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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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Ecuador

Ecuador

Chapter:
(p.268) 14 Ecuador
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/9780198801085.003.0014

Abstract and Keywords

Ecuador experienced moderate economic growth during the 2000s. The economy suffered a mild recession during the international crisis of 2008, but returned to pre-recession GDP per capita level in 2010. Most labour market indicators improved over the period. The only indicator that worsened was the employment structure by occupational position. Most labour market indicators were affected negatively by the international crisis but recovered their pre-crisis levels by 2012. The only exception was labour earnings for some employment categories. With the onset of the crisis of 2008, the poverty rate stopped falling, but it regained its downward trend from 2011 onwards.

Keywords:   Ecuador, economic growth, labour market indicators, employment, poverty

14.1 Introduction

This chapter on labour markets and growth in Ecuador 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 Ecuador 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 Empleo, Desempleo y Subempleo (ENEMDU) for the years 2003 to 2012. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database (p.269) for Latin America 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 Ecuador’s household surveys, and on comparability issues of these surveys over time.

14.2 Economic Growth

Ecuador experienced moderate economic growth during the 2000s. The country suffered only a mild recession as a consequence of the international crisis of 2008 but the Ecuadorean economy returned to pre-recession GDP per capita level in 2010. (Cruces et al. 2015: figures 1 and 2)

During the period 2000–12, Ecuador experienced moderate economic growth by Latin American standards. GDP per capita increased by 33.9 per cent, while the average for the eighteen Latin American countries was 36.2 per cent during the same period. GDP (measured at PPP dollars of 2005) grew by 62.3 per cent, and GDP per employed person exhibited a rise of 24.7 per cent. The annual growth rate of GDP per capita was 2.4 per cent, and it varied from a minimum of −1.1 per cent in 2009 to a maximum of 6.2 per cent in 2004 (Table 14.1).

