This chapter provides an overview of Latin America and the Caribbean’s progress in reducing poverty and the ongoing challenges in addressing inequality over the past few decades. It establishes the critical link between inequality, social mobility, and educational attainment. Despite significant strides in educational attainment, particularly at the primary level, the region still faces persistent barriers at secondary and tertiary levels. Increased and better-targeted investment in education is essential to overcome these challenges. Such investment would enhance educational opportunities across all socio-economic backgrounds, improve skill levels, and address the productivity lag relative to other emerging economies with similar educational expenditures. Effective policies must focus not only on increasing funding, but also on ensuring equitable access, improving quality, and supporting disadvantaged students to break the cycle of poverty and foster inclusive growth.
Social Mobility and Inequality in Latin America and the Caribbean
1. Introduction
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Over the last couple of decades, Latin America and the Caribbean (LAC) experienced an overall improvement of national income, with the proportion of people living in absolute poverty dropping from one in three to one in five (OECD, 2021[1]). Income inequality, another longstanding challenge in the region, also saw substantial improvements over the last 20 years, particularly in the first decade of the century (OECD, 2024[2]) (Germán Feierherd, 2023[3]). However, despite this progress, LAC remains the most unequal region in the world - as of 2024, the top 10% of earners in Latin America and the Caribbean made 12 times more than the poorest 10%, whereas in OECD countries, the income gap is much smaller, with the top 10% earning only four times more than the bottom 10% (Inter-American Development Bank, 2024[4]).
Unsurprisingly, the three most unequal countries within OECD economies are all in Latin America: Chile, Colombia, Costa Rica, and Mexico (OECD, 2024[5]).
Inequality has not followed a consistent trend in Latin America and the Caribbean. In most LAC countries, inequality surged rapidly in the 1970s, peaked in the 1990s, and then began to decline gradually. While inequality today is lower than it was three decades ago, progress has stalled since 2012 (Inter-American Development Bank, 2024[4]). Indicators of income inequality, calculated using available national household surveys, suggest that the progress made in the last two decades primarily occurred between 2000 and 2012. Since then, progress has stagnated, with only minimal improvements observed between 2012 and 2018 (UNDP, 2021[6]). The Gini Index, measuring inequality, decreased from 52.8 to 47.0 between 2002 and 2012, averaging a drop of 0.58 points per year. However, between 2012 and 2018, the average Gini Index experienced a marginal decline of less than one point. There is also variation in inequality trends across LAC countries; the slowdown in inequality reduction after 2012 is most pronounced in the extended Southern Cone (Argentina, Brazil, Chile, Paraguay, and Uruguay) and less marked in the Andean countries and Central America (UNDP, 2021[6]). Most recently, following the COVID-19 pandemic, high inflation in LAC countries has worsened real income levels and increased income inequality. (OECD, 2024[2]) (Busso and Messina, 2020[7]). As of 2021, Brazil, Colombia, and Panama exhibit the highest inequality levels in the region (OECD, 2024[2]).
Central to the issue of inequality is the region’s limited intragenerational social mobility - defined as the changes in a person’s socio-economic status during their lifetime - and the intergenerational transmission of educational and socioeconomic status. This hampers individuals' ability to enhance their socio-economic standing compared to their parents, a phenomenon known as intergenerational mobility (Brunori, Ferreira and Neidhöfer, 2023[8]). Research indicates that between 44% (in Argentina) and 63% (in Guatemala) of current income inequality can be attributed to "inherited" factors (Brunori, Ferreira and Neidhöfer, 2023[8]).
Societies with low social mobility often also show high levels of inequality. A study conducted by the Development Bank of Latin America (CAF) highlights that persistent low social mobility in the region is closely linked to the prevailing inequality. It significantly impacts individuals from various socio-economic backgrounds, adversely affecting their chances for human capital development, access to quality employment, and the ability to accumulate assets over their lifetime (CAF, 2022[9]). This is also reflected in the region’s lagging educational attainment and its workers’ low skill levels (OECD, 2021[10]). There are several ways this correlation can be interpreted. Solon's 2004 model suggests that the factors influencing intergenerational mobility - such as private returns to human capital, the progressivity of public investment in education, and transmissible factors like abilities, race, and social networks - also shape the long-term distribution of income. During the transition period, a reduction in income inequality (possibly due to changes in skill premiums or returns on education) or an increase in the progressivity of public spending on education could lead to higher social mobility (OECD, 2010[11]).
