As 2011 comes to a close, with the global economy facing yet another economic slowdown, the World Bank says it is drawing “key lessons” from the impact of the Great Recession of 2008/2009 and the quick recovery on the region’s poor.
The Washington-based financial institution said on Dec. 19 that it was also basing its assessment on household survey data from 2010 and labor market indicators through the third quarter of 2011.
In its new brief, “On the Edge of Uncertainty: Poverty Reduction in Latin America and the Caribbean During the Great Recession and Beyond,” the bank said, even during the recession, the region managed to reduce poverty levels.
“Then, as it quickly rebounded in 2010, poverty dropped even faster – by 12.6 million – and continued to decline throughout 2011,” it said.
Rodrigo Chaves, World Bank Sector Director for Poverty Reduction and Economic Management in Latin America and the Caribbean, said poverty did not grow in the region during the worst of the global crisis, “thanks to a combination of increases in labor income and public and private transfers.
“While we continue to hope that the global economy will recover, we need to be vigilant and prepared for all scenarios,” he, however, warned.
Chaves said there are five lessons to be drawn from the region’s recent experience that should help shed some light on how to best prepare.
Firstly, he said rising income and a “more equal distribution of income” were behind the falling poverty in 2009 and 2010, stating that labor income accounted for 50 percent of poverty reduction, non-labor income (public and private transfers) accounted for 24 percent, and a combination of labor and non labor income accounted for the remaining 26 percent.
“Therefore, households receiving both increases in labor and non-labor income saw the greatest poverty reduction during the crisis,” Chaves said.
Secondly, he said the urban poor suffered most during the 2009 crisis and benefitted less during the 2010 recovery.
“This suggests that the labor market in poor urban areas remains less dynamic than in poor rural areas,” he said.
Thirdly, Chaves said, in 2010, growth rates had a strong correlation with poverty declines, suggesting that poor households did not benefit much from the expansion and/or that vulnerable households continued to drop below the poverty line after the crisis.
Fourthly, he said while women’s wages played a key role in keeping the poor afloat during the 2009 crisis, it was men’s wages that helped in the 2010 recovery.
“What’s more, it was households with dual earning that had the best chance to come out of poverty during the crisis,” the World Bank expert said.
Fifthly, he said while poor households with children experienced the greatest improvements in well-being during periods of growth, they also suffered the most during economic contractions, suggesting that these households were “less likely to have dual earners and that safety nets are still leaving out some of these households.”
Chaves said while the story of poverty reduction in the region in recent years has been a “happy one,” there are still areas that require close attention, particularly in the midst of global uncertainty.”
He said still at risk are urban households with a single wage earner and small children.
“Going forward, countries have to continue to closely monitor the skills required by labor markets, adopt policies that can help less favored households succeed in the labor market, and explore options to expand female labor market participation to help diversify household income,” Chaves said.
“Governments may also wish to expand programs to the urban working poor who were vulnerable to losing their livelihoods in the last crisis,” he added.