Our Perspective

January 29 2014

What can the US learn from Latin America’s declining inequality? | Heraldo Muñoz

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An artisan from the northern province of Salta using locally produced materials. Photo: UNDP Argentina

As the debate about inequality grows in the U.S., what lessons can be drawn from Latin America, which — although still highly unequal — is the only region that managed to reduce income inequality in the last decade? Despite being the world’s largest economy, the U.S. is the most unequal among the industrialized countries. In 1979, the top 20 percent of Americans received 43 percent of income, while the top 1 percent got 9 percent. Today, however, the top 20 percent of the population captures over 50 percent of pre-tax income, while the top 1 percent receives nearly 15 percent. Meanwhile, Latin America has steadily become more middle-income while reducing poverty.In16 of 17 countries there has been a significant decline in income inequality over the past 10 years. How did they do it? First, nearly half of the decline in inequality can be explained by improvements in household labour income. Economic growth created greater demand for domestic goods, moving more people into the labor force, driving wage increases. This helped reduce the wage gap between college-educated workers and those without a degree. In the U.S., this education gap has increased in recent years. Second, Latin America leads the world in social... Read more

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