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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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El Salvador

El Salvador

Chapter:
(p.286) 15 El Salvador
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/9780198801085.003.0015

Abstract and Keywords

During the 2000s, El Salvador experienced slow economic growth for Latin American standards. The country underwent a recession during the international crisis of 2008, but returned to pre-recession output level in 2011. Changes in labour market conditions were mixed. The unemployment rate fell, and the mix of employment by occupations, economic sector, and education improved slightly. However, the employment mix by occupational position deteriorated, and the share of registered workers and earnings decreased. Most labour indicators were affected adversely by the crisis, and some have yet to return to pre-crisis levels. Most poverty and inequality indicators fell over the period.

Keywords:   El Salvador, economic growth, recession, unemployment, educational level, poverty, inequality

15.1 Introduction

This chapter on labour markets and growth in El Salvador 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 El Salvador 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 2000 to 2012. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin (p.287) 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 El Salvador’s household surveys, and on comparability issues of these surveys over time.

15.2 Economic Growth

El Salvador experienced slow economic growth during the 2000s. The country underwent a recession as a consequence of the international crisis of 2008. The economy of El Salvador returned to its pre-recession GDP level in 2011. (Cruces et al. 2015: figures 1 and 2)

During the period 2000 to 2012, El Salvador experienced slow economic growth by Latin American standards. GDP per capita increased by 18.8 per cent, while the average for the eighteen Latin American countries was 36.2 per cent during the same period. GDP (measured in PPP dollars of 2005) grew by 25.6 per cent, and GDP per employed person rose by 3.1 per cent. GDP per capita grew at an average annual rate of 1.5 per cent, with a minimum rate of −3.6 per cent in 2009 and a maximum rate of 3.5 per cent in 2006 (Table 15.1).

