Growth and Shared Prosperity in Brazil Marcelo Neri FGV Social and - PDF document

20/03/2019 Growth and Shared Prosperity in Brazil Marcelo Neri FGV Social and EPGE/FGV With Nanak Kakwani and Fabio Vaz References: * 9 these slides http://www.cps.fgv.br/cps/bd/curso/9-Slides-Growth-and-shared-prosperity-in-Brasil.pdf ** 10 Paper http://www.cps.fgv.br/cps/bd/curso/10-Growth-and-Shared-Prosperity-in-Brazil.pdf ** Video Paper Presentation Short 4 min (Port) http://cps.fgv.br/videos/anpec-growth-and-shared-prosperity-brazil-0353 ****Video Paper Presentation Long 24 min (Port) http://cps.fgv.br/videos/anpec-growth-and-shared-prosperity-brazil-integra-2410 1 Determinants of Total Per Capita Income Distribution – Labor Earnings Contribution to Annual Growth Rates By Segments 2004-14 9% 8% 7% 6% 5% 4% 3% 4,95% 4,46% 2% 3,82% 3,57% 3,00% 1% 0% 10%- 40%- 40% a 90% 10%+ Média -1% Mean Trabalho Labor 1

20/03/2019 Determinants of Total Per Capita Income Distribution – By Income Sources Contribution to Annual Growth Rates By Segments 2004-14 9% Labor SS above MW Other Incomes 8% Social Security (SS) up to MW Social Tranfers Bolsa Família 7% 2,47% 0,80% 6% 0,28% 0,06% 0,89% 0,11% 5% 0,72% 0,14% 0,66% 0,57% 4% 0,49% 0,32% 0,50% 3% 0,03% 4,95% 4,46% 2% 3,82% 3,57% 3,00% 1% 0% -0,02% 10%- 40%- 40% a 90% 10%+ Média -1% Trabalho Outras Previdência até 1 SM Previdência acima 1 SM Transferencias Sociais - BF Social Security benefits identification can be decomposed in those above the Minimum Wage (MW) and those equal to 1 MW A Simple Indicator of Shared Prosperity = the 10th SDG Suppose x is the income of an individual which is a random variable with density function f(x), then the mean income of the population is defined as: (1) The idea of shared prosperity (SP) is simply the mean of the bottom 40% of the population. More formally, suppose z is the income defined by: then the Shared Prosperity (SP) indicator is defined by: (2) which shows that the Shared Prosperity (SP) indicator is a weighted average of individual incomes. New SDGs focuses on the bottom 40% of the population. The idea is that a large proportion of the population should take part in and benefit from the growth process. 4 2

20/03/2019 A General Social Welfare Function Decomposition Following Atkinson (1970), we can write a general social welfare function denoted as: where x* is the equally distributed equivalent level of income which, if given to every individual in the society, results in the same social welfare level as the actual distribution of income. Sen (1974) developed a social welfare function taking into account the relative deprivation suffered by the poor relative to the non-poor in the society. If u(x) = x and w(x) =2 [1 – F(x)] then applying Atkinson certainty equivalent idea it can be written as: where is the mean income of the society and is the Gini Index. 5 A Simple Indicator of Shared Prosperity Applying the same decomposition the SP welfare indicator can be written as: (3) Where like other measures of social welfare defined over individual incomes such as Atkinson’s (1970), it has an implicit (relative) inequality measure, defined as: (4) 6 3

20/03/2019 Prosperity and Inequality in Brazil 2001 - 2013 Average and Shared Prosperity and Inequality in Brazil Table 1: Average and Share Prosperity in Brazil: R$ per year Average Shared Absolute Relative Year prosperity prosperity inequality Inequality (%) 7717 1581 6136 2001 79.52 7725 1644 6081 2002 78.72 7272 1577 5695 2003 78.31 2004 7514 1736 5778 76.89 7976 1870 6106 2005 76.55 8724 2113 6611 2006 75.78 8945 2198 6747 2007 75.43 9373 2405 6968 2008 74.34 2009 9630 2481 7149 74.24 10235 2791 7444 2011 72.73 2012 11020 3068 7952 72.16 11405 3169 8237 2013 72.22 Trend 2001-2013 341.11 142.02 199.09 -0.63 7 Source: Author’s calculation from PNAD/IBGE microdata Shared Growth (3) The idea of shared growth is now developed. To do so write (3) as: (5) which on taking the first difference gives: (6) where the first term is the growth rate of shared prosperity, the second term is the growth rate of average prosperity and g is the growth rate of equity in shared prosperity, which will be positive (negative) if equity in shared prosperity is increasing (decreasing). Thus, there will be a gain (loss) in growth rate when equity is improving (deteriorating). 8 4

