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Growth, Employment, and Poverty in Latin America$

Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz

Print publication date: 2017

Print ISBN-13: 9780198801085

Published to Oxford Scholarship Online: June 2017

DOI: 10.1093/oso/9780198801085.001.0001

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Costa Rica

Costa Rica

Chapter:
(p.232) 12 Costa Rica
Source:
Growth, Employment, and Poverty in Latin America
Author(s):

Guillermo Cruces

Gary S. Fields

David Jaume

Mariana Viollaz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198801085.003.0012

Abstract and Keywords

In the 2000s, Costa Rica experienced moderate economic growth and a general improvement in labour market conditions. From 2000 to 2012, Costa Rica grew at the Latin American average. Most labour market indicators improved during 2001–9 and 2010–12 (the series with comparable data). However, the unemployment rate increased in both periods, the mix of employment by occupations polarized from 2010 to 2012, and some poverty and inequality indicators increased from 2010 to 2012. The international crisis had substantial negative effects on the economic growth rate, unemployment, poverty, and inequality indicators, and not all of them recovered after the crisis.

Keywords:   Costa Rica, economic growth, labour market indicators, unemployment, poverty, inequality

12.1 Introduction

This chapter on labour markets and growth in Costa Rica since 2000 is one of sixteen studies of Latin American countries, each of which analyses the growth–employment–poverty nexus and aims to answer the following broad questions: Has economic growth resulted in economic development via improved labour market conditions in Latin America in the 2000s, and have these improvements halted or been reversed since the Great Recession? How do the rate and character of economic growth, changes in the various labour market indicators, and changes in poverty relate to each other?

To answer these questions, we analyse the growth experience of Costa Rica during the 2000s and a wide set of labour market indicators that we assign to one of two different categories: employment and earnings indicators, and poverty and income inequality indicators. More specifically, for the group of employment and earnings indicators we construct statistics on the following variables: the unemployment rate; the employment structure by occupational group, employment position, economic sector, registration of workers with the social security system, and educational level; and mean labour earnings and hourly wages. We present all these indicators for the employed population as a whole and for different population groups (youth, adults, men, and women). For the group of poverty and income inequality indicators, we compute poverty rates using the official moderate and extreme poverty lines and the international lines of 2.5 and 4 dollars a day. We also calculate the Gini coefficient of household per capita income and labour earnings.

All the statistics in this chapter are obtained using microdata from the Encuesta de Hogares de Propósitos Múltiples (EHPM) from 2001 to 2009, and Encuesta Nacional de Hogares (ENAHO) from 2010 to 2012. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin America (p.233) and the Caribbean (CEDLAS and World Bank 2014).1 The resulting labour market indicators were compiled into a large number of tables and figures, which are available in an earlier version of this study (henceforth, Cruces et al. 2015). Chapter 1 of this book provides the definition for each of the indicators we analyse here, while Cruces et al. (2015) includes details on definitions and classification systems used by Costa Rica’s household surveys, and on comparability issues of these surveys over time.

12.2 Economic Growth

Costa Rica achieved moderate and sustained economic growth in the 2000s, except for the international crisis of 2008, from which it quickly recovered, surpassing pre-crisis GDP levels by 2010.(Cruces et al. 2015: figures 1 and 2)

From 2000 to 2012, the Costa Rican economy grew at an average rate by Latin American standards. GDP per capita (measured in 2005 PPP dollars) increased by 37.4 per cent, while the average for the region’s eighteen countries was 36.2 per cent during the same period. GDP (measured in 2005 PPP dollars) grew by 68.1 per cent, and GDP per employed person rose by 21.1 per cent. The annual growth rate of GDP per capita was 2.5 per cent, and it varied from a minimum of −2.5 per cent in 2009 to a maximum of 7.0 per cent in 2006 (Table 12.1).

Table 12.1 Costa Rica: Evolution of growth and labour market indicators over the 2000s

