Climbing the Economic Ladder in Chile

Many advocates of further socialization of the Chilean education system claim that Chile is a country where the poor remain poor while the rich get richer. However, growing economies almost always benefits the poor more than the rich, and economist Rodrigo Castro demonstrates that people in Chile climb the economic ladder more often than people in Germany and the USA. He published his findings, Getting ahead, falling behind and standing still: Income mobility in Chile. – Mark

As an upper middle income country with a per capita GDP of $15,400 in 2010
PPP, Chile scores well on international comparisons of social indicators and remains one of the outstanding countries in Latin America in terms of its record in reducing poverty. The human development index is 0.805, which gives it a rank of 44th out of 187 countries. A combination of strong growth, sound macroeconomic policies and well directed social programs have combined to reduce headcount index in more than half during twenty years.

Despite large advances in poverty reduction, and significant increases in social expenditure, income inequality remains stubbornly stagnant. Furthermore, cross country comparisons place Chile amongst those countries with the highest gini coefficient. Even though poverty and income distribution are key to economic development, an issue that is discussed less, is inter-temporal income mobility. This is of particular relevance in the Chilean context. Just comparing income distribution across time cannot answer questions like are the poor getting poorer and the rich richer? Or, is economic growth benefiting individuals that were initially poor?

In order to answer such questions, it is necessary to perform income mobility analyses, tracking the evolution of individual incomes over time and seeing who are the winners and losers during the growth process. Therefore, using data between 90s a 00s we could compare relative income mobility between Chile, Germany and US, and perform a simple measure of immobility which is just a proportion of individuals on the diagonal of a mobility matrix.

For Chile, immobility is 41%, while Germany and US are 68.8% and 68.0% respectively. Also, we can compute share of individuals moving by one quintile and by more than two (any direction), and this might indicate patterns of dynamics. For Chile, a move by one (up or down) is 41.2%, while for Germany and US are 25.2% and 26.5% respectively. For moves higher than two quintiles, Chile is 17.6%, Germany 5.9% and for US 5.4%. Thus, from those robust numbers we can conclude that unconditional relative mobility was higher in Chile (between 1996 and 2001) than Germany and US (between 1995 and 1997).

Related Posts:
Income Inequality in Chile, Europe, and the USA
Does the Chile Economic Model Remain Intact?
Is Chile Losing the Battle of Ideas?

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