Economic growth, employment and poverty reduction: A comparative analysis of Chile and Mexico

Employment Working Paper No. 78

This study attempts to explain the evolution of poverty and income concentration in Chile
and Mexico. It focuses on the impact that changes in the rates and pattern of economic
growth have had on poverty. These changes have brought about the following: i) a
reduction in the GDP elasticity of demand for labour; ii) the decline of the labour intensity
of GDP and an increase in its capital intensity; iii) the decline or stagnation of tradable
sectors as a source of total GDP and total employment; iv) the contraction of total demand
for labour. Since the rise in labour productivity was not accompanied by an increase in total
production, there was a sustained reduction of the GDP elasticity of employment, which
resulted in poverty. The growth path of the economy does not, therefore, seem to have been
the main factor that contributed to the reduction in poverty observed in the years leading up
to the financial crisis of 2008-09. In the final sections, we explore the relation between
social policies and poverty alleviation.
The economic crisis severely affected Chile and Mexico in 2008 and 2009. It brought
increased unemployment and inflation in its wake, reducing incomes and partially wiping
out the feeble gains in poverty alleviation and income distribution obtained during the
2002-07 period. We have updated, to the best extent possible, the statistical content of the
study to capture the impact of the crisis on job creation and poverty.