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Growth Indicators

GDP per capita

8,116

8,032

8,102

8,462

8,666

9,019

9,649

10,250

10,369

10,110

10,456

10,763

11,156

Costa Rica

GDP per capita growth rate

−0.48

−1.04

0.88

4.43

2.41

4.08

6.99

6.22

1.16

−2.49

3.42

2.94

3.65

Costa Rica

Employment and Earnings Indicators

Employment-to-population ratio

56.62

56.01

56.06

55.09

57.19

57.09

58.65

57.90

55.75

54.79

56.02

55.42

Costa Rica

Unemployment rate

6.04

6.39

6.65

6.44

6.63

5.92

4.55

4.93

7.82

7.29

7.66

7.77

Costa Rica

Share of low-earnings occupations

47.48

48.26

47.86

47.17

47.51

46.58

45.98

43.95

44.27

47.46

48.15

Costa Rica

Share of mid-earnings occupations

28.79

28.34

27.66

28.46

28.03

28.55

28.75

28.53

27.89

26.50

25.20

Costa Rica

Share of high-earnings occupations

23.73

23.40

24.48

24.37

24.46

24.87

25.26

27.52

27.85

26.04

26.65

Costa Rica

Share of employers

8.03

7.93

8.65

8.16

7.50

7.75

7.26

7.52

7.22

3.37

3.72

3.56

Costa Rica

Share of wage/salaried employees

69.06

68.53

69.58

68.84

71.56

70.85

73.17

72.95

72.77

76.11

76.00

76.09

Costa Rica

Share of self-employed workers

20.38

20.80

19.35

20.77

18.90

19.42

17.93

18.06

18.52

18.87

18.77

18.69

Costa Rica

Share of unpaid family workers

2.54

2.74

2.42

2.24

2.04

1.97

1.64

1.46

1.49

1.65

1.50

1.66

Costa Rica

Share of workers in low-earnings sectors

28.96

28.75

27.52

27.40

28.94

27.71

26.45

24.72

24.14

28.00

27.10

26.44

Costa Rica

Share of workers in mid-earnings sectors

44.83

44.91

45.66

46.32

45.28

46.28

46.98

47.22

47.04

43.79

44.44

43.30

Costa Rica

Share of workers in high-earnings sectors

26.21

26.34

26.82

26.28

25.78

26.01

26.57

28.06

28.82

28.21

28.46

30.26

Costa Rica

Share of low-educated workers

57.32

55.40

53.23

53.27

53.38

52.25

51.06

49.08

47.55

50.03

48.80

46.53

Costa Rica

Share of medium-educated workers

27.00

28.15

29.63

29.45

29.03

29.10

30.27

30.90

31.68

30.81

31.47

32.61

Costa Rica

Share of high-educated workers

15.68

16.45

17.14

17.28

17.59

18.64

18.67

20.02

20.77

19.16

19.73

20.85

Costa Rica

Share of workers registered with SS

50.70

50.53

50.35

51.31

50.68

51.23

53.47

54.69

55.26

55.65

54.58

56.06

Costa Rica

Mean labour earnings

749.7

736.3

740.3

694.7

675.3

703.5

764.7

784.8

832.2

794.1

812.0

833.0

Costa Rica

Poverty and Inequality Indicators

Official extreme poverty rate

7.1

7.0

6.7

6.7

5.6

5.6

3.5

4.3

5.1

5.7

5.9

5.9

Costa Rica

Official moderate poverty rate

20.3

20.6

18.8

20.3

20.5

19.1

15.8

17.0

18.5

25.9

25.3

24.0

Costa Rica

Poverty rate 2.5 dollars a day

13.78

13.55

13.07

12.26

10.76

10.58

7.27

6.87

7.46

4.53

5.09

4.73

Costa Rica

Poverty rate 4 dollars a day

26.72

26.45

24.87

25.93

23.07

22.98

17.88

17.01

17.42

12.70

13.01

2.18

Costa Rica

GINI of household per capita income

0.501

0.500

0.492

0.482

0.473

0.489

0.492

0.486

0.504

0.480

0.485

.485

Costa Rica

GINI of labour earnings

0.464

0.463

0.454

0.435

0.440

0.454

0.459

0.455

0.459

0.466

0.477

0.471

Costa Rica

Note: The shaded labour market indicators’ figures represent statistical significant improvements at 5 per cent between the initial and final years for all the employment and earnings indicators and poverty and inequality indicators. The only exceptions are the share of mid-earnings occupations, share of mid-earnings sectors, and share of medium-educated workers for which we did not assign welfare evaluation criteria. The vertical lines indicate that the series 2001–9 and 2010–12 are not comparable due to changes in the household survey.

Source: SEDLAC (CEDLAS and World Bank 2014) and World Development Indicators (World Bank 2014).

The early part of the period was marked by minimal growth in the Costa Rican economy. GDP growth rates were 1.8 and 1.1 per cent in 2000 and 2001, while GDP per capita fell by 0.5 and 1.0 per cent during the same period. The poor performance of the Costa Rican economy reflected the deterioration in the terms of trade, the end of the construction phase of a large foreign direct investment project by INTEL, and the effect of high real interest rates on domestic demand (IMF 2002). The economy gained momentum quickly. Exports, mainly those from offshore manufacturing and service activities with high technological content, led the rise in output, followed by domestic demand, which increased through a substantial acceleration of private investment and consumption, and by the boom in construction (IMF 2006, 2008). The average annual growth rate of GDP per capita was 4.2 per cent from 2002 to 2007, while GDP increased by 6.0 per cent a year during the same period.