Table 15.1 El Salvador: 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

5,155

5,220

5,322

5,425

5,506

5,682

5,880

6,080

6,129

5,906

5,953

6,048

6,125

El Salvador

GDP per capita growth rate

1.64

1.26

1.95

1.94

1.50

3.18

3.50

3.39

0.80

−3.63

0.80

1.60

1.26

El Salvador

Employment and Earnings Indicators

Employment-to-population ratio

55.92

56.05

54.96

56.76

55.52

55.37

56.38

56.98

57.61

56.76

56.69

57.16

58.09

El Salvador

Unemployment rate

6.86

7.00

6.20

6.95

6.78

7.19

6.50

6.39

5.92

7.34

7.04

6.64

6.06

El Salvador

Share of low-earnings occupations

57.32

56.97

55.78

54.94

55.73

55.11

55.19

54.76

55.86

55.56

55.21

55.54

55.86

El Salvador

Share of mid-earnings occupations

30.09

30.84

31.45

32.22

32.29

31.50

31.96

32.32

31.41

31.81

32.95

33.13

32.37

El Salvador

Share of high-earnings occupations

12.59

12.19

12.77

12.84

11.98

13.39

12.85

12.91

12.73

12.63

11.83

11.34

11.78

El Salvador

Share of employers

5.54

4.76

4.75

4.78

4.38

4.53

4.46

4.49

4.33

4.27

4.06

3.70

4.17

El Salvador

Share of wage/salaried employees

57.35

58.15

56.49

59.26

60.42

57.67

61.17

59.88

58.90

56.88

57.75

57.88

57.65

El Salvador

Share of self-employed workers

30.58

28.78

31.10

28.86

28.65

29.93

27.12

28.15

29.22

30.82

30.42

30.22

29.48

El Salvador

Share of unpaid family workers

6.54

8.32

7.66

7.10

6.55

7.87

7.25

7.48

7.54

8.04

7.78

8.20

8.70

El Salvador

Share of workers in low-earnings sectors

38.97

38.39

36.54

34.99

35.47

35.00

34.32

33.78

35.98

36.52

35.92

36.76

36.28

El Salvador

Share of workers in mid-earnings sectors

46.46

47.89

50.09

51.42

50.90

50.98

52.17

52.27

50.21

49.79

50.06

48.56

49.28

El Salvador

Share of workers in high-earnings sectors

14.57

13.72

13.38

13.60

13.63

14.01

13.51

13.95

13.80

13.69

14.03

14.69

14.44

El Salvador

Share of low-educated workers

60.88

59.21

57.68

56.92

55.89

55.65

54.05

53.49

53.63

53.58

52.46

53.27

51.69

El Salvador

Share of medium-educated workers

28.55

30.36

31.14

31.97

33.06

31.97

33.92

34.62

34.18

34.10

35.64

35.37

36.36

El Salvador

Share of high-educated workers

10.57

10.43

11.19

11.11

11.04

12.38

12.03

11.89

12.19

12.32

11.90

11.36

11.95

El Salvador

Share of workers registered with SS

31.07

30.81

31.17

31.28

30.32

30.41

31.50

31.33

30.72

28.65

28.03

28.03

27.65

El Salvador

Mean labour earnings

549.5

523.6

527.6

476.9

487.4

482.7

486.2

464.0

461.2

440.5

423.0

426.3

El Salvador

Poverty and Inequality Indicators

Poverty rate 2.5 dollars-a-day

23.78

25.32

25.16

22.34

22.29

18.68

15.16

20.21

18.72

19.75

16.57

14.68

El Salvador

Poverty rate 4 dollars-a-day

41.35

42.29

42.76

41.57

41.77

38.84

35.66

40.99

38.85

39.31

37.87

34.84

El Salvador

GINI of household per capita income

0.513

0.510

0.515

0.473

0.478

0.454

0.452

0.466

0.459

0.445

0.424

0.418

El Salvador

GINI of labour earnings

0.504

0.502

0.520

0.472

0.489

0.475

0.471

0.466

0.498

0.480

0.462

0.470

El Salvador

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).

The growth experience of El Salvador was sluggish at the beginning of the decade, from 2000 to 2004, when the average GDP growth rate was 2.1 per cent. Previous crises characterized by high inflation rates and income stagnation led to the dollarization of the economy in 2001 (IMF 2005; Castillo Ponce and Rodríguez Espinosa 2009). However, the country was affected by several negative shocks during these years: the decline in the international prices of its main agricultural products, such as coffee and sugar; the competition of Chinese manufacturing products, mainly textiles; the recession in the US, its main trade partner; and some natural disasters like hurricanes and earthquakes (Monge-Naranjo and Rodríguez-Clare 2009).

From 2005 to 2007, the economy of El Salvador accelerated its growth based on the recovery of agricultural prices, government support of agricultural producers, and private consumption funded by remittances (Osorio 2009; IMF 2015). The average GDP growth rate was 3.8 per cent during this period.

The Salvadoran economy was negatively affected by the international crisis of 2008 due to its strong ties to the US economy (IMF 2010). Remittances, (p.288) (p.289) (p.290) consumption, and exports fell sharply in 2009, leading to a reduction in GDP and GDP per capita of 3.1 and 3.6 per cent respectively. The government implemented some expansionary fiscal measures (Plan Global Anti-Crisis) such as cash and in-kind transfers and financial support to local producers (Ministerio de Hacienda 2011). The country began a recovery in 2010, reaching the pre-crisis GDP level in 2011 and the pre-recession level of GDP per capita in 2012.