Table 14.1 Ecuador: 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

6,184

6,307

6,440

6,491

6,895

7,129

7,312

7,344

7,679

7,595

7,692

8,161

8,443

Ecuador

GDP per capita growth rate

−0.89

2.00

2.11

0.79

6.22

3.40

2.57

0.44

4.57

−1.10

1.27

6.10

3.46

Ecuador

Employment and Earnings Indicators

Employment-to-population ratio

61.63

65.41

64.44

65.53

64.66

62.25

61.06

59.41

59.86

59.14

Ecuador

Unemployment rate

13.19

8.50

8.37

6.72

5.48

6.43

6.86

5.22

4.50

4.40

Ecuador

Share of low-earnings occupations

57.88

57.42

56.80

57.12

55.56

56.22

56.75

54.43

52.91

52.42

Ecuador

Share of mid-earnings occupations

34.34

34.07

34.64

34.44

35.48

35.02

34.63

36.15

38.60

37.93

Ecuador

Share of high-earnings occupations

7.78

8.51

8.56

8.44

8.96

8.76

8.61

9.42

8.49

9.65

Ecuador

Share of employers

4.88

6.70

6.29

6.01

5.21

5.29

4.20

3.48

3.52

3.77

Ecuador

Share of wage/salaried employees

55.09

51.19

53.41

53.38

54.10

55.74

54.13

55.30

52.93

54.06

Ecuador

Share of self-employed workers

31.29

30.64

30.53

28.90

29.76

29.08

30.68

31.64

34.82

33.16

Ecuador

Share of unpaid family workers

8.73

11.47

9.77

11.70

10.93

9.89

10.99

9.58

8.72

9.01

Ecuador

Share of workers in low-earnings sectors

42.39

42.61

42.35

41.55

40.68

39.90

40.07

38.76

38.13

37.92

Ecuador

Share of workers in mid-earnings sectors

46.37

46.56

46.43

47.74

48.61

48.10

48.52

49.08

49.27

48.96

Ecuador

Share of workers in high-earnings sectors

11.24

10.83

11.22

10.72

10.70

12.00

11.42

12.16

12.59

13.12

Ecuador

Share of low-educated workers

54.58

55.04

53.52

52.38

51.93

50.99

50.64

48.69

46.92

45.55

Ecuador

Share of medium-educated workers

27.03

26.16

27.74

28.99

28.86

29.46

29.22

29.93

31.78

32.20

Ecuador

Share of high-educated workers

18.39

18.81

18.73

18.63

19.21

19.56

20.14

21.38

21.31

22.24

Ecuador

Share of workers registered with SS

32.97

33.53

33.15

33.30

34.04

36.00

39.95

45.24

53.30

54.67

Ecuador

Mean labour earnings

457.6

511.1

502.6

529.2

575.1

546.8

515.7

559.7

559.0

589.6

Ecuador

Poverty and Inequality Indicators

Official extreme poverty rate

23.8

21.8

19.1

14.1

14.5

13.2

13.3

10.9

9.2

8.6

Ecuador

Official moderate poverty rate

46.6

44.2

39.1

33.6

33.6

32.3

32.5

29.0

25.1

23.7

Ecuador

Poverty rate 2.5 dollars a day

31.33

28.81

25.61

20.00

19.81

19.29

18.85

15.88

13.55

12.85

Ecuador

Poverty rate 4 dollars a day

51.44

48.03

43.60

38.34

38.11

36.75

37.11

33.43

29.54

27.76

Ecuador

GINI of household per capita income

0.545

0.536

0.536

0.529

0.539

0.502

0.489

0.489

0.458

0.462

Ecuador

GINI of labour earnings

0.515

0.527

0.501

0.489

0.524

0.482

0.466

0.463

0.436

0.431

Ecuador

Note: The shaded figures of labour market indicators 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.

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

At the beginning of the 2000s, Ecuador’s GDP growth rate was low (1.1 per cent in 2000) and its GDP per capita growth rate negative (−0.9 per cent in 2000) due to the economic and political crisis the country suffered at the end of the 1990s. That crisis was related to negative external shocks like El Niño, the sharp decline in the price of oil—Ecuador’s largest export—and the tightening of international credit following the financial crises in Russia and Brazil. The recovery was fuelled by the adoption of the US dollar as the official currency in 2000 (IMF 2006), the increasing oil revenues, and by governmental measures such as the Fiscal Responsibility and Transparency Law that was passed in 2002, which mandated saving extra resources from increased petroleum revenues and placed limits on the growth of expenditures to provide resources for priority programmes (Giugale et al. 2012). The government also passed a series of laws that increased the flexibility of markets and allowed for greater private-sector participation in certain economic activities. One of these measures was the financing of a heavy (p.270) (p.271) (p.272) crude-oil pipeline that facilitated an increase in oil exports from around 20,000 barrels per day in 1998 to around 350,000 barrels per day in 2005 (Giugale et al. 2012). The strong expansion of the oil sector was not accompanied by a similar economic dynamism in the rest of the economy, which made the economy even more dependent on oil production and exports than it had been before (León et al. 2010).

Dollarization and supporting policies ushered in a period of macroeconomic stability from 2000 to 2004. In 2004, Ecuador exhibited the largest growth rates of the period: the GDP and GDP per capita growth rates were 8.2 per cent and 6.2 per cent respectively. A slowdown in GDP and GDP per capita growth ensued between 2004 and 2007 as a result of some macroeconomic imbalances led by the dollarization, such as the current account deficit and the lack of credit (Larrea Maldonado 2007). The average GDP growth rate was 4.0 per cent during this period, while GDP per capita grew at 2.1 per cent annually. The economy recovered significantly in 2008 with a GDP growth rate of 7.8 per cent, due in part to high petroleum prices around the world.

