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Widening Social Gaps

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6 May 2002|Press Release

The social lags and poor income distribution that characterise Latin America and the Caribbean have worsened during the third phase of globalization, according to the Economic Commission for Latin America and the Caribbean (ECLAC) in the paper Globalization and Development, that it will present this week to member countries at its 29th Session, being held in Brasilia.

The paper adds that 'education, employment and social protection are the pillars of a proactive social policy,' because globalization increases the need to develop international competitiveness and brings with it new sources of social risk. These are the three critical areas, it suggests, 'in which virtuous circles can be generated that enhance capacity for participating in the globalized world and for constructing and benefiting from economic development.'

The educational gap between this region and Asia's developed and developing economies, which started further behind, has widened in terms of secondary and higher education and learned skills. This has occurred despite the progress made by Latin American and Caribbean countries toward universalising primary education and improving secondary education coverage to reach an average 70%, although with some disparities (90% in Chile and less than 45% in some Central American countries).

ECLAC finds it worrisome that the gaps in coverage and quality in secondary and higher education among high- and low-income groups within the region continue to widen. 'Highly stratified access to education reproduces income inequalities, instead of correcting them; and this, together with its effects on labour market participation and potential for upward mobility, partly explains the high degree of rigidity that exists in the region's current social structure,' according to the report.

Along with recognizing that many countries have made an effort to provide their schools with information technology support, the report indicates that these efforts must redouble because school has become key to overcoming the 'domestic digital divide', which is even more threatening than the international gap.

Public expenditure on education, estimated as a percentage of GDP, rose from 2.9% in 1990-1991 to 4% in 1998-1999, but is still not enough if compared to the investment in education made by OECD countries, which stands at around 5% of GDP. ECLAC believes it is important to increase resources for education and ensure they are sustained during crises so that future workers can increase productivity. New technologies and working methods require more and more creativity, initiative and versatility, and less specialization. 'The development of basic competencies, rather than specific skills, will give workers a knowledge base that will enable them to adapt more easily to the demands of new jobs,' the report indicates.

Employment is the most important link between economic and social development, accounting for 80% of household income in Latin America and the Caribbean. Creating quality jobs is a serious problem in the region, as is demonstrated by growth in open unemployment, and above all, in informal sector employment.

According to ECLAC, today 'The creation of new jobs is only sustainable when economic activities are competitive in the long run'. This makes it necessary to raise productivity, come up with strategies to increase investment in human resources, and avoid boosting productivity simply by reducing labour costs or having wage increases concentrate solely in areas posting stronger growth or with more organized workers.

Employment in Mexico and Central American countries rose more rapidly (3.7% per year during the 1990s) in countries specializing in manufactured exports, than in South American countries (2.9% per year in the same period), where exports of natural resource-based products were more important. This shows that job creation opportunities depend on countries' specialization. In the north, wage-earning employment rose more than independent labour. That contrasts with weak labour demand in the countries of the south, where job creation focused more on independent labour.

The gap between the least and the most educated workers also widened, due to changes brought by communications and information technologies and productive patterns. Service restructuring and expansion generated very polarized demand for personnel. In some services, highly qualified personnel were much needed, while others offered mainly precarious jobs for less skilled workers.

ECLAC notes that globalization generates demand for more flexible working systems as a requirement for job creation. The downside is that it encourages and permits the creation of poor quality employment, which is reflected in the increase in jobs in the informal sector and temporary jobs, along with a reduction in social security coverage of workers employed in small firms. In some countries, the number of workers without contracts has also risen.

Social protection also presents some deficiencies in terms of coverage and the new risk structure that has come with globalization. The region's backwardness in terms of traditional risk coverage (for illness, old age, disability and death, and even nutrition, housing and education) has worsened due to the need to provide protection from new problems, among them job and income insecurity.

ECLAC considers the vulnerability of poor sectors or those close to the poverty line in the face of precarious employment and household income to be 'extremely high'. One out of every three households, that is 44% of the population of Latin America and the Caribbean, live in poverty, and in most countries some 25% to 30% are at very high risk of falling into poverty.

Pronounced economic cycles and rigid wages, worsened by inflation controls, translate into greater vulnerability for wage earners facing variations in the economic cycle. As most protection systems are based on wage-paying employment, it is necessary to organize a social protection program that does not depend on having a formal job, and create a more universal form of unemployment insurance.

According to the report Globalization and Development, 'The extent and depth of social and economic risk in the region raises doubts about its fiscal capacity to meet the requirements of social risk management.'

ECLAC proposes active social policy combined with national social strategies ranging from universal coverage through secondary education, and including efforts to reduce differences in quality. In terms of employment, it suggests several measures for avoiding a decline in wages and working conditions. Finally, in terms of social protection, it encourages the region's countries to be ruled by the principles of universal coverage, solidarity, efficiency and integration. Because the extent of informal employment and unemployment impose limits on universalizing social protection based on traditional schemes, one priority is to create combined and complementary insurance programs that are consistent with the many different kinds of links to the workforce.