The international crisis of 2008, referred to below as the Great Recession, had an impact on the Costa Rican economy. There was a slowdown in 2008, when GDP per capita grew by just 1.2 per cent, and negative growth rates in 2009, when GDP per capita fell by 2.5 per cent and overall GDP by 1.0 per cent. (p.234) (p.235) (p.236) GDP contraction was driven by a sharp fall in exports and incomes from tourism, the sectors most dependent on external conditions (ECLAC 2009). However, Costa Rica recovered quickly. In response to the downturn, the authorities implemented a fiscal stimulus plan (Plan Escudo) which included the coverage expansion of the cash transfer programme Avancemos, interest rate reductions in the housing sector, increases in non-contributory pensions, and public works stimulus (ILO 2013). Between 2010 and 2012, the rate of GDP per capita growth stabilized at around 3.3 per cent.

The sectoral composition of GDP changed significantly from 2000 to 2012 as the share of the service sector grew and the shares of agricultural and industry sectors decreased. The service sector was by far the largest in terms of share of the GDP over the period, followed by the industrial and agricultural sectors. The share of services in GDP increased from 58.5 per cent in 2000 to 68.6 per cent in 2012 (Cruces et al. 2015: table 2). The expansion of the service sector was related to the increase in foreign direct investment directed at this sector (for instance, tourism-related companies are foreign-owned), which led to an important growth of service exports in total Costa Rican exports (Martinez et al. 2008). The share of the industrial sector declined from 32.1 per cent in 2000 to 25.1 per cent in 2012. The share of the agricultural sector shrank over the period from 9.5 per cent in 2000 to 6.3 per cent in 2012. The economic crisis of 2008 affected mainly the industrial and agricultural sectors, which lost 3.2 per cent and 2.8 per cent of their value added respectively from 2008 to 2009. By contrast, the production of the service sector increased during the crisis. Both the industrial and agricultural sectors recovered their value-added levels in 2010.

The following labour market and income distribution data for Costa Rica are analysed separately for the 2001–9 and 2010–12 periods due to comparability problems arising from a change in the household surveys’ sampling frame, a change in the method for measuring incomes, and a change in the poverty lines.

12.3 Unemployment

The unemployment rate increased from 2001 to 2009 and remained essentially unchanged from 2010 to 2012 overall and for all population groups. Within the period, the unemployment rate increased from 2001 to 2005, diminished between 2005 and 2007, increased during the international crisis, and barely changed afterwards. (Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) increased overall, rising from 6.0 per cent in 2001 (98,684 unemployed (p.237) persons) to 7.8 per cent in 2009 (165,510 unemployed persons), and from 7.3 per cent in 2010 (149,532 unemployed persons) to 7.8 per cent in 2012 (169,490 unemployed persons) (Table 12.1). Both the number of persons in the labour force and the number of employed persons increased from 2001 to 2009 (an increase of 480,894 and 414,068 persons respectively) and from 2010 to 2012 (a growth of 130,049 and 110,091 persons respectively). These figures suggest that the increase in the unemployment rate over the period was explained by the new entrants into the labour market who could not find a job. Initially, the unemployment rate exhibited an upward trend between 2001 and 2005; it decreased between 2005 and 2007, and peaked at 7.8 per cent during the international crisis. After the Great Recession, and as GDP growth slowed relative to the pre-recession years, the unemployment rate oscillated at around 7.6 per cent in 2010–12.

The unemployment rate increased for youth and adults and for men and women between 2001 and 2009, and remained largely unchanged between 2010 and 2012 for all population groups except for young workers who exhibited an increase in their unemployment rate. All population groups were severely affected by the international crisis and their unemployment rates increased between 2008 and 2009. Following the crisis, the unemployment rate stagnated for adult workers, men, and women, and continued to increase for young workers.

12.4 Job Mix

The composition of employment by occupational group improved from 2001 to 2009, with workers moving from low-earning and middle-earning occupations to high-earning occupations, and polarized between 2010 and 2011 (the latest we can analyse the series of occupations). Adult workers, men, and women exhibited similar trends over the period, while young workers improved their employment structure between 2001 and 2009 but suffered a worsening between 2010 and 2011. During the international crisis, the distribution of employment by occupational group changed very little overall and for adults, men, and women, and deteriorated for young workers. (Cruces et al. 2015: figure 4)

Between 2001 and 2009, the structure of employment by occupational group improved. Specifically, the share of low-earning occupations in total employment (elementary, services and sales occupations, and agricultural, forestry, and fishery jobs) dropped from 47.5 to 44.3 per cent; the share of middle-earning occupations (clerical, crafts and related trade workers, and plant and machine operators and assemblers) decreased slightly from 28.8 to (p.238) 27.9 per cent; and the share of high-earning occupations (management, professional, and technicians) rose from 23.7 to 27.9 per cent (Table 12.1). During the international crisis, between 2008 and 2009, the composition of employment by occupational group remained essentially unchanged, but after the Great Recession, some polarization occurred in the occupation space. The share of middle-earning occupations decreased, while the shares of low- and high-earning occupations increased by a similar magnitude between 2010 and 2011.