The share of the agricultural and service sectors in the economy increased between 2000 and 2012, while the share of the industrial sector diminished. The share of the service sector—the country’s largest economic sector—increased from 58.1 per cent in 2000 to 61.0 per cent in 2012 (Cruces et al. 2015: table 2). The share of the agricultural sector also grew during that period, climbing from 10.5 per cent to 11.8 per cent. Within the period, the share of the agricultural sector fell from 2000 to 2004 due to the decline in the international prices of the main agricultural products of the country. In the following years, the sector recovered, based on government support to producers and increases in international prices. The share of the industrial sector, on the other hand, diminished during the same period, dropping from 31.4 per cent in 2000 to 27.2 per cent in 2012. The industry sector was affected negatively by the competition from Chinese textile products which led to the decline of the maquila subsector in El Salvador (Monge-Naranjo and Rodríguez-Clare 2009). All three sectors were hit by the international crisis. In 2009, the value added of the industrial sector dropped by 3.3 per cent; the figures for the agricultural and service sectors were 2.9 and 3.1 per cent respectively. The industrial and service sectors returned to pre-recession value-added levels in 2011. The agricultural sector recovered more quickly, reaching the pre-crisis value-added level in 2010.

15.3 Unemployment

The unemployment rate dropped slightly from 2000 to 2012. It decreased for youths, adults, and men, but increased for women. While the unemployment rate increased during the international crisis, it had returned to the pre-crisis level by 2012. Throughout the period analysed, the unemployment rate varied within a narrow band of 6.0 to 7.0 per cent.(Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) decreased from 6.9 per cent in 2000 to 6.1 per cent in 2012 (Table 15.1). The number of unemployed people exhibited an increase over the period, from (p.291) 124,314 in 2000 to 167,515 in 2012. The reduction in the unemployment rate was then explained by the more rapid increase in the number of people in the labour force. The evolution of the unemployment rate was erratic from 2000 to 2005 with an average level of 6.8 per cent; it decreased from 2006 to 2008 and rose by 0.8 percentage points during the international crisis. Both the number of persons in the labour force and the number of employed persons increased between 2008 and 2009 by 55,488 and 15,519 respectively. These figures suggest that the increase in the unemployment rate during the international crisis was explained by the new entrants into the labour market who could not find a job. In 2010, the unemployment rate began a downward trend, and by 2012 it had returned to its pre-recession level.

From 2000 to 2012, the unemployment rate decreased for youth, adults, and men, while it increased slightly for women. The unemployment rate increased for all population groups during the international crisis. The rise between 2008 and 2009 was larger for young workers compared to adults, and for men compared to women. Adult workers and men had returned to their pre-recession unemployment rates by the end of the period studied, while young workers and women had yet to reach their pre-crisis unemployment levels.

15.4 Job Mix

The composition of employment by occupational group improved slightly from 2000 to 2012, shifting overall from low-earning occupations such as agricultural, forestry and fishery, and craft and trade jobs to mid-earning occupations such as service and sales jobs. The employment composition by occupational group worsened for young workers and for men over the period, while it improved for adult workers and for women. The trend in employment composition by occupational group was not affected by the international crisis of 2008. This holds true on an aggregate level and when the figures are broken down by population groups.(Cruces et al. 2015: figure 4)

The occupational structure of employment improved slightly from 2000 to 2012. The share of workers in low-earning occupations (agricultural, forestry and fishery, elementary, and craft and trade occupations) decreased by 1.5 percentage points and the share of workers in high-earning occupations (management, professionals, and technicians) fell by 0.8 percentage points, which yielded an increase in the share of mid-earning occupations (clerical, services and sales jobs, plant and machine operators, and armed forces) (Table 15.1). Specifically, the share of services and sales jobs in total (p.292) employment increased by 4.9 percentage points over the period (Cruces et al. 2015: table 3).

From 2000 to 2012, the employment composition by occupational group worsened for young workers and for men, while it improved for adult workers and for women.

The overall trend in the composition of employment by occupational group was not affected by the international crisis of 2008. This holds true when the analysis is broken down by population groups.

The employment structure by occupational position deteriorated between 2000 and 2012 for the employed population as a whole, for young workers, and for men, while it improved for adult workers and remained unchanged for women. During the international crisis of 2008, the employment structure by occupational position worsened for adult workers and for women; the deterioration already underway for young workers and men at the onset of the crisis continued during the episode. (Cruces et al. 2015: figure 5).