The global recession, though, significantly diminished Ecuador’s main sources of foreign earnings, mainly petroleum exports and remittances from abroad (Ray and Kozameh 2012). Ecuadorian exports are concentrated on a few commodities and a few markets. Exports of oil, bananas, shrimp and fish, and flowers represented approximately three quarters of total exports of the country between 2004 and 2008. Moreover, over half of total exports went to developed markets such as the US and the European Union. The global economic crisis led to an important reduction in the value of total exports (a fall of 26.0 per cent between 2008 and 2009) through the fall in oil export prices and the international demand for Ecuadorean products (Wong 2012). The international crisis also brought about a fall in remittances (drop of 12.0 per cent in 2009). Nonetheless, the country lost only 1.1 per cent of its GDP per capita in 2009, while the GDP growth rate for that year was 0.6 per cent. Ecuador recovered quickly and returned to pre-recession output levels in 2010 thanks to the implementation of expansionary fiscal policies and the use of the, albeit limited, monetary policy instruments available in a dollarized economy, such as adjusting the interest rate (Ray and Kozameh 2012). Despite the negative impact of the fall in oil prices on government finances, the country saw its budget alleviated due to the reduction in the world price of fuel as Ecuador imports fuels. That, jointly with the placement of internal debt with entities such as the Instituto Ecuatoriano de Seguridad Social (IESS) and the acquisition of new external credit in the form of prepayment for future oil sales, allowed the government to keep social programmes, infrastructure spending, and subsidies (Wong 2012; Naranjo 2013).

(p.273) 14.3 Unemployment

The unemployment rate decreased substantially from 2003 overall and for all population groups. The international crisis of 2008 led to a mild increase, but in 2010 the unemployment rate was below the pre-crisis level.(Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) followed the business cycle and fell from 13.2 per cent in 2003 (805,663 unemployed persons) to 4.4 per cent in 2012 (295,398 unemployed persons) (Table 14.1). The reduction in the unemployment rate was not monotonic and occurred jointly with a reduction in the labour force participation rate. The unemployment rate decreased from 2003 to 2008, increased slightly during the international crisis (38,796 new unemployed persons between 2008 and 2009), and recovered the downward trend to reach the low point of 4.4 per cent in 2012. The recovery was quick, and by 2010 the unemployment rate was lower than the pre-crisis level. Both the number of persons in the labour force and the number of employed persons increased between 2008 and 2009 by 158,637 and 119,841 respectively. These figures suggest that the increase in the unemployment rate during the international crisis was brought about by the entry of new persons into the labour market who could not find a job.

Unemployment trends for men, women, youth, and adults mirror the behaviour of the aggregate rate and fell over the period. The increase in unemployment between 2008 and 2009 was small and affected adult workers more than young workers and men more than women. All population groups recovered the downward trend immediately and by 2010 had an unemployment rate below the pre-crisis level.

14.4 Job Mix

The composition of employment by occupational group improved between 2003 and 2012 as workers moved from elementary, and craft and trades occupations to better paying occupations, like professional jobs. All demographic groups—young and adult workers, men, and women—benefited from the improvement in the composition of employment by occupational group over the period. The international crisis of 2008 led to a worsening in the employment structure by occupational group in the aggregate and for adult workers and men, while young workers and women were not negatively affected. (Cruces et al. 2015: figure 4)

(p.274) The share of the following occupations shrank between 2003 and 2012: elementary (drop of 4.8 percentage points); crafts and trades occupations (drop of 0.9 percentage points); technical and associate professional occupations (drop of 0.8 percentage points); and management (drop of 0.6 percentage points). The share of the following occupations grew: professionals (increase of 2.5 percentage points); clerical (increase of 1.7 percentage points); services and sales jobs (increase of 1.6 percentage points); and plant and machine operators (increase of 1.1 percentage points). The share of the other occupational groups remained largely unchanged. These changes in the occupational composition of employment can be interpreted as an improvement since low-earning occupations (elementary, agricultural, forestry, and fishery occupations, and craft and trades occupations) reduced their share in total employment by 5.5 percentage points between 2003 and 2012, while mid-earning (technicians, clerical occupations, services and sales, and plant and machine operators) and high-earning occupations (management, professionals, and armed forces) gained share in total employment (increase of 3.6 and 1.9 percentage points respectively) (Table 14.1).

The improvements in the occupational composition of employment between 2003 and 2012 were observed for young and adult workers, men, and women.