Adult workers, men, and women benefited from the improvement in the employment structure by occupational group between 2001 and 2009, exhibited small changes during the international crisis, and experienced a polarization between 2010 and 2011. Young workers exhibited an improvement in their employment composition by occupational group between 2001 and 2009, and a deterioration during and after the international crisis.

The employment structure by occupational position improved between 2001 and 2009 overall and for all population groups. The international crisis of 2008 led to an increase in the share of low-earning positions in total employment in the aggregate and for young workers and women, but did not affect adversely the composition of employment for adults and men. The improving trend resumed between 2010 and 2012 for young workers, while the structure of employment by occupational position remained unchanged in the aggregate and for adults, men, and women. (Cruces et al. 2015: figure 5)

Between 2001 and 2009, the employment structure by occupational position improved through a reduction in the share of low-earning positions (self-employed and unpaid workers) in total employment (drop of 2.9 percentage points) and an increase in the share of high-earning positions (wage/salaried employees and employers) (Table 12.1). The improvement was explained by the increase in the share of wage/salaried employees in total employment, the main occupational position in the Costa Rican labour market. The international crisis of 2008 led to a slight deterioration in the composition of employment by occupational position through the reduction in the share of both employers and wage/salaried employees in total employment (total drop of 0.5 percentage points) and the increase in the share of self-employment. The worsening in the employment composition can be understood in the context of increasing unemployment where economic necessity may have compelled workers to take up free-entry self-employment activities. Between 2010 and 2012 the structure of employment by occupational position remained largely unchanged.

The employment structure by occupational position improved from 2001 to 2009 for all population groups and suffered a worsening during the international crisis, except for adult workers and men whose composition of (p.239) employment remained essentially unchanged. Between 2010 and 2012, the structure of employment by occupational position barely changed, except for young workers who exhibited an improvement.

The employment composition by economic sector improved over the course of the period studied. Youth particularly benefited, but so did adults, men, and women. The international crisis of 2008 did not affect adversely the improving trend in the composition of employment by economic sector overall and for all population groups, but young workers and men suffered an increase in the share of low-earning sectors. (Cruces et al. 2015: figure 6)

The share of low-earning sectors in total employment (domestic service, primary activities, and low-tech industry) diminished by 4.8 and 1.6 percentage points from 2001 to 2009 and from 2010 to 2012 respectively. At the other end of the scale, there were increases in the share of high-earning sectors in total employment (public administration, education and health, and skilled services) of 2.6 and 2.1 percentage points over the same periods. The share of middle-earnings sectors (high-tech industry, construction, commerce, and utilities and transportation) increased between 2001 and 2009 (rise of 2.2 percentage points) and suffered a slight decrease between 2010 and 2012 (drop of 0.5 percentage points) (Table 12.1). Despite the fact that the growth process of Costa Rica during the 2000s was mainly based on offshore manufacturing and services activities with a high content of technology, the share of the high-tech industry sector in total employment fell both between 2001 and 2009 and between 2010 and 2012. The reason is that the new jobs created by offshore activities for skilled workers mainly were not numerous enough to compensate for the decline of the manufacturing sector as a whole in total employment (Ernst and Sánchez-Anchorena 2008). The international crisis of 2008 did not impact on the improving trend in the employment structure by economic sector that was taking place. The share of low-earning sectors fell by 0.6 percentage points between 2008 and 2009, while the share of high-earning sectors increased by 0.8 percentage points. The continued improving trend in the employment structure by sector during the international crisis can be explained by the large impact of the crisis on the agriculture and industry sectors, which are classified as low-earning sectors in the Costa Rican economy. As such, the share of low-earning sectors in total employment continued to decrease during the crisis episode.

All population groups benefited from the improving trend in the employment composition by economic sector over the period studied, and young workers and men benefited more than adult workers and women. The international crisis of 2008 did not adversely affect the improving trend in the employment structure by economic sector for adult workers and women. Young workers and men suffered an increase in the share of low-earning (p.240) sectors in total employment between 2008 and 2009, but that increase was surpassed by the increase in the share of high-earning sectors.

