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Poverty Traps in Argentina Poverty and Equity Assessment September 2024 Index Acknowledgments 6 Executive Summary 7 Poverty persists despite the implementation of strengthened policies aimed at reducing it 7 Trap 1. Fiscal imbalance and inflation: a vicious cycle that limits allocative efficiency 9 Trap 2. Intergenerational and geographical imbalances leading to chronic poverty 10 Trap 3. Spiral of low productivity and income vulnerability 11 Trap 4. Increasing climate risks and limited capacity for resilience 12 Overcoming poverty traps 13 Chapter 1. Poverty in Argentina has grown, though diagnostic assessment faces limitations 15 1.1. Poverty has increased in Argentina, while it has declined in most countries in the region 15 1.2. The poverty floor has persisted for four decades in Argentina, and the country faces a new recent cycle of deterioration 17 1.3. Poverty is concentrated among children, youth, and geographically in the suburbs and northern regions 19 1.4. Official poverty measurements cover only part of the country’s population 22 1.5. Better data are needed for more efficient policy impact 25 Chapter 2. The drivers of poverty and barriers to income generation 27 2.1. An assets approach to analyzing household income generation 27 2.2. Labor income is the largest component of total household income 28 2.3. Accumulation of human capital and productive assets is insufficient and of low quality 29 2.4. Social capital: A subtle yet crucial asset 34 2.5. Structural barriers and economic distortions affect productive capital accumulation 35 2.6. Low-income population is more vulnerable to adverse climate events 37 2.7. Restrictions affect market participation and asset use 37 2.8. Lack of stable job creation hinders labor productivity 38 2.9. Wages have lost value amid inflation and volatility 41 Chapter 3. Policy responses and poverty traps 42 3.1. Income transfer programs have been the cornerstone of anti-poverty policy 42 3.2. The limits of income transfer policies: building solid walls on quicksand 45 3.3. The complexity of transforming the lives of the most vulnerable 46 3.4. Overcoming poverty traps: a short- and medium-term strategy 47 3.4.1. Macroeconomic stabilization and inflation reduction: Essential foundations 48 3.4.2. Protection mechanisms during economic stabilization 48 3.4.3. Overcoming structural barriers 48 3.4.4. Information for efficiently addressing diverse needs 48 References 49 Figures Figure 1. Poverty levels—measured using the national methodology—have remained above 25 % over the past decades 7 Figure 2. Average per capita household income declined by over 40 percent between 2016 and 2023 8 Figure 3. Labor income is the largest component of total income, primarily from vulnerable employment in middle and lower segments 8 Figure 4. Food prices have often outpaced headline inflation 9 Figure 5. More than half of children and adolescents live in poverty 10 Figure 6. Half of all workers are informal or self-employed 11 Figure 7. In certain provinces, formal private employment constitutes less than 20 percent of total employment 11 Figure 8. Number of poverty baskets affordable to workers earning the median wage, by type of employment and quarter, 2016–2023 12 Figure 9. High flood risk and chronic poverty rates converge in specific territories 13 Figure 10. The poverty rate in Argentina is low compared to the region but has increased in the last decade 16 Figure 11. Real per capita income has declined for the general population and the bottom 40 percent in Argentina 16 Figure 12. The middle class in Argentina declined over the past decade 17 Figure 13. Inequality has remained relatively stable at a level below regional average 17 Figure 14. The official measurement shows four in ten Argentines in major urban areas living in poverty; one in ten living in extreme poverty 18 Figure 15. Limited economic growth largely accounts for rising poverty rates 19 Figure 16. Economic recession and the pandemic have lowered incomes across all groups since 2018 19 Figure 17. Reductions in formal and nonformal labor income explain 60 percent of the increase in poverty between 2016 and 2023 19 Figure 18. Poverty rates are highest among households with children, particularly in extended households and female-headed households 20 Figure 19. Poverty incidence is higher among women in the 24-44 age group 20 Figure 20. Poverty concentration is higher in suburbs surrounding the City of Buenos Aires 21 Figure 21. Poverty measurement in Argentina is limited to 31 urban areas, with higher incidence in the North and Greater Buenos Aires regions 21 Figure 22. In most provinces, poverty date cover less than half the population 23 Figure 23. The prevalence of unmet basic needs is higher among the rural population 23 Figure 24. Household income-generating capacity depends on available assets, asset utilization, and the obtained returns to use 28 Figure 25. The share of labor income and pensions has decreased over the last decade 29 Figure 26. Vulnerable populations have lower early education attendance and higher dropout rates 31 Figure 27. Children and young people form a higher proportion of the most vulnerable groups 31 Figure 28. Higher parental education levels correlate with fewer students falling behind in school 32 Figure 29. Average school performance is low in Argentina, especially for low-income populations 32 Figure 30. Deficits in health checkups are most prevalent among children from disadvantaged households 34 Figure 31. Lack of internet connectivity is a barrier in northern regions 35 Figure 32. Low-income households have limited productive asset accumulation and rental income 36 Figure 33. Motorcycles are key productive assets among low-income populations 36 Figure 34. Informal employment dominates among the poorest two quintiles, concentrated in construction, retail, manufacturing and domestic services 38 Figure 35. The number of private sector employers reporting workers has remained stagnant for over a decade 39 Figure 36. Map of chronic poverty estimates related to private employment and Potenciar Trabajo program, 2019-2021 40 Figure 37. Most of the firms that manage to stay in business retain their original size five years after establishment 41 Figure 38. Average wages decreased by 40 percent between 2016 and 2023, with informal workers most affected 41 Figure 39. Pension moratoria17 represent the largest expenditure on noncontributory transfers 43 Figure 40. Spending on transfer programs for the elderly is almost 3 times that for children and adolescents 44 4 POVERTY TRAPS IN ARGENTINA Abbreviations AMBA Metropolitan Area of Buenos Aires ANSES National Social Security Administration AUH Universal Child Allowance BPBA Census in low-income neighborhoods of the Province of Buenos Aires CEDLAS Center for Distributive, Labor and Social Studies CNCPS National Council for the Coordination of Social Policies ENGHo National Household Expenditure Survey EPH Permanent Household Survey EPH-TU Permanent Household Survey – Urban Total GBA Greater Buenos Aires INDEC National Institute of Statistics and Censuses of the Argentine Republic INSSJP National Institute of Social Services for Retirees and Pensioners NEA Northeastern Argentina NOA Argentine Northwest OECD Organisation for Economic Co-operation and Development ODSA-UCA Observatory of the Argentine Social Debt of the Catholic University of Argentina NPO National Budget Office OPISU Provincial Agency for Social and Urban Integration GDP Gross domestic product PPP Purchasing power parity PUAM Universal Pension for the Elderly SEDLAC Socio-Economic Database for Latin America and the Caribbean UCA Catholic University of Argentina USD US dollars All dollar amounts are in US dollars, unless otherwise indicated. POVERTY TRAPS IN ARGENTINA 5 Acknowledgments This report was prepared by the World Bank’s Poverty and Equity team, led by Lourdes Rodríguez-Chamussy and comprised by Evelyn Vezza, Agustín Arakaki, and Montserrat Avila, under the guidance of Oscar Calvo- Gonzalez (Regional Director), Marianne Fay (Country Director), Carlos Rodríguez Castelán (Practice Manager for Poverty and Equity) and Ana María Avilés (Lead Economist and Program Leader of Economic Prosperity for Argentina, Paraguay and Uruguay). Desiree Gonzalez, Geraldine Garcia, and Mirela Catuneanu provided excellent support throughout the process. This report benefited from close collaboration and valuable inputs from Juan Diego Alonso, Sonia Araujo, Santiago Arias, María Eugenia Barbieri, María Eugenia Bonilla-Chacin, Yanina Budkin, Maurizio Bussolo, Vanina Camporeale, Mariana Conte Grand, Carolina Crerar, Daniela Dborkin, Julián Folgar, Samuel Freije, Ernesto López Córdoba, Harry Moroz, Paul Procee, Marcela Salvador, Liljana Sekerinska, Nistha Sinha, Sailesh Tiwari, and William Wiseman. An early version of this report benefited from guidance and valuable inputs from Rob Taliercio, Jordan Schwartz, and Ximena del Carpio. The team appreciates the comments and inputs provided by the peer reviewers: José Antonio Cuesta Leiva (Lead Economist, Social Sustainability and Inclusion), Alexandru Cojocaru (Senior Economist, Poverty and Equity), and Josefina Posadas (Lead Economist, Social Protection and Labor). The team appreciates conversations and helpful comments from Mariano Tomassi, Nora Lustig, Victoria Costoya, Jorge Paz, José María Fanelli, Rafael Rofman, María Edo, Francisca Schmidt-Liermann, Guillermo Cruces, Luciano Di Gresia, María Emma Santos, Ann Mitchel, Caterina López Brest, and participants of the seminar organized by the Center for Human Development Studies at the University of San Andrés in Victoria, Buenos Aires. The participation of Georgina Binstock, Victoria Dowbley, Agustín Moldavsky, Ezequiel Brodschi, and their teams was instrumental in the completion of the study “Locked in Poverty? The Case of Young People in Vulnerable Urban Settlements”. The data and analysis from that study are used in this report. This poverty study also builds on the findings of recent World Bank analytical work: “Programmatic Approach to Poverty and Equity in the Southern Cone” (P174710), “Diagnosis of the Labor Market and Social Protection in Argentina” (P168579), “Poverty and the Macroeconomic Impacts of Climate Change in Argentina” (P172110), and “Third Review of Public Expenditure in Argentina” (P174957). It also benefited from discussions and inputs from parallel work: “Argentina Country Climate and Development Report” (P176901) and “Argentina Country Economic Memorandum” (P174967). 6 POVERTY TRAPS IN ARGENTINA Executive Summary A rgentina faces persistently high poverty Poverty persists despite the rates, which have shown an upward trend implementation of strengthened in recent years, despite increased resources policies aimed at reducing it aimed at mitigating poverty. Over the past four decades, poverty—measured using the national This apparent paradox can be explained by methodology—has consistently affected more than economic dynamics that limit the ability of low 25 percent of the urban population (Figure 1). This has and middle-income households to sustainably persisted during a period when public spending grew increase their incomes. Recurring macroeconomic 2.6 times, reaching the highest levels among middle- imbalances and inflation erode real household and upper-middle-income countries. While static fiscal income, particularly among the poorest segments incidence analysis indicates that Argentina achieves of the population. Additionally, significant barriers Noteble reductions in inequality and poverty through hinder the accumulation and effective use of public spending, this impact has been driven more productive assets. Without addressing these by the volume of spending than by its progressivity underlying constraints, there is a growing need for (Lustig et al., 2021). Strengthened policies have yet continued protection and assistance for low-income to succeed in significantly reducing poverty levels. households. Figure 1 Poverty levels—measured using the national methodology—have remained above 25 % over the past decades Estimates of long-term poverty trends in Argentina, 1982-2023 (based on national poverty line) 70 60 50 % of urban population 40 30 20 10 0 oct-82 may-87 oct-88 may-90 oct-91 may-93 oct-94 may-96 oct-97 may-99 oct-00 may-02 2003 S2 2005 S1 2006 S2 2008 S1 2009 S2 2011 S1 2012 S2 2014 S1 2015 S2 2017 S1 2018 S2 2020 S1 2021 S2 2023 S1 EPH Puntual -CEDLAS EPH Continua- CEDLAS Tornarolli (2018) INDEC serie comparable EPH Puntual GBA EPH Continua GBA Source: CEDLAS estimates, Tornarolli (2018) and comparable INDEC series since 2016. Note: CEDLAS = Center for Distributive, Labor and Social Studies of the National University of La Plata; EPH = Permanent Household Survey; GBA = Greater Buenos Aires; INDEC = National Institute of Statistics and Censuses of the Argentine Republic. LAS TRAMPAS DE LA POBREZA EN ARGENTINA 7 Real household income has declined, becoming real per capita income fell by 41 percent (Figure 2). more vulnerable and increasingly dependent on Labor income’s share of total income for the poorest public transfers. Between 2016 and 2023, the most decile dropped from 64 percent in 2016 to 58 percent recent period with comparable information, average in 2023, while the role of public transfers grew from 19 to 27 percent. In deciles 2 and 3, the importance of public transfers almost doubled. Figure 2 The decline in labor income accounted for 60 Average per capita household income declined by percent of the increase in the poverty rate over 40 percent between 2016 and 2023 between 2016 and 2023. Labor income is the Average per capita household income largest component of household income across all (in second-semester 2016 Argentine pesos) population groups, but for low- and middle-income segments, it largely comes from vulnerable sources, 8,000 such as informal work or self-employment (Figure 3). 7,000 ARS $ (2016, second semester) 6,000 Policy responses have struggled to address the 5,000 structural factors that limit income generation, often getting caught in various “traps.” While the 4,000 establishment and expansion of social transfers and 3,000 protection mechanisms have built a foundational 2,000 infrastructure for poverty reduction, this system is 1,000 precariously positioned. It has been undermined by 0 ongoing macroeconomic instability, unsustainable fiscal policies, distorted incentives for investment 2 2016 1 2017 2 2017 1 2018 2 2018 1 2019 2 2019 1 2020 2 2020 1 2021 2 2021 1 2022 2 2022 1 2023 2 2023 and job creation, and the misallocation of productive Source: World Bank estimates based on data from INDEC. resources. Figure 3 Labor income is the largest component of total income, primarily from vulnerable employment in middle and lower segments Composition of per capita household income by source, by decile, second semester 2023 100% 7 6 5 5 5 5 3 4 3 8 90% 8 5 3 1 1 15 14 19 17 12 80% 27 17 21 25 15 14 70% 22 22 22 9 26 60% 35 30 Rents and private transfers 39 28 50% Public transfers 43 40% Pensions 42 Non-formal labor 30% 56 60 58 Formal labor 51 20% 39 41 40 32 10% 24 15 0% Poorest 2 3 4 5 6 7 8 9 Richest decile decile Income deciles Source: World Bank estimates based on data from INDEC. 