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Waning inequality behind Latin America’s middle-class surge

Vehicles are seen in a traffic jam during rush hour in Sao Paulo, Brazil, in a photo from 2011. A decade ago, the share of the poor in Latin America was about 2.5 times that of the middle class. Now, the middle class and the poor account for about the same share of the population, at 30 per cent, a World Bank study says .

Nacho Doce/REUTERS

Income inequality is growing around the world, but for one remarkable exception: Latin America.

A World Bank study this week highlights deep shifts on the continent. In prior decades, inequality was either stable or rising in most of the region. But since the 2000s, these disparities have declined in 12 of the 15 countries for which the bank had data.

A sea change has rippled through the region in recent years. As household incomes grew and inequality fell in most countries, 50 million people joined the ranks of the middle class. The shift is such that the middle class and the poor now account for about the same share of Latin America's population, at about 30 per cent. In places like Argentina and Brazil, falling income inequality contributed "substantially" to the expansion of the middle class.

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"The recent experience of Latin America and the Caribbean shows the world that policies balancing economic growth while still expanding opportunities for the most vulnerable can spread prosperity to millions of people," said World Bank President Jim Yong Kim.

Governments still need to do more, he added (after all, a third of the population is still in poverty), " but we should celebrate this achievement of growing the middle class and learn from it."

It's a bright spot at a time when much global economic news is gloomy. The bank pins the improvement in the region to shifts in government policy, which "emphasized the delivery of social programs alongside economic stability."

There are a some big caveats: Latin America remains the most unequal region on the planet, a land where billionaires live in gated communities next door to vast expanses of slums. It is also "abysmal" in terms of inter-generational mobility, or the ability to move up the income ladder.

"Mobility across generations – in the sense that personal outcomes are independent of family background and social origin – remains an elusive goal," the report cautioned.

But there are improvements on both fronts. A decade ago, the share of the poor was about 2.5 times that of the middle class. Now, the middle class and the poor account for about the same share of the population, at 30 per cent.

As for mobility, "there is some room for hope" that inequality of opportunity is improving as educational attainment seems to be growing in the past decade through much of the region.

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A slew of factors are behind the upward mobility, among them: higher levels of education among workers, more employment in the formal sector, more people living in cities, more women in the work force and smaller families.

The size of the region's middle class had stagnated for decades. But between 2003 and 2009, the size of the middle class in Latin America and the Caribbean soared 50 per cent -- to 152 million, the study said.

The bank still sees room for improvement. It recommends governments incorporate the goal of equal opportunity into public policy and make further reforms to strengthen the social protection system.

It also urges governments to break the "vicious cycle" of low taxation and low quality of public services, by using some of the region's commodity windfall to improve public services.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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