Poverty and Inequality Reduction in Brazil - A Parenthesis in History or the Road Ahead?

By Paiva, Luis Henrique | Ibero-americana, January 1, 2016 | Go to article overview

Poverty and Inequality Reduction in Brazil - A Parenthesis in History or the Road Ahead?


Paiva, Luis Henrique, Ibero-americana


1. Introduction

Brazil achieved in the last two decades a remarkable reduction in poverty and income inequality. Regarding specifically income inequality, the achievements may be considered unprecedented. Since 1976, when the Gini Coefficient started to be computed in an annual basis, the country never had experienced a steady decrease in inequality as the observed from the early 2000s onwards. Decreases in poverty have been observed before, but in general were associated to one-off events (like the end of the hyperinflation in 1994), not a persistent reduction observed in the last decade.

The objective of this article is to describe the reduction of poverty and income inequality during the period between 1992 and 2013, to explore its main drivers - namely, changes in demography, earnings inequality, labour market and social protection - and to assess the prospects for the near future.

The article is structured as follows. In the next section, I briefly present some methodological definitions (namely, the poverty line, sources of data and the period of time that were here considered) and basic data on poverty and inequality reduction. In the third section, I explore the changes in the demographic structure Brazil has been through between 1992 and the present, emphasizing their possible impacts on poverty and inequality. Section fourth addresses the reduction of earnings inequality and its main determinants. Section fifth analyses the main changes in the labour market during this two decades, notably the increase in formality and its impact on salaries and social security coverage. Section sixth covers the most relevant changes in the social protection schemes and Section seventh addresses the prospects for the near future and concludes.

2. Definitions and the recent trajectory of poverty and inequality in Brazil

Poverty in Brazil is traditionally measured through monetary lines, computed on gross income and without the use of any equivalence scale (Souza, 2012). The data most extensively used to compute poverty and inequality come from the National Household Survey (Pesquisa Nacional por Amostra de Domicilios - PNAD), from the Brazilian Institute of Geography and Statistics (IBGE).

During the period between 1992 and 2013, the PNAD used the same basic questionnaire and experienced only minor changes in its sample plan.1 This makes the period 1992-2013 exceptionally appropriate for an analysis such as that will be done here. Data for formal jobs (from the Annual Record of Social Information - Relaçâo Anual de Informaçoes Sociais - RAIS/Ministry of Labour) are also available for the whole of this period, although precise information by economic sector is available only from 1995. Data from the National Accounts are also available for this period and will be used, as well as projections for the population in 1992 and 2013 (computed by the IBGE).

The poverty line used throughout this work is the official extreme poverty line,2 which was set at R$ 70 per capita a month in June, 2011. Its level is close to the lower extreme poverty line of the World Bank ($ 1.25 PPP a day). It would be possible to work with poverty lines defined in a higher level, but apparently the trajectory of extreme poverty in Brazil in the last two decades (between 1992 and 2013) tends not to be very sensitive to the level of the monetary poverty line used. In Figure 1 we depicted what happened to extreme poverty during this period according to two different poverty lines: the official extreme poverty line and a second one that is the double of it (roughly speaking, $ 2 PPP a day). The story is fundamentally the same: A sharp decrease in extreme poverty between 1993 and 1995, most probably associated to a one-off event, the end of hyperinflation in 1994;3 followed by a period of stability during the second half of the 1990s until 2003; finally followed by a steady and relatively fast decrease in extreme poverty after that. …

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