8 POVERTY TRAPS IN ARGENTINA These dynamics are reflected in four “poverty traps” In a context of fiscal imbalances that drive which are interconnected both in their origins and inflation, a difficult cycle emerges. Mechanisms their consequences. like indexing pensions and social transfers, along with income support and subsidy policies, aim to Trap 1. Fiscal imbalance and compensate for the loss of real income value and inflation: a vicious cycle that reduce the risk of poverty and extreme poverty. limits allocative efficiency However, these measures can be hard to sustain financially and may inadvertently contribute to Inflation has been one of the most important inflation. determinants of poverty in Argentina. Since a large portion of income among poorer households is spent Recurrent fiscal deficits have been a key factor on consumption, inflation disproportionately impacts fueling inflation in Argentina. Fiscal consolidation these groups compared to wealthier households. This poses a dilemma, as a significant portion of public effect is intensified when the prices of goods in the spending is either directly or indirectly linked basic consumption basket rise faster than the general to past inflation or tied to economic subsidies. rate of inflation, a pattern frequently observed in While eliminating inflationary financing of the Argentina (Figure 4). Poorer households feel this deficit is essential to break the cycle of high deficits, impact more acutely because a larger share of their macroeconomic imbalances, and rising inflation, total expenditure goes toward food. Additionally, consolidating fiscal expenditures is challenging. This the lack of quality job creation, coupled with rising is particularly true because many of the largest inflation, has led to a decline in real wages, especially spending areas are rigid or carry a high risk of policy in the informal sector. Most working poor do not reversal, especially in a situation where more than have their earnings indexed to inflation or otherwise 40 percent of the population cannot afford the basic protected from it, making them more vulnerable to consumption basket. the erosion of purchasing power. Figure 4 Food prices have often outpaced headline inflation Change in the general consumer price and food price indexes, 2018-2024 300 250 December 2016=100 200 150 100 50 0 jan-18 apr-18 jul-18 oct-18 jan-19 apr-19 jul-19 oct-19 jan-20 apr-20 jul-20 oct-20 jan-21 apr-21 jul-21 oct-21 jan-22 apr-22 jul-22 oct-22 jan-23 apr-23 jul-23 oct-23 jan-24 apr-24 Source: INDEC. Consumer Price Index Food prices POVERTY TRAPS IN ARGENTINA 9 The need to continually adjust subsidies, contrast, the poverty rate among those over 64 years protection measures, and social assistance in old was 17.6 percent in the second semester of 2023 response to inflation exerts fiscal pressure, (Figure 5). However, there is an intergenerational bias limiting the efficiency of public spending. This in social spending; for instance, in 2023, spending dynamic undermines the government’s ability, on pensions was estimated to be six times higher both in the short and long term, to promote asset than on contributory family allowances, while accumulation, enhance productive use, and improve noncontributory pension expenditures were three economic outcomes, particularly for the poor and times higher than those on assistance programs vulnerable. directed to children and adolescents (ONP-UNICEF. INSSJP and Ministry of Economy). Despite these challenges, there are opportunities for fiscal consolidation that could enhance Figure 5 distributional impact. One key area is improving the progressivity of subsidies for public services. Within the More than half of children and adolescents live in realm of social policy, energy and transport subsidies, poverty as well as distortionary taxes, are Noteble examples Poverty and extreme poverty rate by age range, of distributional inefficiencies (López del Valle et al., second semester 2023 2021). For many years, the gap between prices and the costs of generating power and delivering basic 58.4% Poverty Extreme poverty services has been covered by widespread subsidies, 47.0% often with a “pro-rich” distributional bias. Although the tariff segmentation policy introduced in 2022 has 36.8% reduced this bias, significant reform is still needed to ensure that subsidies are efficiently targeted. 18.9% 17.6% Trap 2. Intergenerational 13.5% 10.1% and geographical 2.6% imbalances leading to chronic poverty 0-14 15-29 30-64 65+ Age groups A higher incidence of poverty among children and Source: INDEC. adolescents and social spending disproportionally directed toward the elderly, translate into chronic Strengthening human capital is essential to poverty and limited social mobility. The persistence breaking the cycle of intergenerational poverty. One of poverty throughout the life cycle weakens the main barriers to income generation in Argentina inclusion mechanisms and perpetuates existing is the decline in human capital accumulation, disadvantages. Economic distortions and imbalanced particularly in education and nutrition. While quality policy responses have exacerbated two key issues: an education and social inclusion for youth are crucial intergenerational imbalance in spending—favoring in urban and suburban areas, populations in the the elderly—and persistent territorial inequalities, north of the country, where chronic poverty is more which are difficult to address due to the lack of prevalent, also need investments in infrastructure representative data on poverty and equity at the and connectivity. subnational level. Geographically, poverty often coincides with More than half of the country’s children (58 limited productive employment opportunities percent in the 0-14 age group) are considered and gaps in access to essential services. Access poor, according to the latest official estimate. By to services and markets is vital; however, designing 10 POVERTY TRAPS IN ARGENTINA effective policy solutions is challenging due to the lack Formal job creation in the private sector has been of data that allows for detailed analysis of poverty weak, with significant variations across different patterns at the local level. regions. For instance, in the northern provinces, formal private employment represents only 12–20 A better understanding of the population in rural percent of total employment (Figure 7). areas and small cities, as well as welfare dynamics at the subregional level, is critical to addressing Figure 6 inequalities based on where households reside. Unlike most countries with comparable levels of Half of all workers are informal or self-employed development, Argentina lacks poverty measurements Employment composition by occupation category, that represent the entire population, as they are second semester 2023 currently limited to the largest urban centers. This limitation hinders the design, implementation, and evaluation of effective poverty reduction policies. The Employers 4% impact is particularly significant in certain regions, Public salaried workers such as the northern provinces, where poverty Independent 18% workers measurements cover less than 40 percent of the 22% population. Unregistered private Registered private Trap 3. Spiral of low salaried workers salaried workers productivity and income 27% 29% vulnerability Informality is a persistent feature of Argentina’s labor market, as it is in many countries across the Source: World Bank estimates based on data from INDEC. region, and it closely linked to the prevalence of low-quality jobs. Over the past decade, the share of informal salaried workers (those not contributing to Figure 7 social security) has remained around 30 percent in In certain provinces, formal private employment Argentina. However, when considering non-salaried constitutes less than 20 percent of total employment workers, the rate of informal employment exceeds 40 percent.1 Employment rate and share of formal private employment, urban areas, 2023 The cycle of low productivity, informality, low- 50 quality jobs, volatile incomes, and poverty 45 Tierra del Fuego Ciudad de -common across Latin American countries- is 40 Chubut Buenos Aires Formal private employment over total employment (%) Santa Cruz further intensified by Argentina’s macroeconomic 35 Buenos Aires Santa Fe 30 Río Negro imbalances. Unlike many other countries in the Neuquén Córdoba 25 Entre Ríos Mendoza region, the role of labor income in reducing poverty 20 San Juan Misiones Tucumán Salta San Luis in Argentina significantly declined between 2009 15 Formosa Corrientes Catamarca La Rioja La Pampa and 2015 (World Bank, 2018). From 2018 onward, 10 Chaco Jujuy consecutive macroeconomic and pandemic shocks 5 Santiago del Estero 0 hit after years of weak private sector job creation. 25 30 35 40 45 50 55 The employment rate had remained stagnant at Employment rate over total population (%) around 42.2 percent of the population in the years preceding COVID-19. Source: World Bank estimates based on data from INDEC. 1  Data based on ILOSTAT, International Labour Organization, Geneva. POVERTY TRAPS IN ARGENTINA 11 For poor households, the primary source of particularly for the middle- and low-income income often comes from informal and precarious households. Few families can acquire assets that labor. About two-thirds of the working poor hold generate income, or investments yielding interest informal salaried or independent jobs, typically or dividends. According to the latest household in nonprofessional roles. In vulnerable urban expenditure survey, conducted in 2018, only the neighborhoods, the majority of young people aged highest income deciles had more than 5 percent of 17 to 30 are employed informally. This pattern of the population possessing these types of assets. informality and low-quality employment starts early, with the average age of first employment Trap 4. Increasing climate being just 16. risks and limited capacity for resilience The median wage has been on a downward trend, progressively approaching from above the poverty Argentina faces significant challenges in reducing line, due to losses in real value—even for formal the exposure and vulnerability of the poor workers. By 2023, the labor income of an average to climate events and other external shocks, informal or self-employed worker was insufficient especially given the constraints created by the to cover a basic consumption (poverty) basket, other poverty traps. Climate change and related compared to 2017 when it could cover 1.3 baskets. environmental shocks pose critical risks to economic Additionally, the purchasing power of self-employed activities, particularly in agriculture, and hinder professionals and wage earners in the formal public improvements in overall well-being. It is estimated and private sectors has diminished significantly, that climate-related droughts could lead to losses dropping from 3.2 poverty baskets in 2017 to less of up to 4 percent of GDP by 2050. Additionally, than 2 in 2023 (Figure 8). annual floods result in losses of up to US$1.4 billion in assets and approximately US$4 billion in well- In this environment, the accumulation of other being (Argentina Country Climate and Development productive assets remains extremely low, Report, World Bank, 2022). Figure 8 Number of poverty baskets affordable to workers earning the median wage, by type of employment and quarter, 2016–2023 4.5 4.0 Number of basic consumption baskets 3.5 3.0 Private registered employee Public employee 2.5 Independent with professional 2.0 degree Independent 1.5 Private non-registered employee 1.0 0.5 0.0 3 2016 4 2016 1 2017 2 2017 3 2017 4 2017 1 2018 2 2018 3 2018 4 2018 1 2019 2 2019 3 2019 4 2019 1 2020 2 2020 3 2020 4 2020 1 2021 2 2021 3 2021 4 2021 1 2022 2 2022 3 2022 4 2022 1 2023 2 2023 3 2023 4 2023 Source: World Bank estimates based on the Permanent Household Survey, INDEC. 12 POVERTY TRAPS IN ARGENTINA For the poor and vulnerable, climate shocks can Extreme weather events, particularly droughts mean the loss of scarce assets and the erosion and floods, are Argentina’s most significant of social assistance benefits, driving them climate risks, severely impacting the well-being of deeper into poverty for years. Factors such as its population. Floods directly affect the poorest and limited access to clean water, poor-quality housing, most vulnerable populations, leading to asset loss, proximity to open-air landfills, and residence including human capital due to increased prevalence in high-risk flood zones increase the exposure of diseases and food insecurity (Rozenberg et al., of low-income populations to climate risks. For 2021). Droughts cause major economic setbacks by instance, the flood risk index aligns with areas of disrupting agriculture, a key driver of growth and high chronic poverty, particularly in the northern exports, which subsequently leads to income losses provinces and Greater Buenos Aires (GBA) (Figure across the population. 9). Furthermore, projected temperature changes are most pronounced in regions with higher poverty Natural resource management is critical to rates, such as the northern areas. Given their limited Argentina’s economy, but investments needed assets, these communities have low resilience to to shift towards sustainable practices are often such events, and climate shocks can quickly reduce hampered by the urgency created by other poverty access to affordable food and energy. traps. The sustainable use of natural resources in agriculture, extractive industries, and energy-related activities is essential for inclusive development. Figure 9 However, the immediate need of generating foreign High flood risk and chronic poverty rates converge exchange earnings and rapid economic growth often in specific territories encourages the overexploitation of resources or the postponement of investments for diversification, Map of flood zones and chronic poverty prioritizing short-term gains over long-term sustainability. Areas with flooding risk In addition, people living in poverty may have fewer Population in households by level of incidence opportunities to transition to the green economy, making it harder for them to generate income. The Low transition to more sustainable industries and jobs Moderate carries risks, particularly for communities dependent High on natural resources for their livelihoods, whether as producers or workers. Barriers such as inequalities in Chronic Poverty human capital, infrastructure, and price distortions that hinder efficient asset use further restrict income Count by level of chronic poverty incidence generation for the poor. Very Low (0-.99%) Overcoming poverty traps Low (1-4.99%) Moderate (5-9.9%) The cornerstone of a poverty reduction strategy High (10-14.99%) Very High (15-24.99%) in Argentina is to strengthen households’ capacity Critical (25-100%) to generate income. Addressing the structural constraints that the economy and households face in this regard requires comprehensive reforms across Source: Pablo De Grande and Gonzalo Rodríguez (2023). Provincial multiple areas. Cartography National Census of Population, Households, and Housing 2010; and Gasparini et al. (2020). Chronic poverty. Retrieved August 2, 2024, https:// mapa.poblaciones.org/. POVERTY TRAPS IN ARGENTINA 13 Key priorities for overcoming the poverty traps job opportunities, particularly for women, include: including in the care economy. 1. Macroeconomic stabilization, with a focus 4. Reduce vulnerability to external shocks, on inflation reduction, is a critical first including climate events, at the macro and step. In addition, establishing rapid-response micro levels. This includes diversifying economic mechanisms and temporary support measures to activities and exports at the macro level and directly target beneficiaries can help ensure that designing effective risk insurance mechanisms at vulnerable households are not disproportionately the micro level. Investment in climate adaptation burdened during economic adjustments. is essential at both levels. 2. At the same time, it is essential to find the 5. For the success of the above actions, it is margins for efficiency gains to make fiscal crucial to have adequate instruments to consolidation processes sustainable while measure and monitor poverty for the entire protecting those who need it most. Argentina population. Effective poverty reduction requires can gain from integrating administrative data accurate tools to measure and monitor poverty to enhance the targeting of economic subsidies across all populations, including rural areas, and and social programs. Incentive mechanisms could with detailed geographical representativeness. A also improve intergovernmental coordination, thorough diagnosis of the varying needs across reducing fragmentation and duplication of regions is critical for guiding resource allocation support efforts. and achieving meaningful outcomes. Ensuring that poverty reduction strategies involve co- 3. Address the structural barriers to income responsibility at provincial levels will strengthen generation with emphasis on two priorities: implementation efforts. a. Enhance human capital development with differentiated actions according to Addressing these key areas may help Argentina the needs of the population in different overcome its poverty traps and pave the way for a contexts and geographical areas. Investment more resilient, inclusive, and sustainable future. in education, health, and safety, with a balanced focus on children and adolescents, is needed to break the cycle of intergenerational poverty. Social inclusion initiatives are crucial in suburban areas like neighborhoods in the Conurbano (the suburban area of the City of Buenos Aires), while infrastructure improvements, such as better connectivity, are key for northern regions. b. Promote policies that facilitate the creation of high-quality jobs by leveraging synergies between local and global opportunities. On the demand side, this includes removing distortions that discourage the development of quality employment and boosting workers’ transitions to higher-productivity sectors. On the supply side, it includes prioritizing social investments that create quality 14 POVERTY TRAPS IN ARGENTINA 1 CHAPTER Poverty in Argentina has grown, though diagnostic assessment faces limitations 1.1.  