Most Unequal on Earth

• Author: Nora Lustig

Most Unequal on Earth Finance & Development, September 2015, Vol. 52, No. 3

Nora Lustig

Latin America is a region of stark income contrasts but has been making progress

Latin America is a region with tremendous contrasts. Home to the second richest man in the world and about 5 percent of the world’s billionaires, the poor are strikingly poor.

Infant mortality and malnutrition in rural areas and shantytowns, and among disadvantaged groups in Latin American middle-income countries, are much the same as in notably poorer nations. Poverty among afro-descendants and indigenous groups is two, three, and sometimes even more times higher than among the white population.

Latin America is not the region with the largest share or number of poor people in the world (south Asia has that distinction). But it is the one with the most unequal income distribution, which means that the poor there receive a smaller share of total national income than poor people in other regions. As a result, poverty rates in Latin America are systematically higher than would be expected compared with other countries with similar average incomes.

The Gini coefficient is an index of inequality widely used in the social sciences. If all income were to go to one person, the Gini coefficient would be 1. If everybody had the same income, the Gini would be zero. The higher the Gini, the more unequal the country or region. Countries in Latin America, by this measure, are 30 percent more unequal than the world average (see Chart 1).

Fall in inequalityNevertheless, as inequality was rising in nearly every part of the world, it has been declining in almost every Latin American country since 2000 (see Chart 2). It fell in countries with high growth, such as Chile and Colombia, but also in countries with more modest growth, such as Brazil and Mexico. It fell in countries governed by left-leaning regimes (such as Argentina, Bolivia, Brazil, Chile, Ecuador, El Salvador, Nicaragua, Paraguay, Uruguay, and Venezuela) and in countries with center or center-right regimes (such as Mexico and Peru). It fell in commodity-exporting countries and in commodity importers, in countries with minimum wages on the rise, and in countries with stagnant minimum wages.

An important consequence of the decline in inequality is faster poverty reduction. If the income distribution does not change, any decline in poverty depends on per capita income growth. A reduction in inequality enhances the impact of such...