The educational level of the employed population improved over the period for all population groups, especially young workers. The economic crisis did not have an effect on this improving trend. (Cruces et al. 2015: figure 7)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 57.3 per cent in 2001 to 47.6 in 2009, and from 50.0 per cent in 2010 to 46.5 per cent in 2012. The shares of employed workers with middle and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 27.0 to 31.7 per cent and from 15.7 to 20.8 per cent between 2001 and 2009 respectively. The improving trend continued between 2010 and 2012 when the share of employed workers with medium educational levels increased from 30.8 to 32.6 per cent, and the share of employed workers with high levels of education increased from 19.2 to 20.9 (Table 12.1). The improving trend in the educational level of the employed population was not affected by the international crisis of 2008.2 We interpret this result as an improvement for the employed population as the level of education is an important predictor of labour earnings. Consequently, the changes in the employment structure by educational level implied an increase in the share of workers that tend to have high levels of earnings and a decline in the share of workers with low earnings levels.3 Considering that the Costa Rican growth process during the 2000s was based on offshore activities in high-technology industries and services that employ highly educated workers, such as tourism, the increase in the share of workers with high levels of education in total employment seems to be low (Sánchez and Sauma 2010). This pattern of slow improvement in the educational level of the employed population could be related to the small fraction of workers employed by these activities and to their limited contribution to technological learning and upgrading in other sectors of the economy (Ernst and Sánchez-Anchorena 2008). The educational level of the employed population improved over the period studied for all population groups and especially for young workers.

The pattern of improvement in the level of education of the employed population in Costa Rica continued even during the international crisis of (p.241) 2008, overall and for adult workers and women. The share of employed workers with high levels of education stopped increasing between 2008 and 2009 for young workers and men, but the upward trend resumed between 2010 and 2012.

The share of wage/salaried employees registered with the contributory schemes of the social security system increased between 2001 and 2009 in the population as a whole and for all population groups. Between 2010 and 2012 the share of registered workers remained largely unchanged overall and for adult workers and women, and suffered a slight deterioration for young workers and men. The international crisis of 2008 did not affect the upward trend in the registration rate. (Cruces et al. 2015: figure 8)

The social security system in Costa Rica is composed of contributory schemes and non-contributory schemes which provide pensions and health care as well as other benefits to workers and their families through the Caja Costarricense de Seguridad Social. The contributory schemes are mandatory for private- and public-sector employees and voluntary for independent workers. These schemes are funded by contributions from employers, employees, and the government. Different contributory pension schemes exist for public-sector employees, which differ in the amount of the contribution. The non-contributory schemes are directed at poor people and provide health care and pensions. They are totally funded by the government (Sánchez and Sauma 2010).

The social security system records show an increase in the percentage of wage/salaried employees registered with the contributory schemes over the period. The share of wage/salaried employees registered with the social security system grew from 50.7 per cent in 2001 (777,345 registered wage/salaried employees) to 55.3 per cent in 2009 (1,076,494 registered wage/salaried employees), and it rose slightly from 55.7 to 56.1 per cent from 2010 to 2012 (69,382 new registered workers) (Table 12.1). Within the period, the evolution of the share of registered employees was erratic from 2001 to 2005, and the share in 2005 was equal to its level in 2001. The bulk of this increase took place from 2005 to 2009. The international crisis did not affect the improving trend in the share of registered employees that increased even between 2008 and 2009.

The share of wage/salaried employees enrolled in the social security system increased between 2001 and 2009 for all population groups. Between 2010 and 2012, the share of registered workers increased for women, remained essentially unchanged for adult workers, and deteriorated slightly for youth and men. The international crisis of 2008 did not negatively affect the improving trend in the share of wage/salaried employees registered with the social security system for any of the population groups.

(p.242) 12.5 Labour Earnings

Five years of falling labour earnings from 2001 to 2005 were followed by four years of rising labour earnings from 2006 to 2009. The increase was large enough to raise labour earnings in 2009 when compared to where they had started (2001). The upward trend continued between 2010 and 2012. The pattern of falling labour earnings between 2001 and 2005 and rising labour earnings from 2006 to 2009 and from 2010 to 2012 held for all population groups. The evidence of earning changes by employment categories indicates that labour earnings increases between 2001 and 2009 were larger for low-earning categories in some cases (educational position and educational level) and for high-earning categories in others (occupational group and economic sector). Labour earning changes between 2010 and 2012 tended to be positive for high-earning categories and negative for low-earning categories. The international crisis of 2008 did not impact negatively on labour earnings overall and for any of the population groups, but led to earnings reductions for some employment categories.(Cruces et al. 2015: figure 9)

Average monthly earnings expressed in dollars at 2005 purchasing power parity (PPP) increased by 11.0 per cent from 2001 to 2009 and by 5.0 per cent from 2010 to 2012, climbing from US$750 in 2001 to US$832 in 2009 and from US$794 in 2010 to US$833 in 2012 (Table 12.1). However, the experiences within the period varied substantially. From 2001 to 2005, Costa Rica suffered a decline of 10.0 per cent in average labour earnings. This reduction was explained by the high level of inflation, especially in 2004 and 2005, and the small adjustment in minimum wages (Sánchez and Sauma 2010). After that period, a long and steady recovery set in that brought with it an increase in labour earnings during all of the subsequent years; by 2007, the level of labour earnings surpassed the 2001 level. The international crisis of 2008 did not affect this upward trend.