Poverty has increased in those with weaker economic performance, managed Argentina, while it has declined in to reduce poverty between 2012 and 2022 (Figure 10). most countries in the region In 9 of the 11 countries in the region with data for this period, real per capita income rose, and it rose more Compared to other countries in Latin America and among the bottom 40 percent of the population. the Caribbean, Argentina has a relatively poverty By contrast, in Argentina, real per capita household rate. The latest estimate, using the international income declined for both the population as a whole poverty line for upper-middle-income countries and among the bottom 40 percent (Figure 11). (US$6.85 per day, 2017 PPP), showed a poverty rate of 10.9 percent in 2022.2 Among countries in the The COVID-19 pandemic temporarily set back region with comparable data, only two had lower progress across the region, yet by 2022, the poverty rates than Argentina, while the average rate regional average poverty rate had fallen below pre- across Latin America and the Caribbean was 26 pandemic levels. Between 2019 and 2022, poverty in percent. Latin America and the Caribbean, measured by the US$6.85 per day (PPP 2017) line, decreased from 28.1 However, unlike most other Latin American to 26 percent.3 Economic recovery and improvements countries, Argentina has seen an increase in in employment during 2021 helped reduce poverty, poverty over the past decade. Even countries that though inflation constrained the extent of these started with similar or lower poverty rates, as well as gains. 2  World Bank poverty estimates are based on a harmonized version of the household survey for each country and use international poverty lines defined in per capita terms. The most recent estimates to date are up to 2022. The harmonization process includes a series of imputations that are applied to income to make it comparable across countries. All monetary measurements are adjusted to 2017 purchasing power parity (PPP) US dollars, using inflation rates estimated by private consulting firms for the period 2007-2015, and official sources thereafter. The poverty line for upper-middle-income countries, such as most LAC countries including Argentina, is US$6.85 at 2017 PPP per capita per day. Because of differences in the poverty lines and in the construction of the income total, the official and international poverty rates are not comparable. The international line is used for cross-country comparisons, while the official methodology is used for country-specific analyses. 3  Socio-Economic Database for Latin America and the Caribbean (SEDLAC) (CEDLAS and World Bank). POVERTY TRAPS IN ARGENTINA 15 Figure 10 Figure 11 The poverty rate in Argentina is low compared to Real per capita income has declined for the general the region but has increased in the last decade population and the bottom 40 percent in Argentina Poverty rate for Latin American and Caribbean countries (%), Annualized growth in per capita household income for the 2012 and 2022 (estimates with international poverty line population as a whole and for the bottom 40 percent, of US$6.85/day, PPP 2017) 2012-2022 SLV, 47.1 5 4 COL, 39.8 3 Annualized growth rate (%) MEX, 37.3 PER, 35.3 COL, 34.8 PER, 32.2 2 ECU, 31.4 ECU, 29.9 BRA, 28.2 1 PRY, 27.0 SLV, 27.5 BOL, 23.7 BRA, 23.5 0 MEX, 21.8 PRY, 19.9 -1 PAN, 18.8 CRI, 15.6 BOL, 15.2 CRI, 14.1 -2 CHL, 12.5 PAN, 12.9 ARG, 10.9 -3 Brazil Argentina Bolivia Chile Costa Rica Ecuador El Salvador Panama Paraguay Peru ARG, 8.6 URY, 7.8 URY, 6.4 CHL, 4.7 circa 2012 circa 2022 Bottom 40% Total population Source: SEDLAC (CEDLAS and World Bank). Source: SEDLAC (CEDLAS and World Bank). In Argentina, the effects of the pandemic, combined percent, while the middle class shrank from 66.9 to with an ongoing economic crisis, exacerbated an 58.7 percent (Figure 12). already deteriorating situation that had been negative since 2018. By 2020, poverty in Argentina Inequality in Argentina remained relatively stable peaked at 15.4 percent, the highest level in over a over 2012-2022 (Figure 13). Argentina’s level of decade, based on the international poverty line of inequality (0.407 in 2022, as measured by the Gini US$6.85 per day (PPP 2017). index) is relatively low compared to Latin American countries (0.50 on average), but high relative to In a context of income losses for different upper-middle-income countries in other regions. segments of the population, the proportion of the population considered vulnerable has grown Section 1.1 analyzes trends in poverty and and the middle class has shrunk. According to inequality from an international perspective. international thresholds, individuals with a per capita For comparability, the international poverty line income between US$6.85 and US$14 per day (PPP was used, which sets a lower threshold than 2017) are considered vulnerable, and those with a per Argentina’s national poverty line employed for official capita income between US$14 and US$81 per day measurements.4 The rest of the report will focus on (PPP 2017) are categorized as middle class. From trends and analysis within Argentina, using results 2012 to 2022, the share of Argentina’s population based on the national poverty line and the country’s classified as vulnerable increased from 20.9 to 28.5 official measurement methodology. 4  Argentina’s official poverty line is determined by the value of the Total Basic Basket (CBT), which is calculated by expanding the Basic Food Basket (CBA) to include non-food goods and services such as clothing, transportation, education, and health, as consumed by the reference population (INDEC, 2016). 16 POVERTY TRAPS IN ARGENTINA Figure 12 The middle class in Argentina declined over the past decade Evolution of the proportion of the population considered poor, vulnerable and middle class, according to international guidelines and methodology, 2012-2022 100 90 Percentage of urban population 80 70 55.5 59.6 58.7 63.4 64.6 63.8 60.6 60 66.9 67.0 67.3 Middle Class (USD $14-$81) 50 Vulnerable (USD $6.85-$14) 40 Poor (USD $6.85) 30 27.2 24.4 26.5 28.5 20 20.9 20.6 24.0 22.5 22.9 20.4 10 15.4 8.5 8.5 9.5 9.2 8.2 10.4 12.0 11.4 10.9 0 2012 2013 2014 2016 2017 2018 2019 2020 2021 2022 Source: LAC Equity Lab with SEDLAC data (CEDLAS and World Bank). Figure 13 1.2.  The poverty floor has persisted Inequality has remained relatively stable at a level for four decades in Argentina, and below regional average the country faces a new recent cycle Evolution of inequality in Argentina and the average for of deterioration Latin America and the Caribbean, as measured by the Gini coe cient of per capita household income, 2012-2022 The limited progress in poverty reduction observed after 2011—as well as the steep increase after 2018—exposes the impact of a new cycle 0.520 of macroeconomic difficulties and instability 0.500 that Argentina has repeatedly experienced in 0.480 the past. highlights the impact of a new cycle of macroeconomic challenges and instability that Gini Index 0.460 Argentina has repeatedly faced. Over the past four 0.440 decades, poverty rates have spiked during major 0.420 economic crises, including those in the late 1980s, 0.400 mid-1990s, and 2001. However, even during periods of economic growth, poverty—measured using the 0.380 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 national methodology—has consistently remained above a floor of 25 percent of the urban population LAC Argentina (Figure 1 in the Executive Summary). Source: LAC Equity Lab with SEDLAC data (CEDLAS and World Bank). POVERTY TRAPS IN ARGENTINA 17 Figure 14 The official measurement shows four in ten Argentines in major urban areas living in poverty; one in ten living in extreme poverty Evolution of the poverty and extreme poverty rates, as measured according to Argentina's o cial methodology, semesters 2016-2023 50 40.8 42.1 41.7 40.4 39.4 40.1 Percentage of urban population 40 37.3 36.3 35.3 35.7 30.3 31.9 28.5 27.3 30 25.6 Poverty Extreme poverty 20 10 10.6 10.7 11.9 10.5 9.9 7.6 8.1 8.4 8.5 7.9 6.1 6.2 6.7 0 4.8 4.9 2016 S2 2017 S1 2017 S2 2018 S1 2018 S2 2019 S1 2019 S2 2020 S1 2020 S2 2021 S1 2021 S2 2022 S1 2022 S2 2023 S1 2023 S2 Source: INDEC. Note: The analysis period covers the most recent comparable set of data available. As a result of the most recent cycle of rising of economic growth and a general shift toward lower poverty, the rate reached 41.7 percent of the income levels. During the pandemic and subsequent urban population, according to the latest official recovery, mitigation policies helped limit income measurement for the second semester of 2023. losses for the poorest, even allowing for some income Additionally, the extreme poverty (indigence) rate, growth, which contained the rise in extreme poverty which represents the proportion of the population in 2020 and 2021. Still, these efforts were not enough unable to afford the basic food basket as defined by to offset the overall negative impact of stagnant INDEC, stood at 11.9 percent (Figure 14). growth on poverty rates (Figure 16). Recent years have been characterized by Income reductions across all population segments impoverishment across all segments of the were primarily driven by declines in labor income— population, although with different dynamics the largest component of total household income. depending on the period. From 2016 to 2017, Between 2016 and 2023, average real per capita household incomes improved, mainly benefiting the household income fell by 41 percent, largely due to a poorest groups, resulting in poverty reduction driven decrease in labor income. The main factor behind this by both economic growth and redistributive effects reduction has been the fall in labor income. Combined (Figure 15). However, beginning in 2018, economic losses in both formal and informal labor income recession and later the COVID-19 pandemic led accounted for 60 percent of the of the rise in poverty to a decline in incomes across nearly all groups. during this period. Public transfers played a critical The recession in 2018 and 2019 caused income role in mitigating the increase; without them, poverty deterioration, particularly in the lower percentiles, would have been 30 percent higher over the period leading to an increase in poverty driven by both a lack under analysis (Figure 17). 18 POVERTY TRAPS IN ARGENTINA Figure 15 Figure 16 Limited economic growth largely accounts for rising Economic recession and the pandemic have poverty rates lowered incomes across all groups since 2018 Decomposition of annual changes in poverty by growth and Annual per capita household income growth by percentile distributional e ects (Datt-Ravallion decomposition), 2016-2022 of the distribution, 2016-2022 8 20 6 15 10 4 Percentage points 5 2 0 % 0 -5 -2 -10 -4 -15 -6 -20 2016- 2017- 2018- 2019- 2020- 2021- 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 2017 2018 2019 2020 2021 2022 Percentiles of per capita household income Redistribution Growth Change in poverty rate 2016-2017 2017-2018 2018-2019 2019-2020 2020-2021 2021-2022 Source: World Bank estimates based on data from the Permanent Household Source: World Bank estimates based on data from the Permanent Household Survey, INDEC. Survey, INDEC. Note: Extreme percentiles which are typically highly volatile have been excluded. Figure 17 1.3.  Poverty is concentrated among Reductions in formal and nonformal labor income children, youth, and geographically in explain 60 percent of the increase in poverty the suburbs and northern regions between 2016 and 2023 Decomposition of the total change in poverty by the Poverty in Argentina disproportionately affects contribution of the change in di erent sources of income children and adolescents, with more than half (Shapley decomposition), cumulative 2016-2023 living in poverty. As of the second half of 2023, 58.4 percent of individuals aged 0 to 14 were classified as 20 poor, and 18.9 percent were living in extreme poverty, according to official data. The poverty rate among 15 Capital + Other, 1.6 those aged 15 to 29 is also high, at 47 percent, which Pensions, 2.0 Dependencia, 0.9 exceeds the national average. In contrast, the poverty Percentage points 10 rate among individuals aged 65 and older is 17.6 Informal labor income, 4.1 percent, with 2.6 percent living in extreme poverty 5 Employment (informal), 2.4 (Figure 5 in the Executive Summary). Formal labor income, 2.7 Employment (formal), 1.8 0 These trends are reflected in the composition Public transfers, -4.0 of poor households, which tend to be larger than -5 non-poor households. On average, poor households Source: World Bank estimates based on data from the Permanent Household have 4.1 members, compared to 2.6 members in non- Survey, INDEC. POVERTY TRAPS IN ARGENTINA 19 Figure 18 Figure 19 Poverty rates are highest among households with Poverty incidence is higher among women in the children, particularly in extended households and 24-44 age group female-headed households Poverty rate, by household composition, second semester, 2023 Poverty rate by sex and age group, o cial methodology, 2023 60 60 % of the population under poverty 50 50 Female 40 40 Poverty rate 30 30 Male 20 20 10 10 0 0 Households Only with Only with Couple Extended 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+ without father mother children Households with children Age groups Source: World Bank estimates based on data from the Permanent Household Source: World Bank estimates based on data from the Permanent Household Survey, INDEC. Survey, INDEC. poor households, making them about 1.5 times larger. Geographically, nearly half of Argentina’s poor The likelihood of poverty increases with household and indigent populations are concentrated in the size: the poverty rate is 9.2 percent for single-person municipalities surrounding the City of Buenos Aires. households but rises to 60.4 percent for households Specifically, 48 percent of the poor and 53 percent with five or more members. of those in extreme poverty live in the Conurbano bonaerense—the suburban belt around the City of Households with children, particularly those Buenos Aires, consisting of 24 municipalities in the headed by single women or structured as extended Province of Buenos Aires. This area accounts for families, face higher poverty rates. The poverty 43.6 percent of the population across the 31 urban rate triples in households with children compared agglomerates where poverty is measured (Figure 20). to those without. Among households with children, those headed by single men have the lowest poverty Poverty rates are also Notebly higher in Argentina’s rates, although such households are rare (less than 2 northern regions, with the Northeast and percent of the total). The highest poverty rates are Northwest historically experiencing the highest found in extended households and those led by single levels. As of the latest measurement from the second women (Figure 18). half of 2023, these regions had poverty rates of 48.4 percent and 45.6 percent, respectively—about 10 During reproductive and parenting ages (24 to percentage points higher than the region with the 44 years), women are at a higher risk of poverty lowest incidence, Patagonia, at 36.5 percent (Figure compared to men. While overall poverty rates are 21). In terms of extreme poverty, the Northwest and similar for men and women, a gender gap emerges the Greater Buenos Aires Area (GBA), including the during this life stage, with women more vulnerable to City of Buenos Aires and the Conurbano bonaerense, falling into poverty (Figure 19). have the highest rates. 