During 2000–12, the share of paid employees in total employment—the largest category in El Salvador—was essentially unchanged, increasing slightly from 57.4 to 57.7 per cent. The share of unpaid workers increased from 6.5 to 8.7 per cent. The share of employers and of the self-employed, though, fell from 5.5 to 4.2 per cent and from 30.6 to 29.5 per cent respectively (Table 15.1). These changes can be characterized as a deterioration of the employment structure by occupational position: the share of low-earning categories (self-employment and unpaid employment) increased by a total of 1.1 percentage points while the share of high-earning categories (paid employees and employers) decreased.

Over the period 2000–12, the employment structure by occupational position deteriorated for young workers and for men, improved for adult workers, and remained essentially unchanged for women.

Among adult workers and women, a deterioration in their employment structure by occupational position set in with the international crisis of 2008. In the case of young workers and men, the crisis simply meant a continuation of pre-existing worsening trends. The increase in the share of low-earning positions for adult workers and women can be understood in the context of increasing unemployment during the Great Recession. Economic necessity may have compelled adult workers and women to take up free-entry self-employment activities. The share of low-earning positions in total employment began a downward trend in 2010 and 2011 for adult and women workers respectively, and these low-earning shares reached their pre-crisis levels by 2012. Among young workers and men, the pre-existing worsening trend in employment structure by occupational position continued during the international crisis of 2008. (p.293)

The employment composition by economic sector improved slightly over the period studied overall and for adult workers and men, while there was a slight deterioration for young workers and an improvement for women. The international crisis of 2008 brought these trends to a standstill. (Cruces et al. 2015: figure 6)

During 2000–12, the share of workers in low-earning sectors (primary activities, domestic service, and low-tech industries) dropped from 39.0 per cent to 36.3 per cent. This reduction was driven by the decline in the share of the low-tech industry sector (a drop of 3.4 percentage points over the period), which was affected negatively by the competition from Chinese textiles. The primary activities sector exhibited a decline in its share of total employment from 2000 to 2003, when the international prices of Salvadoran agricultural products were falling. In the following years, the primary activities sector recovered and ended the period with a slight increase in its share of total employment. The share of workers in high-earning sectors (public administration, skilled services, and utilities and transportation) also decreased, though only slightly during the period, from 14.6 per cent in 2000 to 14.4 per cent in 2012 (Table 15.1). As a result, the share of workers in mid-earning sectors like education and health and commerce grew during 2000–12.

The composition of the employed population by economic sector improved over the period for women, improved slightly for adults and men, and suffered a slight deterioration for young workers. During the international crisis of 2008 the trends described above stalled. Between 2008 and 2009, the share of low-earning sectors in total employment stopped decreasing in the aggregate, for young and adult workers and for men, while it continued with the downward trend for women. Construction and low-tech industry, mid- and low-earning sectors respectively, were the sectors that suffered the largest reductions in their shares of total employment during the international crisis. The increase in the share of the primary activities sector driven by the increase in international food prices kept the share of low-earning sectors in total employment unchanged. The share of high-earning sectors was largely unchanged for all population groups. Women resumed the improving trend in their employment composition by economic sector in the post-crisis period. Young and adult workers and men had not recovered their pre-recession shares of low- and high-earning sectors by 2012.

The educational level of the employed population improved over the period, overall and for all population groups, though the improvement was particularly dramatic among young workers. The educational levels of young workers and of men deteriorated during the international crisis. (Cruces et al. 2015: figure 7)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 60.9 per cent in 2000 to 51.7 per cent in 2012, (p.294) while the share of employed workers with medium and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 28.6 per cent in 2000 to 36.4 per cent in 2012 and from 10.6 per cent to 12.0 per cent respectively (Table 15.1).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 levels of earnings.3

While the educational level of the employed population improved for all population groups, that improvement was particularly dramatic among young workers.