The international crisis of 2008 impacted adversely on the composition of employment by occupational group overall and for adult workers and men. Young workers and women continued with the improving trend in their employment structure by occupational group even during the Great Recession. Between 2008 and 2009, the share of low-earning occupations in total employment increased in the aggregate, for adult workers and men, while the share of high-earning occupations fell. The increase in the share of low-earning occupations was driven by the rise in agricultural occupations that overcompensated for the decline of elementary occupations in total employment—the occupational group where most workers of the oil subsector are employed. By 2010, the composition of employment by occupational group returned to the pre-crisis structure overall and for adult workers and men.

The employment structure by occupational position deteriorated between 2003 and 2012. The percentage of high-earning categories decreased overall, for youth and adults, and for both men and women. Most of the change took place during and after the international crisis of 2008. (Cruces et al. 2015: figure 5)

The share of wage/salaried employees in total employment—the largest category—decreased by 1.0 percentage points over the period, from 55.1 per cent in 2003 to 54.1 in 2012. The share of the self-employed, on the other hand, increased by 1.9 percentage points, climbing from 31.3 per cent in 2003 to 33.2 per cent in 2012. The share of unpaid workers grew slightly (just 0.3 percentage (p.275) points), while the share of employers decreased by 1.1 percentage points between 2003 and 2012 (Table 14.1). Insofar as the share of low-earning categories (self-employment and unpaid employment) increased by a total of 2.1 percentage points and the share of high-earning categories (paid employees and employers) decreased, these changes can be characterized as a worsening of the employment structure in terms of occupational position.

The employment structure by occupational position deteriorated for young workers, men, and women, while it remained unchanged for adult workers.

The deterioration in the employment structure by occupational position in the aggregate and for young workers, men, and women occurred mainly during and after the international crisis of 2008. Adult workers were also affected negatively by the international crisis but they recovered quickly. The worsening in the structure of employment by occupational position is striking considering that the unemployment rate suffered a slight increase during the crisis but recovered the downward trend immediately, and that the labour force participation rate was falling during the entire period. A closer examination of the changes indicates an increase in the share of self-employed workers and a corresponding reduction in the share of employers, with an essentially unchanged share for wage/salaried employees. These changes can be related to the changes in the employment structure by occupational groups analysed previously. Between 2008 and 2012, management was among the occupations that exhibited the largest shares’ reduction of total employment and employers have a high relative weight in this occupational group. On the other hand, services and sales jobs, and agricultural occupations were among the occupations with the largest shares of increases in total employment, and self-employed workers have a high relative share of these occupations.

The employment composition by economic sector improved over the course of the period studied overall and for all population groups. The international crisis of 2008 led to a worsening in the employment structure by economic sector in the aggregate and for adult workers, men, and women, while young workers were not negatively affected. (Cruces et al. 2015: figure 6)

The period 2003–12 witnessed a reduction (from 42.4 per cent to 37.9 per cent) in the share of workers in low-earning sectors (domestic service, primary activities, and low-tech industry). Workers employed in the oil subsector are included in the primary activities sector in our classification. The increase in the employment share of the oil subsector over the period in Ecuador was counteracted by the reduction in the employment share of the agricultural subsector. There was, during the same period, an increase (from 11.2 per cent to 13.1 per cent) in the share of high-earning sectors (public administration, skilled services, and high-tech industry) in the total. These changes resulted in an increase in the share of mid-earning sectors in total employment (utilities (p.276) and transportation, education and health, construction, and commerce) which climbed from 46.4 per cent in 2003 to 49.0 per cent in 2012 (Table 14.1).

The employment composition by economic sector improved between 2003 and 2012 for young and adult workers, men, and women, as they moved from low-earning sectors to high-earning sectors. The international crisis of 2008 led to a worsening in the employment structure by economic sector overall and for adult workers, men, and women. The increase in the share of low-earning sectors in total employment during the international crisis was brought about mainly by the increase in the share of the agricultural subsector. The presence of contractual arrangements and the resilience of export demand for certain Ecuadorean agricultural products explain the increase in the share in total employment of the agricultural subsector between 2008 and 2009 (Wong 2012). By 2010, the pre-crisis shares were recovered. Young workers continued with the improving trend in their employment composition by economic sector even during the international crisis.