The same U-shaped pattern for labour earnings, albeit with different degrees of intensity, appears to apply to all population groups (young and adult workers, men and women).

Among employment categories, all of them exhibited earnings increases between 2001 and 2009 that were larger for low-earning categories in some cases and for high-earning categories in others. Between 2010 and 2012, labour earnings tended to increase for high-earning categories and to decrease for low-earning categories. Among occupational groups, the increase in labour earnings between 2001 and 2009 was larger for workers in high-earning occupations (management, professional, and technicians) compared to the change for workers in low-earning occupations (elementary, agricultural, forestry and fishery occupations, and services and sales jobs). From 2001 to 2009, (p.243) labour earnings of workers in low-earning positions (self-employed) exhibited a larger increase than labour income gains of workers in high-earning positions (wage/salaried employees and employers). Labour earnings increases between 2001 and 2009 were larger for workers in high-earning sectors (public administration, skilled services, education, and health) compared to workers in low-earning sectors (domestic service, primary activities, low-tech industry). Between 2001 and 2009, workers with low levels of education exhibited a larger earnings increase when compared to workers with high levels of education, but lower than the earnings gains of workers with medium levels of education. Between 2010 and 2012, workers in low-earning occupations and low-earning positions enjoyed larger earnings increases compared to workers in high-earning occupations and high-earning positions respectively. Labour earnings fell between 2010 and 2012 for workers in low-earning sectors, and increased for workers in high-earning sectors. Workers with low educational levels suffered an earnings reduction between 2010 and 2012, while workers with medium and high levels of education exhibited earnings increases.

The evidence of increasing labour earnings between 2001 and 2009 for workers with low and high levels of education and falling labour earnings for workers with medium levels of education can be interpreted in light of previous findings of improving educational levels of the Costa Rican employed population and improving employment structure by occupational group and economic sector over that period. The improving employment structure by occupational group and economic sector implied an increase in the share of occupations and sectors that can be expected to employ workers with high and medium educational levels, such as management, professional, and technical occupations, skilled services, public administration, and education and health sectors, and a reduction in the share of occupations and sectors that employ workers with low educational levels, such as elementary jobs, agricultural occupations, primary activities, and low-tech industry sectors. This evidence indicates that the demand for workers with high and medium educational levels relative to those with low educational levels increased between 2001 and 2009. On the other hand, the educational level of persons in the labour force improved over the same period, indicating an increase in the relative supply of workers with high and medium educational levels (Cruces et al. 2015: table 8). The prediction of a supply and demand analysis is that the relative wages of workers with high and medium educational levels relative to those with low educational levels will rise or fall depending on which effect dominates (increase in the relative demand versus increase in the relative supply). In the Costa Rican labour market, the relative wages of workers with high educational levels relative to those with low educational levels was essentially unchanged from 2001 to 2009; the relative wages of workers with medium to low educational levels fell over the period; (p.244) and the relative wages of workers with high educational levels relative to those with medium educational levels increased (Cruces et al. 2015: table 7). The adjustment process also led to an increase in the unemployment rate of all educational groups between 2001 and 2009 with a larger increase for workers with low levels of education (Cruces et al. 2015: table 9). For the period from 2010 to 2012 our evidence indicates an ambiguous change in the relative demand for workers with high and medium educational levels relative to those with low educational levels, i.e. the structure of employment by occupational position polarized during those years while the structure by economic sector improved together with an increase in the relative supply of workers with high and medium levels of education. The relative wages of workers with high educational levels relative to those with low and medium educational levels increased, and the relative wages of workers with medium to low educational levels also grew. The unemployment rate increased for all educational levels with the largest increases for workers with medium and low levels of education.

The international crisis of 2008 did not impact negatively on the upward trend of labour earnings overall, for any of the population groups and most of the employment categories. The only employment category that suffered a reduction in labour earnings between 2008 and 2009 was workers in low-earning sectors. Due to the comparability problems between the 2001–9 and 2010–12 series, it is not possible to assess whether workers in low-earning sectors recovered their pre-crisis earnings level in the following years.