20 POVERTY TRAPS IN ARGENTINA Figure 20 Poverty concentration is higher in suburbs surrounding the City of Buenos Aires 3.8 Population 10.3 43.6 9.6 5.0 6.3 21.6 3.3 Poverty 5.2 47.7 10.5 5.7 6.6 20.9 2.3 Extreme 3.7 52.9 8.6 6.0 5.5 21.0 poverty 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Ciudad de Buenos Aires Conurbano bonaerense NOA NEA Cuyo Pampeana Patagónica Source: World Bank estimates based on data from the Permanent Household Survey, INDEC. Note: NEA = Northeast Argentina. NOA = Northwest Argentina. Figure 21 Poverty measurement in Argentina is limited to 31 urban areas, with higher incidence in the North and Greater Buenos Aires regions Poverty rates by region and agglomerates, second semester, 2023 70 60 48.4 45.6 44 Poverty rate (%) 50 40.4 41 36.5 40 30 20 10 0 Bahía Blanca - Cerri Concordia Gran Córdoba Gran La Plata Gran Rosario Gran Paraná Gran Santa Fe Mar del Plata Río Cuarto Santa Rosa - Toay San Nicolás - Villa Constitución Corrientes Formosa Gran Resistencia Posadas Comodoro Rivadavia - Rada Tilly Neuquén - Plottier Río Gallegos Ushuaia - Río Grande Rawson - Trelew Viedma - Carmen de Patagones Gran Catamarca Gran Tucumán - Tafí Viejo Jujuy - Palpalá La Rioja Salta Santiago del Estero - La Banda Gran Mendoza Gran San Juan Gran San Luis CABA Partidos del GBA Pampeana NEA Patagónica NOA Cuyo GBA Regional poverty rate Source: INDEC, Poverty and extreme poverty rates in 31 urban agglomerates (second semester of 2023). Note: The measurements for some clusters have a coefficient of variation greater than 16 percent and should therefore be interpreted with reservation. POVERTY TRAPS IN ARGENTINA 21 Poverty manifests differently across Argentina’s This means that about 38 percent of the regions. In the Buenos Aires suburbs, it is marked population is not covered by the survey, though by job insecurity and challenges related to socio- this proportion varies significantly across urban integration. In the northern regions (Northeast provinces, as the distribution of small urban and Northwest Argentina), poverty is characterized and rural populations is not uniform. In many by limited access to public services and a lack of provinces, the survey covers less than half of the connectivity. population because most residents live in smaller urban or rural areas. For instance, in the Northeast The most significant contrasts in poverty levels provinces, household income and poverty statistics occur within each region. However, diagnosing these cover only about 30 to 40 percent of the population differences at a more localized level is difficult due (Figure 22). to limitations in the available data. For example, there is a disparity of more than 20 percentage Approaches to diagnosing poverty among points between the City of Buenos Aires and the population not covered by the official measurement Conurbano (Greater Buenos Aires urban areas). In this are limited because they rely on data sources case, the household survey used to measure poverty that lack a monetary dimension or require strong is representative of the area, making the figures assumptions about consumption patterns and reliable. However, variations within clusters in the prices. Estimates using the EPH-TU, which assume northern regions are harder to interpret accurately that consumption patterns and prices are similar to because these areas have significant information those in the main metropolitan areas of each region, gaps due to a large percentage of the population not suggest that while the trends in poverty and extreme being included in the statistics (see section 1.4). poverty in small urban areas closely mirrored those in larger urban centers between 2016 and 2022, the 1.4.  Official poverty measurements poverty rate was likely higher in small urban areas, cover only part of the country’s whereas the extreme poverty rate was similar. population Population census data, on the other hand, Argentina’s official poverty measurements do indicate a higher incidence of poverty among not account for the population living in smaller rural populations when assessed through living urban and rural areas. Available measurements are conditions, although this method does not based on the Permanent Household Survey (Encuesta measure monetary poverty.6 Estimates based Permanente de Hogares, EPH), which only covers on the 2010 census, using an ‘unmet basic needs’ the population living in the 31 major urban clusters approach, suggest that poverty may be more of at least 100,000 inhabitants (approximately prevalent in rural areas compared to the regions 62 percent of the country’s total population). As a covered by the EPH. According to these findings, the result, the survey excludes small urban areas, defined proportion of households with at least one unmet as localities with populations between 2,000 and basic need was almost twice as high in rural areas 100,000 (27.6 percent of the total population), as well (23.9 percent in combined localities and dispersed as rural areas, which include localities with fewer than populations) compared to urban areas (12 percent) 2,000 inhabitants (9.7 percent of the population).5 (Figure 23). 5  Data from the 2010 Population Census. 6  Argentina pioneered the application of an ‘unmet basic needs’ methodology, launching it in 1984 based on data from the population census conducted in 1980. This methodology is based on indicators of overcrowding, housing characteristics, access to sanitation services, school attendance, and economic capacity. Since then, INDEC has applied the methodology every time new census data becomes available. Although its implementation is considered one of the first attempts to measure multidimensional poverty, weaknesses have been identified and no revisions or updates have been made since its 1984 application (Feres and Mancero, 2001). 22 POVERTY TRAPS IN ARGENTINA Figure 22 In most provinces, poverty date cover less than half the population Share of population in urban clusters, small urban areas, and rural areas, by province, 2023 100 90 Rural areas - Percentage of total population 80 Not covered by EPH 70 60 Small urban areas - 50 100 100 Not covered by EPH 95 40 68 30 62 57 54 54 53 51 47 20 46 46 45 45 42 41 Main metropolitan areas - 40 36 34 34 33 32 30 10 Covered by EPH 0 8 CABA Conurbano Tierra del Fuego San Juan Chubut La Rioja Catamarca Santa Fe Tucumán Mendoza San Luis Neuquén Córdoba Jujuy Salta Formosa Santiago del Estero Buenos Aires La Pampa Chaco Corrientes Santa Cruz Entre Ríos Misiones Río Negro Source: INDEC. Note: Permanent Household Survey. Alternative methods, such as satellite imagery, non-monetary dimensions, which are essential for also point to higher poverty rates in rural and implementing a multidimensional poverty framework small urban areas. For instance, Ciaschi (2021) (see Box 2). used nighttime satellite images to analyze national trends in poverty and inequality from 1992 to 2013. The results suggest that poverty rates were higher in Figure 23 areas not covered by the EPH. The prevalence of unmet basic needs is higher among the rural population While monetary measurements can effectively Households with unmet basic needs, by locality, 2010 approximate non-monetary deficiencies, poverty is recognized as a multidimensional issue. In 30 Argentina, this multidimensional nature of poverty 25 also faces challenges due to limitations in data Percentage of the population coverage. Globally, there is broad consensus on 20 the importance of measuring deprivations across multiple dimensions beyond just monetary income. 15 Many countries in the region, including Mexico, 10 Chile, Colombia, Costa Rica, and El Salvador, have supplemented traditional monetary poverty metrics 5 with multidimensional approaches. However, efforts 11.7 16.5 26.8 to develop a multidimensional poverty index in 0 Urban Rural Rural Argentina are constrained by data limitations, combined dispersed not only due to gaps in population coverage but localities population also because of the lack of comprehensive data on Source: 2010 Population Census. POVERTY TRAPS IN ARGENTINA 23 BOX 1. THE HOUSEHOLD SURVEY AND THE MEASUREMENT OF MONETARY POVERTY IN ARGENTINA Poverty estimates in Argentina are based on the Permanent Household Survey (EPH), which serves as the primary source of data on the sociodemographic characteristics of the population, the labor market, living conditions, income distribution, and poverty. The EPH provides quarterly estimates of labor indicators and biannual data on household income and poverty status. One of the strengths of this survey is its ability to frequently monitor socioeconomic indicators, but its limited coverage restricts a comprehensive understanding of poverty across the country. The EPH has been conducted by the National Institute of Statistics and Censuses (INDEC) since 1973, though it has undergone modifications and updates over the years, making long-term comparisons challenging. The survey’s coverage has expanded over time. For instance, due to various changes in the country, the survey underwent a complete revision in 2003, which included updates to sampling and survey methods, questionnaires, frequency, and definitions. This led to a break in the time series from that year onward. Currently, the EPH is representative of the population living in the 31 largest urban areas in Argentina, encompassing all provincial capitals and cities with more than 100,000 inhabitants. As such, the survey covers approximately 62 percent of the total population. Among these urban areas, Greater Buenos Aires (GBA) is the largest, with around 15.5 million residents. Official poverty estimates based on the EPH began in 1988. In 2016, INDEC revised the official methodology for estimating monetary poverty. As with the previous methodology, adult equivalent units are used to account for differences in household composition, such as gender and age. The main change introduced was the use of new regional poverty lines, constructed from household income and expenditure data collected in 1997/98 and 2004/05, and later updated using average prices from the official consumer price index. Recently, an expanded version of the EPH, known as the EPH-Urban Total (EPH-TU), has been implemented. Conducted annually in the third quarter, this expanded survey extends coverage to all urban areas, including both main and smaller urban centers. With the EPH-TU, coverage increases from 62 percent to 91 percent of the total population. Both the EPH and the EPH-TU use the same questionnaire. However, applying the official poverty estimation methodology is not ideal for measuring poverty in smaller urban areas, where consumption patterns and prices can differ significantly from those observed in major metropolitan areas. Sources: CEDLAS and World Bank (2014); INDEC (2003, 2016). Studies and initiatives that use a multidimensional when monetary poverty rates rose in 2015 and 2016, approach to poverty in Argentina suggest that as improvements in non-monetary dimensions offset the multidimensional poverty rate is more the effects of increased monetary poverty. Similarly, stable than the monetary poverty rate, which the multidimensional poverty rate calculated by is heavily influenced by inflation.7 For instance, the Catholic University of Argentina, which excludes Gasparini, Tornarolli, and Glüzmann (2019) found income, remained stable, whereas the monetary that multidimensional poverty did not increase even poverty rate rose in 2018 and 2019 (Bonfiglio, 2020). 7  There is an extensive literature on various aspects of multidimensional poverty in Argentina. For example, Arévalo and Paz (2015); CNCPS (2021); Gasparini, Tornarolli, and Glüzmann (2019); Gonzalez and Santos (2020); López and Safojan (2013); and Santos and Villatoro (2018). 24 POVERTY TRAPS IN ARGENTINA BOX 2. INITIATIVES USING ALTERNATIVE DATA SOURCES FOR MEASURING MULTIDIMENSIONAL POVERTY IN ARGENTINA The Catholic University of Argentina (UCA) has developed a methodology for measuring multidimensional poverty using data from the Argentine Social Debt Survey, an annual household survey conducted since 2010 that covers urban areas with at least 80,000 inhabitants. The UCA multidimensional poverty index includes 16 indicators across six dimensions: health and food, services and infrastructure, housing, environment, education and employment, and social security (Bonfiglio, 2020). To classify a household as multidimensionally poor, three criteria are used: failing to meet the minimum threshold in one indicator, in two indicators, or in three or more indicators. The General Directorate of Statistics and Censuses of the City of Buenos Aires developed a methodology to measure multidimensional poverty (DGEyC-CABA, 2019). The dimensions and indicators were chosen based on what most of the population considers essential for a dignified life. To improve accuracy, a special module was added to the Annual Household Survey conducted in the City of Buenos Aires each year between October and December. The index includes 23 indicators across five dimensions: food, health and care, housing and access to services, household equipment, and social deprivation and education. Social deprivations encompass factors such as the inability to afford holidays or invite friends over for dinner. A household is considered multidimensionally poor if it shows deficiencies in two or more of the five dimensions. A specific dimension is classified as a gap when at least 33 percent of its associated indicators fail to meet the threshold. Paz et al. (2016) use the Multiple Indicator Cluster Surveys (MICS) conducted by the United Nations Children’s Fund (UNICEF) during 2011 and 2012. utilize the Multiple Indicator Cluster Surveys (MICS) conducted by the United Nations Children’s Fund (UNICEF) in 2011 and 2012. This study focuses on poverty among children and adolescents, so the dimensions and indicators are specifically adapted for this group. The approach is rights-based and includes 28 indicators grouped into 10 dimensions: nutrition, health, education, information, sanitation, housing, environment, violence, work and play, and social interaction. Children and adolescents are classified as multidimensionally poor if they fail to meet the threshold in at least 15 percent of the dimensions, meaning deficiencies in at least 1.5 dimensions. 1.5.  Better data are needed for in the region, which provide national coverage and more efficient policy impact ensure rural and urban representativeness (Beccaria and Glüzmann, 2013). The absence of a nationally representative household survey in Argentina results in Policies tailored to the specific conditions of the substantive blind spots for public policy. Without population and the efficient allocation of resources comprehensive data, the formulation and evaluation could be significantly improved with geographically of effective and efficient policy measures at both representative poverty measurements. Although national and provincial levels are limited. This issue household surveys in most countries do not typically also leads to a bias that highlights poverty in the allow for detailed geographical breakdowns (such Conurbano area while obscuring the conditions as by province, municipality, or town), techniques in smaller urban centers and rural areas. This for combining and imputing data from population measurement gap contrasts with most countries censuses and surveys have been developed to create POVERTY TRAPS IN ARGENTINA 25 poverty maps without requiring costly additional data collection (Bedi et al., 2007; Corral et al., 2022). Implementing a survey with national coverage in Argentina would make it possible to develop similar poverty maps. A nationally representative data source would enable the identification of local poverty for more precise targeting of interventions, as well as improve the allocation of resources to subnational governments. Having poverty estimates specific to different jurisdictions could enhance the geographical targeting of interventions and promote cooperation across different levels of government. Geographically disaggregated data can also aid in planning and evaluating public investments in sectors such as education, health, and transportation. Furthermore, this information would improve the transparency and efficiency of fiscal transfers and strengthen joint responsibility in poverty reduction efforts. Updating and refining the construction of poverty baskets is also a priority. The current poverty and extreme poverty baskets are based on consumption and expenditure data from 2012/13. Revising these baskets, for example, using data from the most recent National Household Expenditure Survey (ENGHo), would provide a clearer picture of current consumption patterns. Additionally, developing a price index with national coverage is a critical step toward enhancing the accuracy of poverty measurements. 