The educational level of the employed population in Ecuador improved steadily between 2003 and 2012 for all population groups, and especially among young workers. The improving trend continued even during the international crisis of 2008. (Cruces et al. 2015: figure 7)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 54.6 per cent in 2003 to 45.6 per cent in 2012, while the share of workers with medium and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 27.0 per cent in 2003 to 32.2 per cent in 2012 and from 18.4 per cent to 22.2 per cent respectively (Table 14.1).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 This pattern of increased educational level of the employed population continued even during the Great Recession. The improvements in the educational level of the employed population are closely related to the recovery of real public spending in education since the 1990s and the cash transfer programmes of the 2000s, which helped increase access to education (Ponce and Vos 2012).

(p.277) The educational level of the employed population improved between 2003 and 2012 for all groups and especially for young workers. This improvement in the educational level of young workers can be explained, in part, by the Bono de Desarrollo Humano, an unconditional cash transfer programme launched by the government of Ecuador in 2003 and targeted at poor families with children. Oosterbeek et al. (2008) and Araujo and Schady (2008) found that this programme had significant and positive effects on school enrolment.

The pattern of improvement in the level of education of the employed population in Ecuador continued even during the international crisis of 2008, overall and for all population groups.

The overall share of wage/salaried employees registered with the social security system increased significantly between 2003 and 2012. The improvement also took place among all population groups. The international crisis of 2008 did not affect the upward trend of the registration rate. (Cruces et al. 2015: figure 8)

Social security in Ecuador is provided by five types of institutions which serve different segments of the population. The Ecuadorian Social Security Institute (IESS) is a decentralized agency and the main provider of social security for public and private workers in the country; the Social Security Institute of the Armed Forces (ISSFA) is an autonomous agency of the Armed Forces, which provides social security for military personnel; the Instituto de Seguridad Social de la Policía Nacional (ISSPOL) is an autonomous agency of the National Police, which provides social security for members of the police force; private clinics which provide emergency medical care that cannot be handled by the IESS; and private insurance companies (Naranjo 2013). These institutions provide pension insurance, rural insurance, health insurance, and occupational hazard insurance. The Ecuadorian social security system combines contributory and non-contributory schemes. Under the contributory scheme, social security benefits are financed through contributions from employees, employers, and the government. The non-contributory scheme is implemented through cash and non-cash transfers under specific programmes and is totally funded by the government.

Social security records show an increase in the percentage of wage/salaried workers registered with the system’s contributory scheme between 2003 and 2012, from 33.0 per cent in 2003 to 54.7 per cent in 2012 (Table 14.1). The number of registered workers increased from 963,452 to 1,899,153 over the period. Before the onset of the international crisis, from 2003 to 2007, the percentage of wage/salaried workers registered with the social security system was stable at around 33.4 per cent. Between 2008 and 2011, the rate of registration grew annually by 10.0 per cent, though the pace of that increase dropped to 2.6 per cent in 2012. The sharp increase beginning in 2008 occurred because in 2007, the government of Ecuador instituted a set of (p.278) labour policies designed to improve working conditions. Those measures included the elimination of several forms of precarious employment, such as labour subcontracting and hiring by the hour. They also included an active minimum wage policy and policies to ensure that employers comply with the obligation to register their workers in the social security system. In addition, registering with the social security system was made more attractive by increased benefits (ILO 2014). These incentives included: the expansion of health insurance for children under the age of eighteen and spouses of registered workers; the reduction from six to three months of the waiting period to obtain health insurance benefits related to the social security system; and changes in management models (health benefits rendered by clinics, hospitals, and private medical centres).

The rate of registration with the social security system increased for all population groups (young and adult workers, men, and women) over the period.

The overall percentage of workers registered with the social security system continued to grow during the international crisis of 2008. Disaggregating by population group, the rate of registration with the social security system also continued to increase for young and adult workers, men, and women.