The international crisis of 2008 had a negative effect on the educational levels of young and male employed workers, but no effect on the educational levels of adult or female workers. The shares of young and male employed workers with low educational levels increased between 2008 and 2009, the shares with medium educational levels declined, and the shares with high levels of education remained essentially unchanged. A possible explanation for this worsening in the employment structure by educational level can be found in the previous evidence of increasing unemployment and worsening employment structure by occupational position during the international crisis. Better-educated workers could afford to remain unemployed during the crisis, while the less educated workers were compelled by economic necessity to take up free-entry self-employment activities or unpaid family work. In 2010, both population groups returned to their pre-crisis levels of education. The international crisis did not have an adverse effect on the educational levels of adult or women employed workers.

The overall share of workers registered with the social security system fell between 2000 and 2012. While this decline held for all population groups, it was particularly large among young workers and women. The bulk of the drop took place in the wake of the international crisis of 2008. (Cruces et al. 2015: figure 8)

The social security system in El Salvador comprises both contributory and non-contributory schemes. Specifically, the pension system is organized under four regimes (Martínez Franzoni 2013). First, the Sistema Público de Pensiones is (p.295) ruled by the Instituto Salvadoreño de Seguridad Social (ISSS). Currently, it only covers public workers who decided to remain in the public system after the reform that privatized the pension system in 1998 (Rubio and Valencia 2010). Second, the individual capitalization system is mandatory for wage/salaried employees and voluntary for self-employed workers. It is funded by employers’ and employees’ contributions. Third, the Bienestar Magisterial regime provides mandatory insurance to teachers of private and public schools and it is funded by the Ministry of Education and teachers’ contributions. Fourth, the Instituto de Previsión Social de la Fuerza Armada is mandatory for members of the armed forces. A non-contributory pension scheme was introduced in 2008 with the Pensión Básica Universal that is granted to people aged 70 and above living in extreme poverty. This pension is also combined with the Programa de Atención Integral a la Persona Adulta Mayor that grants health care for elders living in poverty. The health system in El Salvador is organized in three parts: public health, social insurance, and private services. The benefits that each system provides are highly stratified. Social security provides better-quality services than those run by the public health system, while private services are reserved for high-income earners.

Social security records show a reduction in the percentage of employed workers registered with the contributory scheme of the system during 2000–12, from 31.1 per cent in 2000 to 27.7 per cent in 2012 (Table 15.1). The bulk of the reduction took place during the international crisis of 2008. Between 2000 and 2008, the share of workers registered with the social security system was essentially unchanged. In 2009 alone, the share declined by 2.1 percentage points; this decreasing trend continued through the end of the period studied.

While the rate of registration with the social security system dropped for all population groups, the decline was greater for young workers and women. For all population groups, the downward trend in the share of workers registered with the social security system started during the international crisis of 2008.

15.5 Labour Earnings

Labour earnings decreased from 2000 to 2012. The decrease in earnings holds true overall and for all population groups and employment categories. The percentage drop in income earnings was in general larger in high-earning categories than in low-earning categories. The pre-existing decrease in labour incomes continued during the international crisis of 2008 for all population groups and for most employment categories.(Cruces et al. 2015: figure 9)

(p.296) Average monthly earnings, expressed in dollars at 2005 purchasing power parity (PPP), decreased by 22.4 per cent, dropping from US$549.5 in 2000 to US$426.3 in 2012 (Table 15.1). The declining pattern occurred despite the positive growth rates in most of the years analysed and was more accentuated in the second half of the period under study. The reduction in labour earnings was −0.4 per cent annually between 2000 and 2007 and −2.6 per cent a year from 2008 to 2012. Hourly wages followed a similar declining pattern over the period (Cruces et al. 2015: table 7). The reduction in hourly wages can be explained by the low level of minimum wages in El Salvador and their slow adjustment in comparison with the inflation rate. In 2008, the cost of a basic basket of food could not be covered by two minimum wages (Rubio and Valencia 2010). Our previous evidence of increasing share of low-earning occupations in total employment, increasing share of unregistered workers, and decreasing shares of high-earning occupations and sectors provides a possible explanation for the pattern of declining average labour incomes over the period. As the employment categories that typically obtain low levels of earnings gain share in total employment, average labour income decreases. However, as explained below, labour incomes fell for each employment category.