20/03/2019 Average and Shared Prosperity Annual Growth Rates of Average (AP) and Shared Prosperity (SP) – percentage points (p.p.) 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 -5 AP SP -10 10 9,46 Growth for Sub-periods 8 7,39 Everybody in The Middle Path 6,34 surveys 5,8 6 5,41 3,43 4 3,26 3,23 2,76 2,54 2,31 2,07 2 0,93 0 -0,2 2001-2013 1992-2001 -0,45 2012-2013 2011-2012 2011-2013 -2 AP SP Gain/Loss 9 Source: Author’s calculation from PNAD/IBGE microdata Income Sources as Determinants of I Shared Growth Trends in Brazil Suppose is the AP in year t and is the mean of the ith income component in year t. (15) Then it can be showed that: (16) which shows that the growth rate of AP is the weighted average of the growth rates of individual income components - the weights being proportional to the average of income shares in each period. This equation informs the magnitude of contribution of each income component to the growth rate of AP. Similarly, we can explain the contribution of each income component to growth rate of SP using: (17) where is the SP in year t and is the mean of the ith component of the bottom 40% of the population in year t. This equation informs the magnitude of the contribution of each income component to the growth rate of SP. Shared growth is defined as the gain/loss in the growth rate of the SP, which is the difference between the growth rates of SP and AP. The difference of growth in (16) from (17) provides the contributions of each income component 10 to shared growth. 5

20/03/2019 Which source of income contributed Making a long story short: Lego type decomposition the most to growth in total income? of growth rates 2001 - 2013 Contribution of Income Sources to Growth by Different Income Groups in annualized p.p. Middle AP 10% SP - 40% Group 40%- 5% Richest Mean Poorest Poorest 90% Labor 2.47 2.63 3.86 2.78 1.82 Non-Labor 0.79 3.74 1.93 1.05 0.19 Total 3.26 6.37 5.80 3.82 2.01 At this growth pace, it would take 29.5 years at this rate for the 5% richest to double its income against 11.3 years for the 40% poorest. 11 Source: SAE from PNAD/IBGE microdata Which non labor source of income contributed 2001 – 2013 the most to growth in total income? Contribution of Income Sources to Growth by Different Income Groups in annualized p.p. 2001-2013 10% 40% Middle Mean 5% Richest Poorest Poorest Group Labor 2.47 2.78 1.82 2.63 3.86 BPC 0.09 0.19 0.28 0.12 0.00 S. Security 0.68 0.34 0.88 0.95 0.28 Other 0.07 3.42 0.82 0.03 -0.05 (including BF*) Total 3.26 6.37 5.80 3.82 2.01 10% - 40% - 2001-2012 Mean 5% + Poorest Poorest *To detect Bolsa Familia benefits we have to use pressure points in the distribution, but this possibility was impaired by poverty gap approach adopted recently Bolsa Família 0.10 3.29 0.83 0.00 12 Source: SAE from PNAD/IBGE microdata 6

20/03/2019 PNAD Individual Income Questions Main Labor Earnings: there is also secondary Distribuição do Nível de Benefícios Previdenciários 500 450 400 Distribution of Individual 350 Social Security Benefits 300 Above 1 MW 250 = 80% total 200 1 MW = 60% beneficiaries benefits 150 100 50 0 1 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 13 1996 1997 1998 1999 Pro-Shared Prosperity Index (Targeting Efficiency) and Concentration Curves Different Sources 2012 Year Labor BFP BPC S-security Other Total PSPI - 2012 0.94 7.09 3.25 0.84 0.88 1.00 The concentration curve of the Bolsa Família differs from other sources of income 1.00 Total = Each R$ generates more Equality per capita Bolsa Família Income 0.80 BPC Cumulative Income Poverty 0.60 Other incomes Labor 0.40 Social Security 0.20 0.00 Cummulative Population 0.00 1.00 Labor Social Security Other Incomes BPC Bolsa Família Total per capita Income 14 Source: SAE from microdata of PNAD/IBGE 7

20/03/2019 Income Complementation: Vanishes BF Pressure Points Per capita family Income (U$) Benefits variable across families: Poorer get continuously higher benefits Poverty Line US$ 1,25 PPP day Poverty Gap= BF Benefit 0 5 10 15 Population Bolsa Familia before 2012 had payments schedule like stairs notlike ramp: For example benefits equals to 70 per familly plus school conditionality of 15 R$32 for a children 6-15 in school = R$ 102 (pressure point) Labor Deconstruction Per Capita Labor Income in the total population can be expressed as: Total Labor Occupied = Mean Earnings of * Population Earnings those with Earnings We can continue decomposing each peace of the identity in elements, what helps to understand the relative weight of each labor ingredient. OCUP/ Mean Labor MEAN EAP/ WORKING x = x x EARNINGS EAP POP Earnings HOURS HOURs Weekly Occupation Participation Average Hourly Effort in the Rate Wages Economically Active Population (EAP) 16 8