14.5 Labour Earnings

Labour earnings increased between 2003 and 2012. Within the period, labour earnings moved erratically. Labour earnings increased overall, for young and adult workers, and for men and women. The evidence of earning changes by employment categories over the period is mixed, with low-earning categories having larger earning increases compared to high-earning categories in some cases (economic sectors and educational levels), and high-earning categories having larger earning increases compared to low-earning categories in others (occupational positions and occupational groups). Labour earnings were negatively affected by the international crisis of 2008 overall, for adult workers, men, and women, and most employment categories, and not all of them recovered their pre-crisis level of earnings by the end of the period.(Cruces et al. 2015: figure 9)

Average monthly earnings, expressed in dollars at 2005 purchasing power parity (PPP), increased by 28.8 per cent, from US$458 in 2003 to US$590 in 2012 (Table 14.1). Labour earnings increased between 2003 and 2004, fell between 2004 and 2005, and recovered the upward trend starting in 2005. The period 2007–9 witnessed a decrease in labour earnings, which partly reflects the variations in the country’s economic performance. In 2009, Ecuador had the lowest GDP and GDP per capita growth rates of the period studied. The following (p.279) years—from 2010 to 2012—witnessed an average annual increase in income from labour of 4.6 per cent, which meant a return to pre-crisis levels by 2010. This latter increase in total labour earnings was due mostly to an annual increase of about 4.5 per cent in average hourly wages from 2010 to 2012. In fact, wage policy went through two distinct phases over the period. Up to 2006, wage increases were based solely on inflation. Since 2007, the government’s wage policy has explicitly been aimed at improving workers’ wages by more than inflation in order to achieve a ‘decent’ wage (Naranjo 2013).

All population groups and most employment categories experienced an increase in labour earnings over the period. Disaggregating by occupational groups, labour earnings increases were larger for high-earning groups compared to low-earning groups. Among occupational positions, low-earning categories experienced an average increase in their labour earnings that was below the gain for workers in high-earning categories. When broken down by economic sectors, labour income gains were larger for low-earning sectors compared to high-earning sectors. Among educational levels, earnings increases were larger for less educated workers.

The evidence of larger labour earnings increases for workers with low educational levels compared to those with medium and high educational levels can be interpreted in light of previous findings of improving employment structure by occupational group and economic sector over the period, and improving educational levels of the employed population. 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 professional occupations and the skilled services sector, and a reduction in the share of occupations and sectors that employ workers with low educational levels, such as elementary, craft and related trade jobs, domestic service, 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 2003 and 2012. It is interesting to notice that workers employed in the oil subsector—the main economic activity of Ecuador—have 9.8 years of education on average and, as such, are workers with medium levels of education. On the other hand, the educational level of people in the labour force improved over the same period, indicating an increase in the relative supply of workers with high and medium levels of education (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 Ecuadorian labour market, the relative wages of workers with high and medium educational levels relative to those (p.280) with low educational levels fell over the period, and the relative wages of workers with high educational levels relative to those with medium educational levels also decreased (Cruces et al. 2015: table 7). The adjustment process also led to a reduction in the unemployment rate of all educational groups with larger reductions for workers with low and medium levels of education (Cruces et al. 2015: table 9).

The international crisis of 2008 led to a reduction in labour earnings overall, for adult workers, men, and women, and for most employment categories, and not all of them recovered their pre-crisis level of earnings by the end of the period. Labour earnings of young workers were not impacted negatively by the international crisis. The aggregate labour earnings level was recovered in 2012. Women returned to their pre-crisis level of labour earnings in 2010, and adult workers in 2012. Men, on the other hand, had not recovered their pre-recession level of earnings by 2012. Among occupational groups, workers in management, agricultural, and clerical jobs were affected the most by the international crisis. Workers in agricultural and clerical jobs recovered their pre-recession levels of earnings in 2011 and 2012 respectively, while workers in management occupations had not returned to their pre-crisis level of labour incomes by the end of the period. Disaggregating by occupational position, employers were hit hardest by the crisis compared to the self-employed, while wage/salaried employees did not suffer an earnings reduction. The self-employed recovered their pre-crisis level of earnings in 2011, while employers had not returned to that level by 2012. When broken down by economic sector, the evidence indicates that workers in skilled services, construction, and high-tech industry sectors suffered the largest reduction in labour incomes during the international crisis. Workers in the high-tech industry sector returned to their pre-crisis level of earnings in 2010, while workers in the skilled services and construction sectors never recovered their previous level of earnings. The reductions of labour earnings during the international crisis were larger for workers with higher educational levels. Workers with low and medium educational levels returned to their pre-crisis level of earnings in 2010 and 2011 respectively, while workers with high levels of education had not fully recovered by 2012.