26 POVERTY TRAPS IN ARGENTINA 2 CHAPTER The drivers of poverty and barriers to income generation 2.1.  An assets approach to dynamics. Conceptually, it can be broken down analyzing household income into four components: (1) the accumulation—or generation depletion—of assets, which include human, financial, physical, natural, and social capital; (2) changes in the This report adopts an assets approach to examine intensity of asset use (e.g., labor force participation); the opportunities and constraints households face (3) returns on assets, influenced by price dynamics, in generating income. Within this framework, assets macroeconomic trends, and regulations; and (4) broadly represent the resources households can the role of private and public transfers in income leverage to generate income (Siegel, 2005). However, generation, including social, fiscal, and distributive the ability of households to generate income depends policies (Bussolo and López-Calva, 2014; López-Calva not only on the assets they possess but also on how and Rodríguez-Castelán, 2016). effectively they utilize these assets and the returns they earn from them (López-Calva and Rodríguez- This approach makes the study of policy responses Castelán, 2016). more intuitive. This framework simplifies the study of policy responses by categorizing them into areas The assets approach posits that a household’s associated with asset accumulation (e.g., policies capacity to generate income—and thus achieve that expand healthcare services or ensure continuous desired levels of well-being—depends on the education), intensity of asset use (e.g., policies that assets it owns, how these assets are used, and support job stability), and returns on assets (e.g., the presence and functionality of markets and policies that mitigate risk and protect wages). It also institutions that facilitate interaction and income considers nonmarket-related policies, such as public generation (Figure 24). This approach provides transfers, including social assistance programs and a straightforward way to understand income safety nets. Figure 24 Household income-generating capacity depends on available assets, asset utilization, and the obtained returns to use The Assets Approach for Growth and Equity Growth cks Tr ho an s al sfe ern ets Int rs en ass Ext o sit sets of yo fa ion s f use Accumulat Household market income R etur s n s to ass et P ri c e s Equity Returns to assets Transfers Household Accumulation Intensity of External market of assets use of assets shocks income Prices Prices Source: Adapted from López-Calva and Rodríguez-Castelán (2016); World Bank (2018). 2.2.  Labor income is the largest recent period with comparable data (2016-2023), component of total household while changes in labor income explained roughly income 60 percent. Similarly, during times of poverty reduction, increases in labor income played a key Employment and labor income are the primary role. For example, labor income contributed to 38 drivers of poverty trends. Changes in the percent of the poverty decline between 2016 and employed population accounted for about 20 2017, and 70 percent of the annual reduction in percent of the increase in poverty during the 2021. 28 POVERTY TRAPS IN ARGENTINA Figure 25 The share of labor income and pensions has decreased over the last decade a. Composition of total household income by income decile, b. Composition of total household income, by income decile, 2016 2023 100% 100% 5 5 4 3 7 4 3 3 3 3 3 2 3 4 7 6 5 5 3 8 90% 9 5 3 1 1 1 90% 8 5 3 1 1 19 21 17 14 19 17 15 12 19 15 16 21 23 17 80% 14 80% 27 15 21 25 35 70% 14 22 70% 20 22 22 16 23 19 20 26 60% 34 30 60% 9 39 35 30 28 50% 45 22 50% 39 43 40% 40% 44 42 30% 56 59 30% 56 60 58 53 55 51 20% 45 48 20% 41 38 39 39 40 28 32 10% 10% 24 15 15 0% 0% Poorest 2 3 4 5 6 7 8 9 Richest Poorest 2 3 4 5 6 7 8 9 Richest Income deciles Income deciles Rents and private transfers Public transfers Pensions Informal labor Formal labor Source: World Bank estimates based on data from the Permanent Household Survey, INDEC. Human capital is the most critical asset in the pensions in total income has decreased across nearly income generation process, and a lack of it is all income deciles, while public transfers have gained reflected in reduced opportunities for quality significance. For instance, public transfers made up employment. For the poorest population, 59 19 percent of total household income for the poorest percent of total income comes from labor, but decile in 2016, increasing to 27 percent by 2023. For only 15 percent is from formal employment. This the second decile, this share rose from 9 percent to 14 proportion increases with income levels. In the percent, and from 5 percent to 8 percent in the third middle-income decile, labor income makes up 72 decile (Figure 25). percent of total income, and it rises to 80 percent in the highest income decile. However, it is not 2.3.  Accumulation of human capital until the fourth income decile that formal labor and productive assets is insufficient income surpasses nonformal labor income as the and of low quality predominant source of household earnings (Figure 25, panel a). I Investment in human capital in Argentina has not led to comparable gains in productivity over Over the past decade, amid rising inflation and the past few decades. The country’s Human Capital the prevalence of low-quality jobs, the share Index is 0.60, meaning that due to current risks of labor income and pensions has declined. For from poor health, nutrition, and learning, children middle-income households, income from nonformal born in Argentina today will reach only 60 percent labor has become increasingly important compared of their potential productivity by age 18, assuming to formal labor income. Meanwhile, the share of full health and education.8 Although this index is 8  The human capital index measures key points along the trajectory from birth to adulthood of a child born today. The index has three components: (a) survival from birth to school age, measured by the under-five mortality rate; (b) the expected years of school, adjusted for learning, considering the quantity and quality of education; and (c) health, measured by adult survival rates and stunting rate among children ages 0–5 (World Bank, 2020). POVERTY TRAPS IN ARGENTINA 29 slightly above the regional average for Latin America percent in provinces like Formosa, Misiones, Chaco, and the Caribbean (0.55) and marginally higher than Salta, and San Luis. Argentina’s score in 2010 (0.59), progress has been limited (World Bank, 2020). Policies aimed at enhancing human capital accumulation are most effective when they The potential for human capital accumulation support early development and are adapted to varies significantly across the country, with local contexts. Parents of out-of-school children greater challenges and productivity impacts in reported that their children would attend as early the northern provinces. For example, a child born as 3 or 4 years old if transportation were better (71 today in the Province of Chaco is expected to reach percent), schools were closer to home (67.5 percent), a productivity level of 55.2 percent, while a child in tuition was free (65.1 percent), or if the parents had the Province of Formosa would reach 54.7 percent. stable jobs (61.3 percent) (UNICEF, 2021). In contrast, children born in the City of Buenos Aires are projected to be over 10 percentage points higher Despite universal coverage in primary education, at 66.7 percent, nearing the levels observed in high- there are still challenges related to performance income countries (around 0.71) (Alonso, Berridi, and and dropout rates, particularly among children Mohpal, 2021). and adolescents from poorer households. School attendance is nearly universal until age 15, with Education minimal differences across income levels. However, dropout rates begin to rise significantly during International comparisons show that while upper secondary education, particularly among Argentina performs well in terms of coverage disadvantaged students. While secondary school within the compulsory education system, it falls enrollment among youth from the bottom 40 percent short in educational outcomes. There is a Noteble of the population increased by 8 percentage points gap in the inclusion of students in upper secondary over the past decade, only 45 percent of these youth education, and trends in academic achievement at graduated by the official compulsory secondary the primary and secondary levels reveal a learning completion age (UNICEF, 2017). crisis that affects human capital development. This crisis is particularly pronounced among children from Enrollment starts to decline after age 15, poorer households. with dropout rates increasing among the most vulnerable students. On average, 15 percent of From early childhood, the most vulnerable 17-year-olds have left school, and this rate is 3 populations have fewer opportunities to develop percentage points higher among those from the human capital. Access to early education and health bottom 40 percent of households. These disparities services varies widely depending on socioeconomic are even more pronounced in deprived urban areas. status. For instance, in 2023, half of the children For example, in vulnerable neighborhoods of the under age 4 in urban households in the wealthiest Conurbano, 31 percent of 17-year-olds are not quintile were attending school, compared to only attending school, and 13 percent had dropped out by a quarter of those in the poorest quintile. Although age 15 (Figure 26). access to early childhood education has improved in recent years (Cardini, Guevara, and Steinberg, 2021), The proportion of young people is significantly significant disparities remain across provinces. Data higher among the poor and vulnerable segments from the 2022 Census show that 58 percent of of Argentina’s population, making educational children under 4 in the City of Buenos Aires attend disparities in these groups a substantial loss an educational institution, compared to just 12 to 20 of human capital for the country. As youth from 30 POVERTY TRAPS IN ARGENTINA households in the bottom 40 percent age, their and unexcused absences decline as the educational participation in the education system drops sharply: attainment of their parents rises. For example, 29 by the age of 19, only 39 percent are still attending percent of students whose mothers completed only formal education, compared to 61 percent of youth primary school were classified as overage, a trend overall. This loss of human capital potential is even that is similar when considering fathers’ education. more concerning given the demographic composition This proportion drops to 12 percent among students of the bottom 40 percent, where 4.1 out of 10 whose mothers had attained higher education individuals are under 19 years of age, compared to (complete or incomplete). Unexcused absenteeism 2.9 out of 10 in the general population (Figure 27). follows a similar pattern: 36 percent of students with mothers who had the lowest education level School outcomes are closely linked to parental reported unexcused absences in the month before education levels, reflecting broader issues of the survey, compared to 22 percent for those social mobility. Among young people aged 11 and whose mothers had higher educational attainment older who are in school, the rates of overage students (Figure 28). Figure 26 Figure 27 Vulnerable populations have lower early education Children and young people form a higher attendance and higher dropout rates proportion of the most vulnerable groups Gross school enrollment rate, by age among the highest Population distribution by age, comparative of the total income quintile, the bottom 40 percent, and vulnerable population, population in the bottom 40 percent, and neighborhoods in Conurbano, 2018 population in vulnerable neighborhoods of the Conurbano, 2018 100% 95+ 90% 90-94 85-89 80% 80-84 70% 75-79 70-74 60% 65-69 50% 60-64 55-59 40% 50-54 Age 30% 45-49 20% 40-44 35-39 10% 30-34 0% 25-29 2 4 6 8 10 12 14 16 18 20 22 24 20-24 15-19 Age 10-14 Richest 20% Poorest 40% 5-9 Vulnerable neighborhoods in Conurbano 0-4 14 12 10 8 6 4 2 0 2 4 6 8 10 12 14 % population Total Poorest 40% Vulnerable neighborhoods in Conurbano Source: Third quarter 2018 data from the Permanent Household Survey; and Source: Data for the third quarter of 2018, from the Permanent Household from the Provincial Directorate of Statistics of the Province of Buenos Aires Survey; and from the Provincial Directorate of Statistics of the Province of and OPISU, Census in Popular Neighborhoods of the Province of Buenos Aires Buenos Aires and OPISU, CeBPBA 2018. Note: The bottom 40 percent of the (CeBPBA) 2018. Note: The ‘bottom 40 percent’ of the income distribution income distribution refers to the population in quintiles 1 and 2 of the income refers to the population in quintiles 1 and 2 of the income distribution. distribution. Barrios vulnerables del Conurbano refers to case studies in ‘Vulnerable neighborhoods in Conurbano’ refers to case studies in vulnerable neighborhoods selected based on CeBPBA 2018. neighborhoods selected based on CeBPBA 2018. POVERTY TRAPS IN ARGENTINA 31 Students who do not achieve basic proficiency Figure 28 face significant barriers to further learning Higher parental education levels correlate with and are more likely to drop out. According to fewer students falling behind in school the national APRENDER assessments, a large proportion of primary and secondary students Percentage of students with school attendance and overage problems, by parents' education level, 2018 show unsatisfactory performance in math and language.9 International assessments further 40% underscore these challenges, with Argentina’s 35% average PISA math scores for students in the top four quintiles of the international socioeconomic 30% scale falling below 400 points. In comparison, 25% students from similar socioeconomic backgrounds 20% in OECD countries, as well as in comparable nations 15% like Türkiye and Vietnam, tend to score significantly 10% higher (Figure 29). 5% Social environments also play a critical role in 0% determining whether students remain in school. Up to complete Incomplete Complete Tertiary primary secondary secondary education In vulnerable neighborhoods of the Conurbano, 63.2 Mother's academic achievement percent of youth aged 17 to 30 did not complete Overage Missed classes without a valid reason in the last month compulsory schooling, with 36.5 percent reporting they had dropped out, mostly during high school. Source: Global School-Based Health Survey (GSHS). Note: The indicators are for students in the first and fifth years of secondary school. This suggests that many are not attempting to Figure 29 Average school performance is low in Argentina, especially for low-income populations Mathematical proficiency by income quintile, OECD average, Argentina, and selected countries, 2022 OECD average Argentina Turkiye Vietnam 550 600 600 600 550 550 550 500 500 500 500 450 450 450 450 400 400 400 400 350 350 350 350 300 300 300 300 Poorest Richest Poorest Richest Poorest Richest Poorest Richest 20% 20% 20% 20% 20% 20% 20% 20% Source: OCDE, PISA 2022 Database. 9  See Aprender (dashboard), Secretariat of Evaluation and Educational Information, Ministry of Education, Buenos Aires, https://www. argentina.gob.ar/educacion/evaluacion-informacion-educativa/aprender. 