12.6 Poverty and Inequality

The poverty rate and the rate of working poor households decreased from 2001 to 2009 for all poverty lines. From 2010 to 2012 there was a slight increase in the extreme poverty rate and in the poverty rate measured by the US$2.5 dollars-a-day international line. All poverty indicators increased during the international crisis of 2008; because of non-comparability of the underlying survey instruments, the poverty rates for 2009 cannot be compared with the poverty rates afterwards.(Cruces et al. 2015: figure 10)

The moderate poverty rate (measured by the country’s official poverty line) fell from 20.3 per cent in 2001 to 18.5 per cent in 2009, and from 25.9 per cent in 2010 to 24.0 per cent in 2012. The extreme poverty rate decreased from 7.1 per cent in 2001 to 5.1 per cent in 2009 and increased slightly from 5.7 per cent in 2010 to 5.9 per cent in 2012. The percentages of working poor (defined as the proportion of persons in the population living in poor households (p.245) where at least one member works) decreased from 11.8 to 10.9 per cent between 2001 and 2009 and from 17.2 to 15.4 per cent between 2010 and 2012 (Table 12.1). Within the period, the poverty indicators decreased from 2001 to 2007, and then increased up to 2009, a period that included the Great Recession. The number of moderately poor persons increased by 118,321 and the number of extremely poor persons rose by 48,997 between 2008 and 2009. The analysis of trends based on the 2.5 and 4 dollars-a-day PPP international poverty lines shows a reduction in the poverty rates between 2001 and 2009. The poverty rate based on the 2.5 dollars-a-day international poverty line fell from 13.8 per cent in 2001 to 7.5 per cent in 2009. The reduction using the 4 dollars-a-day poverty line was from 26.7 per cent in 2001 to 17.4 per cent in 2009. Between 2010 and 2012, both poverty rates changed slightly. There was a reduction when the poverty rate is measured through the 4 dollars-a-day poverty line (from 12.7 to 12.2 per cent) and an increase using the 2.5 dollars-a-day line (from 4.5 to 4.7 per cent). Within the period, both poverty indicators decreased substantially from 2001 to 2007, increased between 2008 and 2009, and stagnated during the post-crisis period.

The poverty patterns reported in the last paragraph can be understood by examining incomes from various sources. The analysis of sources of household total income indicates that labour income and pensions increased between 2001 and 2009 (Cruces et al. 2015: figure 11). The increase in pensions (21.7 per cent between 2001 and 2008, the latest we can analyse the series of non-labour incomes over the period 2001–9) was the most important factor to explain the increase in total household income. Between 2010 and 2012, capital income exhibited the largest increase (a rise of 19.6 per cent), followed by labour incomes (an increase of 5.6). Income from government transfers and pensions fell by 4.2 and 1.0 per cent respectively during those years. However, UNDP (2014) reported that non-contributory pensions, scholarships, assistance to poor families with children, and cash transfers from the national welfare office reduced moderate poverty by 2.5 percentage points and extreme poverty by 2.9 percentage points in 2012.

Household per capita income inequality and labour earnings inequality decreased from 2001 to 2005, and then started an upward trend from 2006 to 2009, that continued between 2010 and 2012. During the international crisis of 2008, inequality increased. (Cruces et al. 2015: figure 12)

From 2001 to 2005, household per capita income inequality measured by the Gini coefficient decreased from 0.501 in 2001 to 0.473 in 2005. From 2005 to 2009, it increased and reached 0.504 in 2009. The upward trend continued from 2010 to 2012 when the Gini coefficient of household per capita income grew from 0.480 to 0.485. The Gini coefficient of labour earnings among employed workers decreased from 0.464 to 0.440 between 2001 and 2005, (p.246) rose to 0.459 in 2009, and continued with the upward trend from 2010 to 2012 when the Gini coefficient increased from 0.466 to 0.471 (Table 12.1). The increase in labour income inequality between 2010 and 2012 is consistent with the evidence of rising labour earnings for workers in high-earning employment categories and reducing labour earnings for workers in low-earning categories during this period.