Education has the potential to be a powerful driver of upward mobility, significantly influencing earnings, employment, overall wealth, and well-being. While it can help reduce societal inequalities, it can also perpetuate them, as educational attainment levels often carry over from one generation to the next. A significant proportion of a child's educational attainment can be attributed to their parents' educational background, with parental education explaining more than 60% of the variation, even among younger generations (OECD, 2010[11]).
Despite substantial progress in educational attainment in Latin America and the Caribbean over recent decades, particularly at the primary level, where coverage is nearly universal, challenges remain at secondary and tertiary levels. On average, 35% of young people under the age of 23 have not completed secondary school, and the gross tertiary completion rate stands at only 25.1%, which is 15 percentage points below the OECD average of 40% and the global average of 30.8% (Arias Ortiz et al., 2024[12]).
The close link between educational attainment and employment outcomes perpetuates the cycle of poverty. Completing upper secondary education is generally regarded as the minimum level of education required for successful participation in the labour market for most individuals (OECD, 2021[13]). Consequently, employment rates are significantly higher among adults aged 25-64 with upper secondary or post-secondary non-tertiary education compared to those with less education. On average, in OECD countries, only 59% of adults with below upper secondary education are employed, compared to 77% of those with upper secondary or post-secondary non-tertiary education. The employment rate is even higher for adults with tertiary education, reaching 87% (OECD, 2023[14]).
Higher levels of educational attainment are generally related to greater skill levels and earnings as well. In OECD countries, adults aged 25-64 years with upper secondary or post-secondary non-tertiary education earn, on average, about 25% more annually than those without such qualifications (OECD, 2021[13]). The financial benefits associated with attaining a tertiary degree are significantly greater. On average, full-time workers with tertiary education earn nearly twice as much as those with below upper secondary education across OECD countries, but it can be over three times more in Latin American countries, such as Brazil, Chile, and Colombia (OECD, 2023[14]).
Moreover, unqualified and low-skilled workers are more likely to be employed in the informal sector. Globally, approximately 94% of individuals without formal education work in informal jobs, compared to 52% of those with secondary education and 24% of those with tertiary education. In advanced economies, the educational gap between the formal and informal sectors, where workers are at a larger risk of poverty, is notably smaller (OECD, 2019[15]).
It is also important to note that the benefits of lower inequality levels and increased social inclusion extend beyond the individual sphere. Highly educated and skilled individuals who earn higher incomes will contribute more in taxes and incur lower costs for their country's government in terms of social welfare (OECD, 2023[16]). Since the primary advantage of developed countries lies in their ability to maintain an educated and skilled workforce that adapts quickly to the advancements in manufacturing and production, high-quality formal education and skill training appear as viable means to promote development in LAC (Mercan, 2014[17]).
During the 2000s, economic growth in Latin America and the Caribbean was accompanied by educational expansion, benefiting children and youth from disadvantaged families at the lower educational levels. However, access at higher educational levels expanded more significantly for those with middle and high socioeconomic backgrounds, limiting education’s role in promoting skills and social mobility (OECD, 2021[10]).
Compared to LAC, regions such as East Asia have successfully increased general skill levels and social mobility, while reducing poverty and inequality through substantial investments in education between the 1960s and 1990s (Nancy Birdsall, 1995[18]). Countries like Singapore and South Korea transformed their economies by prioritising education, enabling large segments of their populations to move out of poverty (McMahon, 1998[19]).