32 POVERTY TRAPS IN ARGENTINA finish their education. For these young people, Argentina, and the primary cause of years of life lost, educational trajectories were cut short, and only are linked to noncommunicable diseases, which place a small portion (11.4 percent) pursued vocational a growing economic burden on the health system training.10 (Ministry of Health, 2018). Health Deficits in preventive health care particularly affect children from disadvantaged households. Ensuring adequate investment in health In the lowest wealth quintile, 11.9 percent of children and prevention poses significant challenges, under age 5 and 26.8 percent of children and particularly for those facing socioeconomic adolescents aged 5 to 17 did not receive preventive deprivation. Access to health services in Argentina is care, compared to just 1.3 percent and 11.1 percent, provided through social security insurance, voluntary respectively, in the richest quintile. These figures private sector affiliation, and universal public sector account for 58 percent of all children under 5 and 80 coverage. In 2022, about two-thirds of the population percent of children and adolescents aged 5 to 17 who was covered by private or social security insurance, missed preventive health care (Figure 30). The most while the remaining one-third relied exclusively on frequently reported reasons for missed checkups the public health sector. The low-income population include lack of financial resources, transportation depends primarily on the latter, with 62 percent of challenges, and insufficient parental time. individuals in the poorest quintile relying on public healthcare compared to only 9 percent in the richest Income levels also influence the ability to adopt quintile. This fragmented system leads to inequalities healthy and nutritious habits. A healthy food basket in health care access and outcomes, hindering human that meets recommended nutritional standards is 50 capital development among lower-income groups. percent more expensive than the basic food basket used to calculate the poverty line (Albornoz and Britos, The adoption of preventive care services among 2021; UNECE, 2021). Barriers to the implementation low-income households has remained limited. of effective preventive health measures include Noncommunicable diseases, which are chronic and unhealthy habits that are difficult to change and often develop over long periods, require regular limited access to timely, high-quality healthcare. preventive care to manage risk factors effectively. For instance, people in the poorest quintiles report However, access to such care, including screenings a higher incidence of unhealthy diets (40.2 percent) for diabetes, hypertension, cholesterol, and cancer, compared to those in the top quintile (32.6 percent). is considerably lower among those at the bottom of the income distribution. Between 2013 and Unequal human capital accumulation increases 2018, significant improvements were observed in the likelihood of chronic and intergenerational diagnostic screenings like blood tests, blood pressure poverty. Preventive behaviors in children are often checks, and colon cancer screenings among adults in linked to the educational attainment of their mothers; the upper income quintile. However, key diagnostic for example, the rate of daily consumption of sugar- services for women, such as Pap tests, became sweetened beverages is significantly higher among less frequent among those in the second-poorest children of mothers with lower educational levels than quintile, decreasing from 70.4 percent to 61.3 percent among those whose mothers are more educated.11 As (Ministry of Health, 2019; Ministry of Health and a result, disparities in health and education across INDEC, 2015). Reflecting trends in low- and middle- generations reinforce inequality of opportunity and income countries, more than 60 percent of deaths in perpetuate poverty. 10  Provincial Directorate of Statistics (DPE), Province of Buenos Aires, 2019. 11  GSHS Results Tool, 2018. POVERTY TRAPS IN ARGENTINA 33 In highly deprived settings, local patterns of Figure 30 social ties and mobility highlight the challenges Deficits in health checkups are most prevalent of building social capital. The study “Locked in among children from disadvantaged households Poverty?” found that 4 in 10 young people aged 17 Deficits in health checkups, children and adolescents, to 30 in vulnerable urban neighborhoods reported by household wealth quintiles, 2019 having no friends (World Bank, 2020). This lack of social connections was primarily due to changes in 30 residence and the loss of relationships formed at 25 school. 20 For the urban poor, insecurity exacerbates social and economic exclusion, especially for women. To 15 % avoid exposure to unsafe environments, individuals 10 often limit their interactions, reducing opportunities outside their immediate surroundings. According to 5 the 2018 census of working-class neighborhoods, 76 percent of residents felt their neighborhood 0 Children under 5 Children under 5 was unsafe, and 64.3 percent considered public without preventive care without preventive care transportation unsafe. A qualitative study in Poorest quintile Richest quintile urban settlements of the City of Buenos Aires and Source: World Bank estimates based on data from UNICEF (2021). Greater Buenos Aires found that harassment was the greatest safety concern for women on public transport (Dominguez Gonzalez et al., 2020). These 2.4.  Social capital: A subtle yet negative experiences limited their independence, as crucial asset many young women chose to travel with family or friends or prioritized jobs closer to home over better The effectiveness of investments in human and opportunities that required commuting. Mobility data physical capital is closely tied to the presence of from Greater Buenos Aires indicate that reliance on social networks, norms, and organizations that non-motorized transport is three times higher among enable people to interact freely at both local and the poor; 36 percent of low-income individuals broader levels. Social capital includes interpersonal typically walk, with 80 percent of these trips taking networks among individuals with similar demographic less than 20 minutes (Domínguez González et al., profiles (bonding social capital) and networks that 2020). connect people from diverse backgrounds (bridging social capital). These networks can act as support Isolation and social exclusion are compounded mechanisms, helping individuals address significant by structural barriers to escaping poverty. The challenges during asset accumulation. They also presence of institutional or non-familial adult role include formal connections with institutions that models can provide young people with guidance, facilitate access to better resources. When social structure, and incentives to advance in education and links are fragmented or weak, social capital’s ability the labor market. Community-based organizations to mediate information sharing, decision-making, play a critical role in supporting adolescents who and civic engagement diminishes, thereby reducing face multiple obstacles, and schools are fundamental the efficiency of other types of capital and limiting in building networks and connections (Binstock and development outcomes (Grootaert, 1998; Grootaert Esteban, 2019). However, limited opportunities for et al., 2004). interaction beyond their immediate environment 34 POVERTY TRAPS IN ARGENTINA restrict young people’s exposure to diverse life paths, To cope with the impact of shocks and protect role models, and support. In-depth interviews with consumption, households have often resorted youth from vulnerable neighborhoods underscore the to divesting physical assets or borrowing. For benefits of activities that expand their references and example, amid the COVID-19 pandemic and lockdown break down social segregation. measures, some households used physical capital to meet consumption needs. According to a survey 2.5.  Structural barriers and conducted by INDEC in the GBA during August– economic distortions affect October 2020, 44.7 percent of households had used productive capital accumulation savings or sold their housing assets for this purpose (INDEC, 2020 and 2021). Without physical capital, Poor households typically lack productive capital, poorer households struggle to build collateral, access and middle-income segments have seen their credit markets, or safeguard themselves against productive assets decline over the past few future risks. Only 31 percent of adults reported decades. Productive capital includes assets that that they could cover unforeseen expenses without households can leverage to generate income, such borrowing money, and this figure dropped to 23 as property, land, machinery, digital infrastructure, percent among adults in the lowest income bracket, connectivity, and financial wealth. These resources according to the 2017 survey on financial capabilities interact with human capital to drive income generation (Iglesias and Mejía, 2018). and economic growth. However, multiple economic pressures lead people to prioritize consumption Figure 31 over saving and investment. Additionally, financial exclusion often increases vulnerability, perpetuating Lack of internet connectivity is a barrier in northern a cycle of low asset holdings, low returns, and low regions investment (Carter and Barrett, 2006). Percentage of households with a cell phone with internet, by department, district, or commune, 2022 The productive use of land, as well as residential and commercial properties for rental income, is limited at the lower end of the income distribution. Data on land use show that about 250,000 households are engaged in family agriculture, mainly in the northern regions, with a quarter of these households lacking formal land titles. Small-scale producers who focus on self-consumption face barriers in fully utilizing their land due to limited access to markets, financing, and secure land titles (IFAD, 2016). Rental income from property ownership is almost nonexistent among the poor. Irregular housing tenure remains a significant barrier, but evidence shows that land titling among disadvantaged groups has positive impacts on investment and asset accumulation, including human capital. Galiani and Schargrodosky (2010) found that formal land titles led to a 12 percent increase in building area, a 37 percent improvement 0 to 42.4 42.5 to 64.5 in construction materials, and a 0.69-year increase 64.6 to 77.3 in children’s schooling, doubling the secondary school 77.4 to 85.7 completion rate. 85.8 to 95.9 Source: National Census of Population, Households, and Housing, 2022. POVERTY TRAPS IN ARGENTINA 35 Limited access to digital infrastructure also Argentina ranks among the Latin American countries impedes asset accumulation in low-income where the richest quintile saves significantly more households. The shift to remote learning during than other income groups (Gandelman, 2015). In COVID-19 highlighted the challenges faced by 2017, only 29 percent of adults reported saving in the households without reliable internet, particularly in previous year, with the figure dropping to 18 percent northern regions (Figure 31). As a result, the pandemic among those in the lowest socioeconomic brackets further exacerbated educational disparities for (Iglesias and Mejía, 2018). More recent data from marginalized students. 2019 to 2021 show that 9 out of 10 households led by individuals in precarious employment never saved, Frequent economic crises and exchange rate compared to almost 7 in 10 for households with heads volatility hinder the ability to save and invest. in more stable jobs (ODSA-UCA, 2022). Data from the Social Debt Observatory indicate that household savings capacity in 2022 was The accumulation of physical and financial just 9.6 percent, with middle- and low-income assets remains low across all income groups, households having significantly fewer opportunities limiting the ability of households to generate to accumulate savings (ODSA-UCA, 2022). income from interest, dividends, or investments. Even among wealthier segments, only 12 percent Savings rates in Argentina are among the lowest report receiving income from such sources (Figure globally, and the rates are even lower for the most 32). A key productive asset among the low-income vulnerable populations. Although formal data on population is the motorcycle, which provides household savings are limited, available information mobility and economic opportunities. Motorcycle suggests that wealthier households save more, while ownership is Notebly higher among lower-income poorer ones struggle. In an international comparison, groups (Figure 33). Figure 32 Figure 33 Low-income households have limited productive Motorcycles are key productive assets among low- asset accumulation and rental income income populations Proportion of households earning income from assets, Share of households with motorcycles, by income decile, interest, or dividends, by income decile, 2018 2018 16 30 14 25 12 Percentage of households Percentage of households 20 10 8 15 6 10 4 5 2 0 0 Poorest 2 3 4 5 6 7 8 9 Richest Poorest 2 3 4 5 6 7 8 9 Richest Deciles of household income Deciles of household income Source: ENGHo 2017-18. Source: ENGHo 2017-18. 36 POVERTY TRAPS IN ARGENTINA 2.6.  Low-income population is more 2.7.  Restrictions affect market vulnerable to adverse climate events participation and asset use The limited assets accumulated by low-income The prevalence of self-employment reveals a populations are disproportionately vulnerable series of structural difficulties in increasing labor to adverse climate events. For example, flood risk demand and access to quality jobs. Most jobs indexes align with areas of high population density among the poor are in informal or self-employment in the northern provinces and Greater Buenos Aires sectors, often the only viable options, particularly Area (GBA), where poverty is more prevalent (Figure for the most vulnerable. While two-thirds of the 9 in the Executive Summary). These households working poor are in informal salaried positions or have low socioeconomic resilience, making it difficult self-employed, this figure drops to less than two- for them to recover from the loss of scarce assets. fifths among the non-poor. Employment sectors In the event of a 250-year flood, 80 percent of the for the bottom 40 percent are primarily retail (21.3 population in Formosa would take nearly five times percent) and construction (16.3 percent), with over longer to recover compared to those in the City of 80 percent of jobs in these sectors being informal or Buenos Aires (Turner et al., 2021). Case studies in self-employed (Figure 34). vulnerable neighborhoods within the Conurbano show that 43 percent of households experienced flooding in More than half of the working-age population their homes in the past year, and 91 percent of these not engaged in the labor force are women living households faced repeated flooding at least once a in poverty. Despite advances in education, women year. Additionally, many dwellings are located near still lag in economic participation due to barriers open dump sites, with 31 percent to 47 percent of to paid work. The proportion of poor women who households within one block of these sites, reflecting do not work during their working years, mainly due poor environmental quality. According to a quality- to family responsibilities, is double that of non-poor of-life index, households in northern regions are women in the same age group. Barriers to women’s overrepresented among those living less than 300 participation in the labor market are reinforced by meters from landfills (Velázquez, 2016). their heavier load of care and domestic duties, fewer employment opportunities, and greater impacts Low socioeconomic resilience can have significant of economic crises on sectors where women are effects on how households and jurisdictions are overrepresented. During the COVID-19 pandemic, able to respond to and recover from climate 64.1 percent of households in the GBA reported that shocks. For example, Formosa, Misiones, and San most additional unpaid family responsibilities fell on Juan have the lowest socioeconomic resilience scores women, particularly in caregiving (70.3 percent) and of all provinces, according to a World Bank study school support (74.2 percent) for households with (2021). This has important implications for disaster children (INDEC, 2020). Women in Argentina also recovery dynamics. With a relatively poor population faced higher rates of job loss during the pandemic, compared to other provinces, in the event of a large and these effects have deepened over time (Mejía- flood, 15 percent less of the provincial population Mantilla et al., 2021). could recover by the end of the simulation period, compared to the City of Buenos Aires, which is able In highly deprived areas, most young people aged to recover almost fully. In general, smaller provincial 17 to 30 work in informal employment, continuing populations that experience