Labour earnings of all population groups and employment categories decreased between 2000 and 2012, with greater percentage losses in labour earnings for high-earning than for low-earning categories. The loss of labour income for workers in low-earning occupational groups was lower than the earning loss for workers in high-earning occupations. The average reduction in labour income was similar between low- and high-earning occupational positions. The reduction in labour income during 2000–12 for high-earning economic sectors was twice as large as the earnings reduction for workers in low-earning economic sectors. When broken down by educational level, the reduction in labour income was larger for workers with high educational levels when compared to workers with medium and low levels of education. The evidence of larger labour earnings reductions for workers with high educational levels compared to those with medium and low educational levels can be interpreted in light of previous findings of slight improvement in the employment structure by occupational group and economic sector over the period. In El Salvador, the slight improvement in the 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 medium educational levels, such as services and sales, armed forces occupations, commerce, and education and health sectors, and a reduction in the share of occupations and sectors that employ workers with low educational levels, such as craft and related trades jobs, agricultural, forestry, and fishery occupations, and low-tech industry sectors. This evidence indicates that the demand for workers with medium educational levels relative to those with low and (p.297) high educational levels increased over the period 2000–12. 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 medium educational levels relative to those with low and high educational levels will rise or fall depending on which effect dominates (increase in the relative demand versus increase in the relative supply). In the Salvadoran labour market, the relative wages of workers with high and medium educational levels relative to those 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 an increase in the unemployment rate of all educational groups that was larger among workers with high levels of education (Cruces et al. 2015: table 9).

For all population groups and most employment categories, the pre-existing downward trend in labour earnings continued in the wake of the international crisis of 2008.

15.6 Poverty and Inequality

The poverty rate fell, albeit erratically, over the period studied for all poverty lines used. The rate of working poor households also decreased. Poverty rates increased in 2008, perhaps as an early effect of the crisis.(Cruces et al. 2015: figure 10)

The poverty rate measured by the 4 dollars-a-day international line fell from 41.4 per cent in 2000 to 34.8 per cent in 2012; the poverty rate based on the 2.5 dollars-a-day line dropped from 23.8 per cent to 14.7 per cent over the same period (Table 15.1). The percentage of working poor households (defined as the proportion of persons in the population living in poor households, according to the 4 dollars-a-day international line, where at least one member works) also decreased from 29.7 per cent in 2000 to 25.1 per cent in 2012. These indicators increased during the period of sluggish economic growth (between 2000 and 2003), dropped between 2003 and 2007, increased again in 2008 (perhaps as an early effect of the crisis), and then began a downward trend that continued through 2010. In 2011, all poverty indicators increased once again only to fall in 2012.

The poverty patterns reported in the last paragraph can be interpreted by examining incomes from various sources. The analysis of sources of household total income indicates that labour and capital income fell during 2000–12 (p.298) (Cruces et al. 2015: figure 11). Income from pensions exhibited small changes over the period. Finally, remittances increased from 2000 to 2003 when a steady downward trend began. A closer examination of the evolution of remittances indicates that the number of households receiving money from abroad grew between 2000 and 2006, fell in the following years, especially during the international crisis of 2008, and stabilized starting in 2009. Income from remittances is important in the Salvadoran economy. They represented 16.6 per cent of GDP in 2004 and are assigned to consumption, education and health mainly (Cáceres and Saca 2006). Rivera Campos and Lardé de Palomo (2002) have estimated that remittances helped to reduce the poverty rate by 4.2 per cent in 2000. Finally, government transfers from anti-poverty programmes (not available in the EHPM’s surveys) have had a reducing impact on poverty (IFPRI-FUSADES 2010; Martínez et al. 2014).

