and 13.9 percent, respectively. In Grenada (2018) and Saint Lucia (2015), the corresponding poverty rates were 13.8 percent and 8.4 percent, respectively. Compared with other middle-income countries, these rates are low to moderatec. a. The Caribbean refers to English-speaking countries and Haiti. It excludes the Dominican Republic, which has had patterns of data availability similar to the rest of the LAC region. b. The harmonization followed the latest World Bank guidelines for consumption-based welfare measurement (Mancini and Vecchi 2022). c . Comparisons of poverty and inequality indicators between this group of Caribbean countries and those in the rest of the LAC region should be made with caution. Income is the most common welfare indicator for measuring poverty and inequality in most Latin American countries. This key difference in the data source limits the comparison between the new consumption-based harmonized Caribbean data and the rest of Latin America. 18 /20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development Figure 11 POVERTY RATES (US$6.85 A DAY 2017 PPP), CARIBBEAN COUNTRIES VS. SELECTED COUNTRIES 70 60 50 40 Percent 30 20 10 0 Consumption-based Income-based Caribbean - consumption-based Sources: An elaboration based on data from SEDLAC (CEDLAS and the World Bank; https://www.worldbank.org/en/topic/poverty/lac-equity-lab1 and CONLAC (Consumption-based) for the LAC countries and on data from the World Bank PIP (https://pip.worldbank.org/home) for all other countries. Note: Bars show headcount rates for upper-middle-income (US$6.85 a day 2017 PPP) countries, for the latest years with available data within the 2015–23 period. The Gini coefficients for these countries are 43.8 in Grenada, 43.7 in Saint Lucia, 40.2 in Jamaica, and 39.2 in Suriname. These measures are close to or exceed the global cutoff of 40 that suggests high inequality by World Bank standards. Nonetheless, inequality in the four Caribbean countries is lower than in LAC as a whole. These comparisons, however, should be made with caution, because inequality in the Caribbean is measured using consumption instead of income, the latter of which is used in the rest of LAC. 19/20 Poverty and Equity Global Practice Latin America and the Caribbean Team for Statistical Development References Fernandez, Jaime, Sergio Olivieri, and Diana Sanchez. 2023. “A Methodology for Updating International Middle-class Lines for the Latin American and Caribbean Region.” Policy Research Working Paper. Washington, DC: World Bank. Mancini, Giulia, and Giovanni Vecchi, G. 2022. On the Construction of a Consumption Aggregate for Inequality and Poverty Analysis. Report 169327. Washington, DC: World Bank Group. http://documents.worldbank.org/curated/en/099225003092220001/P169434. Montoya, Kelly, Sergio Olivieri, and Cicero Braga. 2023. “Considering Labor Informality in Forecasting Poverty and Inequality: A Microsimulation Model for Latin American and Caribbean Countries.” World Bank Working Paper No. 10497. Washingto, DC:World Bank. World Bank. 2016. Poverty and Shared Prosperity 2016: Taking on Inequality. Washington, DC: World Bank. doi:10.1596/978-1-4648-0958-3. Learn more: LAC EQUITY LAB