higher per-capita asset a pattern that typically begins around age 16. and welfare losses take longer to recover (Rozenberg Eight out of ten people in this age group had entered et al., 2021). the labor market by age 15, and 89 percent of these initial job experiences were informal. POVERTY TRAPS IN ARGENTINA 37 Figure 34 Informal employment dominates among the poorest two quintiles, concentrated in construction, retail, manufacturing and domestic services Distribution of workers from the bottom 40 percent, by sector and employment status, 2023 25 Informal or self-employed (excluding tertiary education) Formal 20 15 % 10 5 0 Primary activities Manufacturing Electricity, gas and water Construction Retail, trade and repairs Hospitality Transport Mail and telecommunications Financial sector Real estate Business and rental services Public administration and defense Teaching Health and social services Other community and social services Domestic service Unspecified Source: World Bank estimates based on data from the Permanent Household Survey, INDEC. The absence of rural populations in household 2.8  Lack of stable job creation surveys limits the analysis of agricultural labor hinders labor productivity markets across socioeconomic segments. In Argentina, employment in agriculture is among The lack of economic growth has led to minimal the lowest in the region, at 7.5 percent (World generation of salaried employment in the private Development Indicators, 2023). Although information sector. Recurrent crises and macroeconomic is scarce, agricultural census data reveal significant instability have weakened job creation, particularly gender disparities. While 45 percent of registered for quality employment. The number of private sector family farmers are women, only 10 percent of family employers has not grown in over a decade, experiencing farms are headed by women. Data suggest that fewer a sharp decline during the 2018 macroeconomic crisis than 30 percent of women have access to communal and the COVID-19 pandemic. Employment levels at property, and just 16 percent have benefited from the end of 2023 were comparable to those in 2009 public land allocations (Ferro, 2013). The limited job (Figure 35). opportunities for rural women in highly mechanized farming systems may have concentrated female Labor productivity has steadily declined since participation in subsistence and indigenous family 2011, with total factor productivity contributing farming. negatively to growth when terms-of-trade- 38 POVERTY TRAPS IN ARGENTINA Figure 35 The number of private sector employers reporting workers has remained stagnant for over a decade Private sector employers reporting workers, 2007-2023 600,000 580,000 560,000 540,000 520,000 500,000 480,000 460,000 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Source: Ministry of Productive Development, Open Data for Productive Development. driven expansion ceased (David, Lambert, and that in some provinces, public employment outpaced Toscani, 2021; World Bank, 2018). The most recent formal private sector jobs.12 period of economic growth, starting in 2004, was driven primarily by the expansion of non-tradable Low-productivity growth limits the economy’s sectors such as construction, services, and public ability to create quality employment opportunities, administration. This led to low-productivity traps which are crucial for reducing poverty and and increased labor misallocation (World Bank, increasing income in the long term. Issues such as 2018). Macroeconomic imbalances have contributed competitiveness gaps, a limited export basket, and to these distortions, discouraging investment in more difficulties in generating new exports hinder economic productive activities. A complex tax system has also progress and amplify the cycle of weak growth led to market concentration and smaller firm sizes, and rising poverty (World Bank, Argentina Country while inefficiencies, credit constraints, and challenges Economic Memorandum, 2024). These barriers in converting R&D investment into innovation have reduce household earning potential and perpetuate stifled the creation of productive jobs (World Bank, cycles of economic hardship. 2018). The geographical perspective illustrates how Economic growth and job creation have long chronic poverty overlaps with scarce productive depended on public employment and self- employment opportunities. In provinces with a employment, which are labor-intensive but capital- higher incidence of chronic poverty (Figure 36, panel scarce. Between 2012 and 2019, about 1.4 million a), formal private employment has played a smaller jobs were added, yet the private sector lost 100,000 role in employment compared to the public sector jobs. The increase in public sector employment meant (Figure 36, panel b). Likewise, productive inclusion 12  Argentine Integrated Social Security System. POVERTY TRAPS IN ARGENTINA 39 Figure 36 Map of chronic poverty estimates related to private employment and Potenciar Trabajo program, 2019-2021 a. Share of population living b. Private salaried jobs in total c. Potenciar Trabajo beneficiaries in chronic poverty, 2019 (%) formal employment, 2022 (%) in formal private salaried employment, 2021 (%) potenciar / private Source: Gasparini, Glüzmann and Tornarolli Source: Argentine Integrated Social Security Source: Ministry of Social Development. (2019). System. Note: Data reported for August. Note: Data reported for August. programs, such as Potenciar Trabajo, have worked reallocation. Data from 2007 to 2018 show that most as an alternative to compensate for income for firms were the same size five years after starting the vulnerable population at times of employment operations (Figure 37).13 Firms with fewer than 200 scarcity (Salvador and Vezza, 2020) (Figure 36, workers accounted for more than 99 percent of panel c). private employers and 65 percent of formal private employment. Job dynamics are mainly associated Most private employers that have managed with the creation and destruction of jobs in small and to stay in business have not been able to grow. medium enterprises. New businesses are a key driver Recessions negatively affect the number of new of initial job growth, but in subsequent periods they firms, firm growth rates, and the pace of resource become net destroyers (Arnoletto, 2020). 13  Data from Open Data for Productive Development (dashboard), Ministry of Productive Development, Buenos Aires, https://www. argentina.gob.ar/produccion/datos-productivos. 40 POVERTY TRAPS IN ARGENTINA Figure 37 Most of the firms that manage to stay in business retain their original size five years after establishment Firm dynamics after five years, size at start-up, 2007–2018 1-9 employees 10-49 employees 50-200 employees Closed Closed 10.3 % 20.3 % Down sized to 1-9 Closed 2.5 % Grew to 39.7 % Grew to Grew to Down 10-49 50-200 200+ sized to 2.5% 4.2 % Down 5.6 % Same 10-49 Same Same sized to size 13 % size size 1-9 57.8 % 59.1 % 16.3 % 68.5 % Source: World Bank estimates based on data from the Ministry of Productive Development, Open Data for Productive Development. 2.9.  Wages have lost value amid Even workers with better employment conditions inflation and volatility have struggled to maintain the purchasing power of their wages. Economic distress and rising inflation Over the past decade, the risk of falling into poverty have led to a decline in real wages among salaried or extreme poverty has increased for working workers, including those in formal employment. Since households. Precarious employment has been 2018, the gap between the median formal wage and prevalent among the poorest, and returns on labor the consumer price index has widened, resulting in have been particularly low for workers in households reduced real wages, especially for nonformal wage at the lower end of the income distribution. earners (Figure 38). Figure 38 Average wages decreased by 40 percent between 2016 and 2023, with informal workers most affected Labor market returns by job category, 2016–2023 100 80 60 2016=100 40 20 0 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 Jun-19 Oct-19 Feb-20 Jun-20 Oct-20 Feb-21 Jun-21 Oct-21 Feb-22 Jun-22 Oct-22 Feb-23 Jun-23 Oct-23 Total Formal - Total Formal - Private Formal - Public Informal Source: World Bank estimates based on data from the Permanent Household Survey, INDEC. POVERTY TRAPS IN ARGENTINA 41 3 CHAPTER Policy responses and poverty traps 3.1.  Income transfer programs have informality means a significant portion of workers been the cornerstone of anti-poverty do not regularly contribute to social security, policy leaving them and their families without pensions or protections in the event of unemployment or illness. Policy responses in Argentina have focused on the Noncontributory programs aim to reduce poverty implementation of income transfer programs to and inequality by supporting the most vulnerable supplement the earnings of vulnerable populations. groups, including families with children, people with For more than twenty years, these programs have disabilities, and the elderly, ensuring a basic level of provided direct monetary subsidies to families and economic well-being and access to essential services. individuals in vulnerable situations, conditional on Examples of such programs include noncontributory meeting certain requirements and/or some form pensions and conditional cash transfers, which have of quid pro quo. In recent years, the Universal Child been widely implemented across Latin America. Allowance (AUH) has become the most prominent program among national conditional noncontributory Over time, resources dedicated to combating transfers, while Potenciar Trabajo has been a key poverty through cash transfers in Argentina program within the category of “social plans,” aimed have increased. Since 2004, large-scale emergency at informal or unemployed adult workers by offering programs have been launched in response to various a labor compensation component. crises. For example, the temporary employment program Jefes y Jefas de Hogar Desocupados As seen in many countries across the region, (Unemployed Heads of Household) supported 2 million Argentina’s social protection system integrates beneficiaries when the poverty rate surged following traditional social insurance linked to formal the socioeconomic crisis of 2001-2002. In 2004, employment with an expanding number of spending on all noncontributory transfer programs, programs designed to assist informal workers and primarily driven by the Jefes y Jefas program, was their families. Noncontributory social protection about 0.9 percent of GDP. With the introduction programs are particularly vital in countries with of pension moratoriums and the expansion of high levels of informality, where many people lack conditional transfer programs, this allocation rose to access to traditional social security systems. Labor approximately 2 percent of GDP in 2007, 4 percent 42 POVERTY TRAPS IN ARGENTINA Figure 39 Pension moratoria17 represent the largest expenditure on noncontributory transfers 2.5 2 Percentage of GDP 1.5 1 0.5 0 AUH, AUE Alimentar Potenciar Other Progresar Universal Pensions for Pension Disability Trabajo pensions for mothers of 7 moratorium pensions the elderly or more children Non-contibutory family Education allowances Social programs schollarships Non-contributory and semi-contributory pensions Source: World Bank estimates based on information from the Ministry of Economy’s Open Budget portal, ANSES and INDEC. Note: AUH=Universal Child Allowance; AUE=Universal Pregnancy Allowance. The share of spending on formal employment support programs was an estimated 0.02 percent of GDP in 2023 and is not shown in the figure. in 2014, and peaked at 7 percent in 2020 with the noncontributory and semi-contributory pensions implementation of the Emergency Family Income make up the largest share of spending, accounting during the COVID-19 crisis.14 By 2023, spending on for approximately 3.1 percent of GDP in 2023. national noncontributory cash transfer programs By contrast, spending on family allowances and amounted to roughly 4.7 percent of GDP.15 In addition social plans is much lower. Noncontributory family to national programs, there are also provincial cash allowances, including the AUH and the Food Benefit transfer initiatives; however, due to their diverse Program (FBP), made up less than 1 percent of nature and fragmented data, it is challenging to GDP in 2023. Social plans, primarily represented estimate their total expenditure.16 17 by cooperative schemes such as the Potenciar Trabajo program, accounted for an estimated 0.6 From a budgetary standpoint, national conditional percent of GDP (Figure 39). For context, social cash transfer policies account for a minor share security expenditures (retirements and pensions) of social investment spending. Overall, these represented about 9 percent of GDP in the same year. transfers can be grouped into family allowances, In comparison, energy subsidies were estimated social plans, educational scholarships, support to have reached 1.5 percent of GDP in 2023, down for formal employment, and noncontributory from 2 percent and 2.3 percent in 2022 and 2021, and semi-contributory pensions. Among these, respectively. 14  The Emergency Family Income expanded cash transfers to 9 million informal workers, the self-employed, and beneficiaries of social programs during the lockdown in 2020. 15  World Bank estimates based on information from the Ministry of Economy’s Open Budget portal and ECLAC’s Database of noncontributory social protection programs in Latin America and the Caribbean. 16  There is also a multiplicity of programs and support known as ‘social plans and programs’ of the National State. As of 2021, this set consists of 141 social plans and programs: 60 percent under the Ministry of Social Development, 19 percent under the Ministry of Health, 13.9 percent under the National Social Security Administration (ANSES), and the rest divided among seven other ministries. Among these programs, information on coverage and benefits is practically only available for the cash transfer programs listed in this study, as detailed in the 2021 Guide to Social Programs of the National State: https://www.argentina.gob.ar/sites/default/files/guia_de_ programas_sociales_del_estado_nacional.pdf. 17  ‘Pension moratoria’ refers to Argentina’s system of providing social security to all persons of retirement age. POVERTY TRAPS IN ARGENTINA 43 From an intergenerational perspective, social in poverty incidence and a 45.2 percent reduction in protection spending in Argentina is primarily indigence. Gasparini et al. (2024) estimated that in directed toward older adults. On the contributory 2022, the AUH helped reduce poverty by 5 percent side, spending on pensions and retirements has been, and indigence by 36 percent. The impacts of other in recent years, approximately six times higher than programs are more complex to quantify, but results expenditure on contributory family allowances.18 from Gasparini et al. (2024) suggest that Progresar Similarly, spending on noncontributory pensions is scholarships led to a 1 percent reduction in poverty roughly three times that of assistance programs and an 8 percent decrease in indigence. Meanwhile, aimed at children and adolescents (Figure 40). the Potenciar Trabajo program was associated with a 3 percent reduction in poverty and a 19 percent reduction in indigence. Additionally, noncontributory pensions, which cover 90 percent of the elderly Figure 40 population, have played a crucial role in providing Spending on transfer programs for the elderly is social insurance by maintaining the elderly population almost 3 times that for children and adolescents above the poverty line, with pension benefits making up around 70 percent of total earnings, at least until Expenditure on noncontributory transfer programs grouped by age of beneficiaries, 2023 2020 (Rofman and Apella, 2020). 3.5 During the COVID-19 pandemic, the introduction 3.0 of the Emergency Family Income and the provision of additional benefits through existing safety nets 2.5 helped cushion the impact of the crisis on poverty. 