14.6 Poverty and Inequality

The poverty rate and the rate of working poor households decreased substantially between 2003 and 2012. Within the period, the poverty indicators fell in the early years of the period, stopped decreasing between 2006 and 2009, and resumed the downward trend in the following years. (Cruces et al. 2015: figure 10)

(p.281) The moderate poverty rate (measured by the country’s official poverty line) fell from 46.6 per cent in 2003 to 23.7 per cent in 2012, the extreme poverty rate dropped from 23.8 per cent to 8.6 per cent, and the percentage of the working poor (defined as the proportion of persons in the population living in poor households where at least one member works) decreased from 37.0 per cent to 17.0 per cent over the same period (Table 14.1). A closer look at the evolution of these indicators reveals a steady downward trend at the beginning of the period, stabilization between 2006 and 2009, a period when the growth in GDP was slow, and a recovery of the downward trend in the following years. The analysis of trends based on the 2.5 and 4 dollars-a-day PPP international poverty lines shows the aforementioned trends. The poverty rate based on those measures decreased from 2003 to 2006, then levelled off until 2009 when the downward trend resumed.

The poverty patterns exhibited by Ecuador can be understood by examining incomes from various sources as well as government programmes. Between 2003 and 2012, income from labour, pensions, and government transfers, all of them measured at the household level, increased in real terms, while remittances were largely unchanged (Cruces et al. 2015: figure 11). Incomes from pensions and government transfers showed the largest increases. In fact, between 2006 and 2010 there was an important increase in social expenditure as a percentage of GDP, which went from 4.8 to 9.8 per cent. Mideros and O’Donoghue (2014) estimated that in 2012 the Bono de Desarrollo Humano, a cash transfer targeted at poor households, reduced the extreme and moderate poverty rates measured by the country’s official poverty line by 20.8 per cent and 9.0 per cent respectively. Similar results were found by Naranjo (2008). Azevedo et al. (2013) provided additional evidence on the poverty-reducing role of government transfers. The authors broke down the observed reduction in poverty to find that the combination of cash transfer programmes and higher pensions was more responsible for the drop in extreme poverty in Ecuador, measured according to the 2.5 dollars-a-day poverty line, than changes in labour income. Remittances from abroad, which are an important source of income for poor households, also help to explain the reduction of poverty between 2003 and 2012. During the first half of the 2000s, the amount of remittances received by Ecuador was comparable to oil revenues and allowed poor households to recover from the crisis at the end of the nineties. Emigration also generated scarcity of labour in some economic sectors, wage increases, and poverty reductions (Larrea Maldonado 2007).4

Household per capita income and labour earnings inequality diminished over the period studied, although erratically. (Cruces et al. 2015: figure 12)

(p.282) Household per capita income and labour earnings inequality decreased as GDP increased over the period. The Gini coefficient of household per capita income fell from 0.545 in 2003 to 0.462 in 2012. The Gini increased from 0.529 to 0.539 from 2006 to 2007 as GDP growth slowed. A new, albeit minor, increase in the Gini was observed from 2011 to 2012. Throughout the period, the Gini coefficient of labour earnings among employed workers was below that of household per capita income and the decline occurred from 0.515 in 2003 to 0.431 in 2012 (Table 14.1). There was a significant increase in the Gini of labour earnings from 2006 to 2007 (0.489 to 0.524), though the downward trend resumed after that period and continued until 2012. This reduction in labour earnings inequality over the period is in keeping with our previous evidence of larger earnings gains for workers with low educational levels compared to those with high educational levels.

