Poor households suffer more than twice labour inactivity - IDESA

Report Nº: 77604/10/2018

Poor households suffer more than twice labour inactivity

Besides the economic crisis, poverty roots are structural. One is the high proportion of poor household members that do not work. For this reason, it is key that the federal government concentrates in generating employment instead of squandering public funds in poverty alleviation programs which are a provincial responsibility. The INDEC indicated that by the […]

The INDEC indicated that by the first semester of 2018, poverty had reached 27.3% of the population. Slightly lower than the first semester of 2017, which was 28.6%, and slightly higher than the second semester of 2017, which was 25.7%. Strictly speaking, these differences must be taken with caution because the poverty measure still suffers from many weaknesses. In particular, 20% of the households that make up the sample used to measure poverty are excluded from the estimate because some of their members do not declare all their incomes. This makes it advisable to take the poverty measurement as approximate and tentative.

Another INDEC report, referred to income distribution, provides some other revealing evidence regarding the causal factors that may help explain poverty. A particular one is the amount of household members who generate income through their work in relation to those members who do not contribute monetarily to the support of the family because they are inactive.

According to the Technical Report “Evolution of income distribution” of the INDEC it is observed that:

• In the household average, for each member inserted in the labor market, there are 1.4 members who do not work.
• Among the 30% of low-income households (poor population) there are 2.5 members who do not work for every occupied member.
• Among the 30% of higher-income households there is less than 1 person who does not work for every person who works.

These data show that a distinctive characteristic of poor households is high labor inactivity. Workers in poor families support more than twice as many dependents as those in higher-income households. The problems are exacerbated by the fact that they also receive much lower wages and, in most cases, in the informal sector. Among poor families, only half of their income comes from an employment source, while the rest comes from non-labor sources, in general, social transfers and charity. On the other hand, among 30% of households with the highest incomes, almost 80% of their income comes from a labor source, while only 20% come from non-labor sources and, mainly, come from retirements, pensions and rents.

It is confirmed that social transfers, at best, provides palliatives but is not an effective tool for social promotion. The most powerful instrument against marginality is employment opportunities. Therefore, beyond the fact that the crisis increases the demand for programs that directly help the most vulnerable sectors, it is essential not to lose sight that the deepest roots of poverty are the limitations of families to generate sufficient labor income. Therefore, the best policies for poverty are those that favor jobs generation.

This has important connotations in the organization of the public sector. As Argentina is a federal country, the role that the federal state is to guarantee a stable macroeconomic framework and tax and labor institutions that do not discourage the generation of jobs, especially for less qualified and less labor experienced people. On the other hand, it does not help to reduce poverty if the federal government interferes in social interventions that are provincial and municipal responsibilities, such as basic public education, early childhood care, poverty alleviation and labor market intermediation.

In this sense, it is positive that draft budget 2019 assumes as a central objective to stabilize the macroeconomics, but it is questionable that it leaves pending the reorganization of the public sector. Particularly negative is the fact that, in order to preserve inefficient and overlapped federal programs with provincial and municipal functions, taxes on the economic activity are increased and the modernization of tax, labor and social security institutions delayed.


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