2.0 These mitigation measures led to reductions in both % GDP 1.5 extreme poverty and general poverty, with the effect being more pronounced for extreme poverty, 1.0 decreasing by 4 percentage points compared to a 0.5 1.5 percentage point reduction in overall poverty (Arakaki, Rodríguez Chamussy, and Vezza, 2021). An 0.0 Childhood Adults Over 60 evaluation of the Alimentar nutrition program, which and youth was also expanded during the pandemic, showed a Source: World Bank estimates based on information from the Ministry of decrease in food insecurity and an improvement Economy’s Open Budget portal, ANSES and INDEC. in food quality among beneficiary households, particularly benefiting children and young recipients (Poy, Salvia, and Tuñón, 2021). Static incidence analysis shows that social transfers help alleviate poverty, but particularly The persistence of high poverty levels, despite impact extreme poverty. For the second half the expansion of social programs, illustrates the of 2023, World Bank estimates using traditional challenge of poverty traps. Although social transfers distributive incidence analysis showed that the provide short-term relief, structural issues, and a Universal Child Allowance (AUH) led to a 3 percent difficult economic environment, hinder households reduction in the overall poverty rate and an almost 30 from achieving sustainable income generation. This percent reduction in extreme poverty. Other studies paradox underscores the limitations of relying solely have reported similar effects; for instance, estimates on social transfers to address poverty, as deeper by Poy et al. (2021) found that between 2018 and economic reforms are needed to support long-term, 2020, the AUH contributed to a 4.5 percent decrease sustainable improvements in living standards. 18  World Bank estimates based on information from the Ministry of Economy’s Open Budget portal, ANSES and INDEC. 44 POVERTY TRAPS IN ARGENTINA 3.2.  The limits of income transfer Despite attempts to protect pension and policies: building solid walls on retirement benefits through different indexation quicksand formulas20 and the introduction of bonds, their real value decreased by about 40 percent between Cash transfer programs in Argentina have extensive 2017 and 2023. The indexation formula introduced coverage. Pension benefits reach approximately 7.7 in 2009 was replaced in 2017 by a new formula that million individuals, and family allowance benefits calculated adjustments based on a weighted average support 9.5 million children under 18 years of age.19 of inflation (70 percent) and wages (30 percent). This In 2023, about half of those considered to be living in system, with quarterly adjustments, was suspended poverty received AUH benefits for their households. at the end of 2019. Until a new index was implemented Among the poor who were not AUH beneficiaries, at the end of 2020, discretionary increases were 79.1 percent lived in households with children and mostly granted to those earning minimum pensions. at least one formal worker, making them eligible for Since 2021, the new adjustment formula has been Contributory Family Allowances, and 11 percent lived based on variables related to pension revenue and in households with a pensioner. This means around formal salaries, with quarterly updates. Nonetheless, 10 percent of the poor resided in households without average assets decreased by 25 percent between access to family allowances or pensions, most of 2017 and 2021 compared to their all-time high which comprised individuals over 18 years old without (Apella, 2022). formal employment. Social protection programs aim to prevent However, these gains have been limited in offsetting temporary falls into poverty and, through the lack of robust labor incomes, especially in a conditionality, also seek to support long-term context of high inflation. Between 2016 and 2023, asset accumulation. Evidence suggests that real household income fell sharply, with real per capita the AUH has positively impacted human capital income declining by 41 percent. Furthermore, reliance accumulation. The program slightly increased on public transfers increased significantly, while the enrollment rates for children and adolescent students contribution of labor income diminished, particularly (by 0.4 percentage points and 0.8 percentage points, among the poorest households. respectively), with even greater effects (4 percentage points) among students aged 15 to 17. It also had In recent years, the real value of pensions and positive effects on student retention and graduation retirements has been highly volatile due to rates. Secondary school progression increased by 4 inflation and changes in benefit adjustments. The percentage points for students aged 12 to 14 and by 7 coexistence of different pension systems and currency percentage points for those aged 15 to 17. Graduation fluctuations has made it difficult to establish a clear rates improved by 2 percentage points in primary trend in pension, retirement, and social cash transfer education, with gains also seen among women in benefits. For instance, the value of retirements and secondary education. Although no significant effects pensions experienced abrupt fluctuations during were observed on the use of health services, the AUH periods of monetary instability, as seen in 1975 and did result in higher access to free medicines (UNICEF, 2002. Overall, the trend reflects a decline from the ANSES, and CNCPS, 2017). 1970s to the 1980s, a recovery in the 1990s, stability between 2003 and 2008, and another recovery until While social protection mechanisms are essential, 2013 (Apella, 2022). their long-term effectiveness is undermined by macroeconomic imbalances and unsustainable 19  Social Security Statistics, ANSES, fourth quarter 2023. 20  Between the end of the 1960s and the present, the Argentine social security system has gone through at least seven different mobility schemes, permanent or transitory, which have aimed to maintain the real value of benefits but have not always fulfilled their function (Rofman, 2020). POVERTY TRAPS IN ARGENTINA 45 fiscal policies. The high prevalence of precarious and 3.3.  The complexity of vulnerable employment, combined with economic transforming the lives of the most stagnation, creates a vicious cycle of income vulnerable vulnerability, greater need for protection, and increased unsustainability of social spending. Improving poverty conditions in the most disadvantaged areas is challenging, as these From an economic stabilization standpoint, communities often face cumulative, multi- energy price subsidies have repeatedly been layered deprivation. Addressing inadequate asset identified as needing urgent reform. In Argentina, accumulation and limited opportunities is essential energy subsidies peaked at 2.8 percent of GDP in for transitioning out of persistent, multifaceted 2014. Following a period of subsidy reduction from poverty. In such cases, income transfers alone are 2015 to 2019, their share fell to 1.1 percent of GDP. insufficient and must be paired with additional, However, since then, residential tariffs were frozen for complementary actions to support a transition three years, and recent adjustments were set below out of poverty. For example, issues like limited inflation, leading to an increase in fiscal spending to 2 access to public services, insecurity, environmental percent of GDP by 2022. After subsidies peaked, there degradation, and social isolation are prevalent in was a reversal in tariff policy combined with a social neighborhoods where vulnerable populations live, tariff program for vulnerable users (Cont et al., 2021). and improving these conditions requires coordinated, This policy faced setbacks after 2019, when tariffs comprehensive public action. were not adjusted for two years, and residential tariff increases were segmented until late 2022 and early Young people living in vulnerable settings require 2023, with adjustments applied only to certain user comprehensive policies to break the poverty groups (Navajas, 2022). cycle. In addition to commonly assessed family and individual attributes, such as parental assets Evidence shows a bias in energy subsidies that and household demographics, relational factors favors wealthier segments of the population: a are positively associated with their trajectories – larger share of the expenditure benefits those at examples of these factors are role models in the the top of the income distribution. Studies in the school environment, and exposure to conditions Buenos Aires Metropolitan Area (AMBA) revealed a beyond their immediate circle. Thus, public services pro-rich bias, as targeted programs for vulnerable and goods, as well as the characteristics of places, households (social tariff schemes) were insufficient families and individuals, are interconnected, and to counter the effects of general subsidies granted these links are often not considered or adequately through residential tariffs below cost recovery (Puig addressed in policy making. and Salinardi, 2015; Giuliano et al., 2020; Rodríguez- Chamussy et al., 2021). Infrastructure and services are key to generate conducive spaces for human capital development One of the key challenges in reforming this and social integration. Improved housing conditions distorted system is ensuring the protection of can enhance well-being directly while fostering vulnerable households. Energy subsidies are an stability, social networks, and interactions with local inefficient tool to support poor households, but institutions. Building human capital in underserved removing them could severely hurt those at the areas requires that policies in education, health, and bottom of the distribution or near the poverty line. social protection help create pathways to spaces Effective compensation mechanisms are therefore with better opportunities and potential returns essential. However, issues related to information, for young people, aligned with their skills and targeting, and implementation have delayed efforts aspirations. to reduce the fiscal burden of untargeted subsidies. 46 POVERTY TRAPS IN ARGENTINA BOX 3. MIXED-METHOD FINDINGS ON UNHINDERED TRANSITIONS AMONG YOUTH Qualitative analysis of enabling factors and barriers to exiting poverty. In-depth interviews have identified factors that influence youth transitions in education and employment, contrasting the experiences of the most vulnerable with those closer to escaping poverty (Table 1). Table 1 Enabling factors and barriers in the youth education-to-employment transition Enabling factors Obstacles Marginal dwelling location Favorable dwelling location connected to other urban Precarious living conditions boundaries Experience of hunger during childhood Parental economic stability during schooling Structural Frequent relocation, forced migration Higher educational attainment of parents Lack of stable home during childhood/adolescence Access to social benefits for the household Early school dropout Employment experience, including formal work Persistent unemployment or insecure employment Parental abandonment Positive adult relationships in youth Parental or mentor addiction Relational Exposure to diverse activities and mentors Domestic violence Participation in community organizations Early pregnancy or childbearing Single parenthood Quantitative assessment. Considering the completion of compulsory schooling as the outcome closely preceding the transition out of poverty, quantitative assessments confirm the qualitative findings. Neighborhood, household, and individual characteristics are linked and play a significant role: improved neighborhood conditions, a supportive home environment, positive family influence, and a healthy peer and school environment collectively increase the likelihood of a successful transition out of poverty. Source: Binstock and Esteban (2019). 3.4.  Overcoming poverty traps: a particularly in the medium term. While short- short- and medium-term strategy term interventions are crucial in emergencies, they do not address the structural causes of persistent Addressing the constraints to household income poverty. Empowering households by improving their generation is challenging due to policy traps income-generating abilities is essential for promoting shaped by political economy dynamics. Policies sustainable economic development and reducing initially designed to protect vulnerable populations dependency on financial assistance. This requires from shocks often become rigid and entrenched, policies that improve access to job opportunities and limiting flexibility for policymakers. Furthermore, human capital, such as education and skills training, short-term priorities frequently limit the social and foster economic conditions conducive to market investment needed for sustainable improvements in development and productivity growth. well-being. Reducing poverty necessitates a comprehensive The key to poverty reduction lies in enhancing approach that combines macroeconomic household income-generation capacities, stability, effective social protection, and a long- POVERTY TRAPS IN ARGENTINA 47 term strategy for human capital accumulation training will be most effective when aligned with and utilization. Improved coordination across private sector incentives, supporting the creation of government levels, technological advancements, quality, formal jobs. Additionally, strategies should and a territorial approach will allow policies to be address the unique challenges faced by smaller better adapted to diverse local needs, ensuring more urban and rural areas, where obstacles to economic efficient and equitable resource allocation. development are often more pronounced. 3.4.1.  Macroeconomic stabilization 3.4.4.  Information for efficiently and inflation reduction: Essential addressing diverse needs foundations Improving statistical and administrative A crucial foundation for poverty reduction in information availability can significantly enhance Argentina is macroeconomic stabilization, with a the effectiveness of these three pillars. Conducting focus on reducing inflation. Stability is necessary for a detailed needs assessment across different regions, creating an environment that encourages economic including small urban and rural areas, is crucial for growth and job creation. High inflation erodes effective resource allocation. Furthermore, having household incomes, especially for those with fewer data organized by jurisdiction and administrative resources, further deepening poverty. Policies that units enables more precise, region-specific decision- maintain low and predictable inflation, combined with making. structural reforms to strengthen the labor market, are essential for sustained poverty alleviation. It is important for policies to be flexible and adaptable to the varied needs across different 3.4.2.  Protection mechanisms during territories. This requires creating mechanisms that economic stabilization foster shared responsibility among different levels of government and enhance resource distribution During the process of economic stabilization, efficiency. A key step is modernizing statistical data it is critical to put in place mechanisms that collection to lower costs and improve accuracy. protect the most vulnerable. his requires setting Furthermore, integrating statistical information with up rapid responses to emerging crises and designing administrative data will support better evaluation and temporary support targeted directly at those targeting of social spending, ensuring that resources most in need. Efficiency improvements, such as reach those in need efficiently and in a timely manner. enhanced intergovernmental coordination, can prevent fragmented or redundant efforts. Developing incentives for better coordination and efficient use of public resources, along with technological innovations like an integrated information system, can facilitate effective and targeted implementation of these measures. 3.4.3.  Overcoming structural barriers To overcome structural barriers, it is essential to strengthen human capital through tailored actions suited to the diverse needs of the population across various regions. Synchronizing policies that bolster both labor supply and demand is critical. Workforce 48 POVERTY TRAPS IN ARGENTINA References Albornoz, Mariana, and Sergio Britos. 2021. “How Do Paper 288 (October), Center for Distributive, Labor and Argentines Eat? Consumptions, gaps and quality of Social Studies, Faculty of Economic Sciences, National diet.” April, Center for the Study of Food Policy and University of La Plata, La Plata, Argentina. Economics, Buenos Aires. 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