Is Labor Income Responsible for Poverty Reduction? A Decomposition Approach

Demographics, labor income, public transfers, or remittances: Which factor contributes the most to observed reductions in poverty? Using counterfactual simulations, this paper accounts for the contribution labor income has made to the observed changes in poverty over the past decade for a set of 16 countries that have experienced substantial declines in poverty. In contrast to methods that focus on aggregate summary statistics, the analysis generates entire counterfactual distributions that allow assessing the contributions of different factors to observed distributional changes. Decompositions across all possible paths are calculated so the estimates are not subject to path-dependence. The analysis shows that for most countries in the sample, labor income is the most important contributor to changes in poverty. In ten of the countries, labor income explains more than half of the change in moderate poverty; in another four, it accounts for more than 40 percent of the reduction in poverty. Although public and private transfers were relatively more important in explaining the reduction in extreme poverty, more and better-paying jobs were the key factors behind poverty reduction over the past decade.

Bibliographic Details

Main Authors:	Azevedo, Joao Pedro, Inchauste, Gabriela, Olivieri, Sergio, Saavedra, Jaime, Winkler, Hernan
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2013-04
Subjects:	CASH TRANSFER PROGRAMS, CASH TRANSFERS, CHANGES IN POVERTY, CONSUMPTION AGGREGATE, CONSUMPTION EXPENDITURES, COUNTERFACTUAL, DECLINE IN POVERTY, DECOMPOSABLE POVERTY, DECOMPOSITION METHODOLOGY, DECOMPOSITION TECHNIQUES, ECONOMIC GROWTH, EMPLOYMENT OF WOMEN, EXTREME POVERTY, FAMILY INCOME, FAMILY MEMBERS, HOUSEHOLD CONSUMPTION, HOUSEHOLD CONSUMPTION PER CAPITA, HOUSEHOLD INCOME, HOUSEHOLD PER CAPITA INCOME, HOUSEHOLD SURVEY, HOUSEHOLD SURVEYS, INCOME, INCOME DISTRIBUTION, INCOME DYNAMICS, INCOME GROWTH, INCOME INEQUALITY, INEQUALITY, INTERNATIONAL POVERTY LINE, INTERNATIONAL POVERTY LINES, NUTRITION, PER CAPITA CONSUMPTION, POLITICAL ECONOMY, POOR, POVERTY ACROSS COUNTRIES, POVERTY DYNAMICS, POVERTY GAP, POVERTY GAP INDEX, POVERTY HEADCOUNT RATE, POVERTY HEADCOUNT RATES, POVERTY INCIDENCE, POVERTY MEASURES, POVERTY OUTCOMES, POVERTY RATE, POVERTY RATES, POVERTY REDUCTION, POVERTY SEVERITY, PRIVATE TRANSFERS, REDUCTION IN POVERTY, REGIONAL POVERTY, RURAL, RURAL INCOME, SAVINGS, SOCIAL POLICIES, SOCIAL PROTECTION, TOTAL POVERTY, TRANSFER PROGRAMS, WELFARE MEASURE,
Online Access:	http://documents.worldbank.org/curated/en/2013/04/17599289/labor-income-responsible-poverty-reduction-decomposition-approach http://hdl.handle.net/10986/15552
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