Changes in household per capita income inequality in Costa Rica have been related mainly to changes in labour income. Azevedo et al. (2013b) decomposed the change in the Gini coefficient of household per capita income for the period 2004–8 and found that changes in labour incomes contributed to the inequality increase over this period (the Gini coefficient of household per capita income increased from 0.482 in 2004 to 0.492 in 2007 and closed the subperiod in 0.486). On the other hand, changes in non-labour incomes, such as government transfers and demographic changes (e.g. the share of adults per household) were inequality-reducing. Trejos and Oviedo (2012) analysed the period 2002–9, when inequality of household per capita income increased, and found through a decomposition approach that changes in labour income were inequality-reducing, while changes in non-labour incomes were inequality-increasing with the only exception of incomes from government transfers. Finally, Sauma and Trejos (2014) reported an inequality-reducing effect of social spending, taxes, and social security contributions in Costa Rica in 2010. Other studies have analysed the factors behind the evolution of labour income inequality. Azevedo et al. (2013a) used a decomposition approach and found that changes in the education wage premium (or the ‘price effect’) and changes in the distribution of the stock of education (the ‘quantity effect’) were inequality-increasing in Costa Rica between 2000 and 2009. Gasparini et al. (2011) found a reduction in the wage premium in Costa Rica between 2000 and 2009 that was associated with an increase in the relative supply and a small increase in the relative demand of skilled workers. Finally, the increase in labour earnings inequality between 2004 and 2009 has been associated with different policy measures implemented by the government of Costa Rica, such as the liberalization of trade, tax exemption, and promotion policies for exports, which became more intensive in skilled labour (Sánchez and Sauma 2010).

12.7 Conclusions

By Latin American standards, Costa Rica experienced moderate economic growth during the 2000s. The international crisis hurt the economy and there was a recession in 2009, from which the country quickly recovered, surpassing pre-crisis GDP levels by 2010.

(p.247) Most labour market indicators improved from 2001 to 2009 and from 2010 to 2012 (the periods for which we could construct comparable statistics). The employment composition by occupational group improved between 2001 and 2009 as workers moved from elementary and agricultural occupations to better-paying occupations, such as management, professional, and technical jobs. The structure of employment by occupational position improved both from 2001 to 2009 and from 2010 to 2012, mainly through the increase in the share of wage/salaried employees in total employment. The employment composition by economic sector also improved between 2001 and 2009 and between 2010 and 2012, as workers moved from low-paying sectors such as primary activities and low-tech industry to better-paying sectors such as skilled services, public administration, and education and health. The share of wage/salaried employees registered with the contributory schemes of the social security system increased from 2001 to 2009. The educational level of the employed population and labour earnings grew between 2001 and 2009 and between 2010 and 2012. All poverty diminished from 2001 to 2009, and the moderate poverty rate and poverty measured by the 4 dollars-a-day poverty line also decreased from 2010 to 2012. The Gini coefficient of labour earnings fell from 2001 to 2009.

Some indicators deteriorated during the periods analysed. The unemployment rate increased from 2001 to 2009 and remained largely unchanged from 2010 to 2012. The employment structure by occupational group polarized from 2010 to 2011. The share of wage/salaried employees who contributed to the social security system remained unchanged between 2010 and 2012. The extreme poverty rate, the poverty rate measured by the 2.5 dollars-a-day international line, household per capita income, and labour earnings inequality increased between 2010 and 2012.

The international crisis of 2008 impacted negatively on some of the indicators analysed. The unemployment rate increased, the employment structure by occupational position deteriorated slightly, and all poverty and inequality indicators increased between 2008 and 2009. Due to the non-comparability of the underlying survey instruments, it was not possible to assess whether these indicators returned to their pre-crisis levels in the following years.

Young workers and women had worse labour market outcomes over the entire period compared to adults and men respectively, and seemed to be more vulnerable to the international crisis. The unemployment rate was higher for young compared to adult workers, the shares of young employed workers in low-earning occupational groups and economic sectors were larger than the shares of adult workers, the percentage of young wage/salaried employees who contributed to the social security system was lower when compared to adults, and labour earnings of young workers were below those of adults. On the other hand, the share of young workers in low-earning occupational positions was lower compared to adults. In addition to the (p.248) generally inferior situation of young workers in the labour market compared to adults, youth were more affected by the international crisis: the increase in the unemployment rate between 2008 and 2009 was larger for youth than for adults, as was the increase in the share of workers in low-earning positions. Disaggregating by gender, we found that men had better labour market outcomes than women for all of the indicators analysed. Women were more affected than men by the international crisis of 2008. Women suffered a larger increase in the unemployment rate and in the share of workers in low-earning positions between 2008 and 2009.

In summary, most labour market conditions were in a better state in 2009 than they were at the start of the millennium and all population groups were quite resilient to the international crisis. From 2010 to 2012, labour market conditions had a general improvement but a larger number of deteriorations occurred in comparison to the period 2001–9.

References

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Notes:

(1) See Cruces et al. (2015: table 1) for details on the size of Costa Rica household surveys.

(2) The most frequent value of years of education for employed workers in Costa Rica was six over the entire period (around 29.0 per cent of employed workers had six years of education).

(3) The improvement in the employment structure by educational level is related to changes in the relative demand and supply of workers with high educational levels with corresponding implications for the wage gap by educational group and the unemployment rate of each educational level. We introduce a discussion about the role of these factors in Costa Rica in section 12.5.