The reduction of income inequality during the 2000s is explained mainly by the expansion of cash transfer programmes, especially in the second half of the decade, and by rising real wages and falling unemployment. The Bono de Desarrollo Humano is a progressive programme and its redistributive effect has strengthened towards the end of the decade. The role of cash transfer programmes in reducing income inequality in Ecuador was reinforced by the pattern of economic recovery based on primary exports, which weakened the push for greater demand for skilled workers which had existed since the 1990s. The continued growth in the supply of workers with high levels of education coming out of the schooling system, coupled with a weakened demand for their skill level, pushed down the wage gap between skilled and unskilled workers (Ponce and Vos 2012). The same conclusion was reached by Gasparini et al. (2011), who defined skilled workers as those with some college education and unskilled workers as those up to complete secondary education, and used the Katz and Murphy (1992) framework to find that the relative supply of skilled labour increased steadily while, for certain values of elasticity of substitution between skilled and unskilled workers, the relative demand fell over the period 2003–10.5 The trend of reducing income inequality during the 2000s was counteracted by the rise of remittances which have tended to increase income inequality (Olivié et al. 2009).

14.7 Conclusions

By Latin American standards, Ecuador experienced moderate economic growth during the 2000s. The country underwent a mild recession as a consequence of (p.283) the international crisis of 2008, but the Ecuadorean economy returned to pre-recession GDP per capita level in 2010.

The evidence regarding the changes in labour market indicators indicated that most of these improved between 2003 and 2012. The unemployment rate fell. The composition of employment by occupational group improved between 2003 and 2012 as workers moved from elementary and craft and trades occupations to better-paying occupations, like professional, clerical, and services and sales jobs. Employment composition by economic sector improved over the course of the period studied through a reduction in the share of workers in low-earning sectors such as domestic service, primary activities, and low-tech industry, and an increase in the share of high-earning sectors like skilled services. The educational level of the employed population improved steadily over the period and the share of wage/salaried employees registered with the social security system increased. Finally, labour earnings increased between 2003 and 2012. The only labour market indicator that did not improve over the period studied is the employment structure by occupational position which deteriorated between 2003 and 2012. The moderate and extreme poverty rates, the rate of working poor households, and the Gini coefficient of per capita household income and labour earnings all decreased over the period.

Looking specifically at the international crisis of 2008, most labour market indicators were affected negatively by the crisis. The unemployment rate increased but then fell, recovering the pre-recession level by 2010. The employment composition by occupational group and economic sector worsened during the crisis but the pre-recession structures were recovered in 2010. Most of the worsening in the employment structure by occupational position took place after the international crisis. Labour earnings fell during the crisis overall and for most population groups and employment categories, and not all of them recovered the pre-crisis level of earnings by the end of the period. The poverty indicators stopped decreasing during the international crisis, but recovered the downward trend immediately.

Young workers had worse labour market outcomes over the period compared to adults, but they do not seem to be more vulnerable to macroeconomic crises. Men and women exhibited a balanced situation in their labour market outcomes, but men were most affected by the negative impacts of the 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 workers registered with 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 and (p.284) their educational level improved more than that of adults. Despite the generally inferior situation of young workers in the labour market compared to adults, adult workers were more affected by the international crisis of 2008 in all labour market indicators. Disaggregating by gender, we found that men were better than women in some cases, e.g. the male unemployment rate was lower, the share of male workers in low-earning positions was lower compared to women, and labour earnings of men were higher than labour earnings of women; in other cases, the opposite occurred, e.g. the percentage of workers registered with the social security system was larger for women compared to men, and the share of workers in low-earning occupations and sectors was lower for women compared to men. The negative impacts of the crisis affected men more than women in all labour market indicators.

In summary, labour market conditions in Ecuador were generally in a better situation in 2012 than they were in 2003 despite the international crisis of 2008. All population groups were affected negatively by the international crisis, but adult workers and men were more vulnerable than young workers and women.

References

Bibliography references:

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Notes:

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

(2) The most frequent value of years of education for employed workers in Ecuador was six during the entire period (around 26.8 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 Ecuador in section 14.5.

(4) The cumulated net migration between 1996 and 2004 reached 858,374 individuals, which is very large compared to the size of the Ecuadorean labour force (Larrea Maldonado 2007).

(5) According to the educational level classification used by the authors, most workers employed in the oil sector are unskilled workers.