Weight of Economic Crisis Will Fall On Lowest Income Groups
Higher unemployment and lower remittances expected in 2009 will impact poorest households.
(22 December 2008) The weight of the economic crisis will be felt most by the lowest income households in Latin America and the Caribbean more than by any other group. The economic slowdown expected in 2009 will bring with it a rise in unemployment and a drop in remittances.
Under the current circumstances -with regional growth dropping from an average 4.6% in 2008 to 1.9% in 2009, and an unemployment rate expected to rise from 7.5% to 7.8%-8.1% next year-, low-income households are expected to bear the additional brunt of falling remittances and domestic prices.
For the great majority of households in the region, the main impact will be felt in the labour market. The projected fall in employment in 2009 will affect particularly the lowest income groups because they count with fewer wage earners per household. The loss of jobs in low-income households implies proportionally a greater drop of their already low incomes.
In contrast, urban households in the three highest quintiles have an average of two wage earners, so that even if they lose one job, at least they continue to count with another full income.
Rural areas present the most serious situation, where households of the poorest quintile have an average of only one wage earner. Households headed by women are especially vulnerable, given that they have a lower number of potential workers.
Moreover, poor households face enormous risks of losing their sources of income, given that their members often work in areas that are very sensitive to the international situation, such as construction and domestic help.
Remittances sent by migrant workers to their home countries tend to have a positive impact on income distribution, since they benefit low and medium-low income groups and stimulate consumption and investment. The expected drop in remittances as a consequence of the economic slump of originating countries will have a significant negative impact on the welfare of these households.
Rising inflation in 2008 also had a negative distributive impact, given that most inflation was due to the steep hike in food prices, affecting proportionally more low-income groups.
In light of this situation, ECLAC asserts that public policymakers not only face the challenge of implementing countercyclical measures to stabilize economic growth, but also of developing instruments to shield the most vulnerable sectors of the population from the effects of the crisis. Undoubtedly, policy options vary from country to country, according to their specific situation.