The case of Korea is particularly interesting. In 1990, the country’s GDP per capita was comparable to some Latin American and Caribbean countries, like Mexico. Since then, Korea has experienced impressive growth, diverging from LAC, due to policies and investments in education that have allowed for intergenerational social mobility similar to Northern European countries (OECD, 2019[20]) (Mulakala, 2015[21]). Despite the evidence that links education and inclusive economic growth, public expenditure on education is relatively low in the region, particularly when compared to OECD countries. In 2021, Latin American governments allocated an average of 3.8% of their nations’ GDP to education, compared to 5% in OECD countries. This level of expenditure is more comparable to Western and Central Africa, which devoted 3.3% of their GDP to education that year (World Bank, 2021[22]).
This is one of the main reasons why the LAC region still faces persistent barriers to social mobility, with wealth and opportunity often remaining within the same groups across generations. Addressing these issues will require comprehensive policy reforms aimed at breaking the cycle of poverty and ensuring that economic gains and opportunities are evenly distributed across the population’s different socio-economic levels.
Investment in education behaves similarly to investment in physical capital, and LAC exhibits the highest returns (Patrinos, 2004[23]). Higher educational levels are not only associated with higher wages and increased employment, but also with lower levels of informality. Increased and more efficient investment in education can help break the cycle of poverty for children living in these informal households, especially in the wake of the COVID-19 pandemic and the region's extended school closures, which were among the longest globally. The World Bank suggests that these disruptions could lead to a 12% reduction in lifetime earnings, highlighting the urgent need to address this issue from multiple perspectives (UNICEF, 2022[24]).
While important, increasing public expenditure on education is only one part of the puzzle. If opportunities are unevenly distributed, public intervention in education can fail. Factors such as unequal access to educational services, significant differences in the quality of education between private and public schools, or constraints in access to finance can mean policies become regressive in their effect and act in practice to perpetuate inequality. As such, early childhood development (ECD) can be vital in boosting opportunities for the poor in developing countries. ECD is a precondition to ensure equal opportunities later on in life. Increased public spending on pre-school education and higher enrolment rates weaken the link between low levels of parental education and a child’s secondary education performance (OECD, 2010[11]). Narrowing the gap between public and private education can also help reduce current disparities in skills of the disadvantaged and the middle sectors with respect to the affluent. Higher returns to investments in education would reduce the drop-out rate and increase demand for education. Middle-sector parents, with much scope to increase education, would respond to such measures, especially at the secondary level. Better administration of schools, greater flexibility combined with more accountability, a modern system of evaluation and incentives for school administrators, can improve the return on current expenditures (OECD, 2010[11]).
Promoting more equitable access to education will help foster inclusive growth. The right to education entails striving for high-quality, compulsory education that ensures equality and inclusion for all students (UNESCO, 2005[25]). It is crucial to support students from disadvantaged backgrounds, often from low socio-economic status, to help them remain in education longer. Adults who complete tertiary education often have highly educated parents, but those from families with lower levels of education should receive proper support so that they can achieve their full potential (OECD, 2017[26]). Quality and equity in education are not mutually exclusive; the highest-performing countries in secondary education are those that distribute educational resources more equitably across socio-economic groups (OECD, 2013[27]).
Improving skill levels and reducing inequalities in learning outcomes in the region could also aid in the productivity underperformance that the region has displayed over the last two decades, as Latin America and the Caribbean show an important productivity gap relative to other emerging markets (IMF, 2024[28]). This lag is evident both in the OECD’s Survey for Adult Skills, known as PIAAC - which measures adult proficiency in key information-processing skills - and the Programme for International Student Assessment (PISA) - which measures 15-year-olds’ performances in mathematics, reading and science. As will be discussed in Chapter 2, the first cycle of PIAAC revealed a considerable skill gap, despite improvements in educational attainment. Chapter 3 will address the region’s performance in the 2022 PISA, which again shows underperformance relative to countries with similar income levels.
Ultimately, improved and strategically targeted investment in education is essential for fostering inclusive growth in the region. This approach must go beyond simply increasing funding; it should also address specific barriers and disparities. Effective investment can enhance educational attainment across all socio-economic backgrounds and elevate skill levels, directly tackling the productivity gap observed in Latin America and the Caribbean relative to other emerging economies with comparable educational expenditures. By implementing targeted measures alongside increased investment, the region can better address current inequalities and drive sustainable economic progress.
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