Household per capita income and labour earnings inequality decreased between 2000 and 2012. While the international crisis of 2008 led to an increase in labour earnings inequality, the country recovered in the following years. (Cruces et al. 2015: figure 12)

Between 2000 and 2012, the Gini coefficient of household per capita income fell from 0.513 to 0.418. The Gini coefficient of labour earnings among employed workers declined from 0.504 in 2000 to 0.470 in 2012 (Table 15.1). The reduction in labour earnings inequality is in keeping with the fact that earnings suffered a larger reduction for high-earning categories compared to low-earning employment categories. However, it is interesting to notice that earnings declined for all the categories. Consequently, the reduction in labour earnings inequality occurred at the expense of income losses. A year-by-year analysis shows that the inequality of household per capita income had an almost steady declining trend over the period with the exception of 2008, when it rose perhaps as an early effect of the crisis, and after which the downward trend resumed. The Gini coefficient of labour earnings exhibited a similar trend, with an increase in 2009. After the international crisis, a declining trend began that was interrupted in 2012.

Changes in household per capita income inequality in El Salvador 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 2000–10 and found that changes in labour incomes contributed the most to the inequality reduction over this period (the Gini coefficient of household per capita income decreased from 0.513 to 0.445 between 2000 and 2010). Changes in non-labour incomes, such as government transfers, and demographical changes, like the share of adults per household, were also inequality-reducing. Other studies have analysed the factors behind the evolution of labour income inequality. Azevedo et al. (2013a) used a decomposition approach and found (p.299) that changes in the education wage premium (or the ‘price effect’) were inequality-reducing, while changes in the distribution of the stock of education (the ‘quantity effect’) were inequality-increasing in El Salvador between 2000 and 2009. Gasparini et al. (2011) found large fluctuations in the gap between the wages of skilled workers (those with complete or incomplete college education) and unskilled workers (those who have completed secondary education or less) in El Salvador between 2000 and 2007, with a similar level at the end of the period compared to the beginning. The authors claim that this pattern is consistent with a volatile but roughly constant relative demand for skilled labour over the period.

15.7 Conclusions

By Latin American standards, El Salvador experienced slow economic growth during the 2000s. The country suffered a recession as a consequence of the international crisis of 2008. The pre-recession output level was reached in 2011.

The evidence on changes in labour market indicators during 2000–12 is mixed. Some improved, while others deteriorated. The unemployment rate fell from 2000 to 2012. The composition of the working population by occupational group improved slightly over the period, with an overall shift from low-earning occupations such as agricultural, forestry and fishery, and craft and trade jobs to mid-earning occupations such as service and sales jobs. The employment composition by economic sector also improved slightly during 2000–12 as workers moved from low-earning sectors such as low-tech industries to mid-earning sectors like education and health and commerce. The educational level of the employed population improved over the period. On the other hand, other labour market indicators deteriorated. The employment structure by occupational position worsened between 2000 and 2012 as the proportion of workers in high-earning categories (paid employees and employers) fell and the proportion of workers in low-earning categories (self-employed and unpaid workers) rose. The share of workers registered with the social security system dropped from 2000 to 2012. Finally, labour earnings decreased from 2000 to 2012. Poverty indicators fell over the period studied and household and labour income inequality also decreased.

The international crisis of 2008 had an adverse effect on most labour market indicators. The unemployment rate increased during the crisis and returned to pre-crisis levels in 2012. The employment structure by occupational position worsened during and after the crisis and pre-crisis levels had not been reached by the end of the period studied. The composition of employment by economic sector deteriorated during the international crisis, though the pre-crisis (p.300) level had been reached in 2010. The bulk of the reduction in the percentage of workers registered with the social security system took place during and after the international crisis of 2008. Labour incomes continued the pre-existing downward trend during the Great Recession. Finally, while poverty and inequality indicators increased during the crisis, the subsequent downward trend set in almost immediately.

Young workers had worse labour market outcomes over the period compared to adults and were more vulnerable to the international crisis. Men experienced worse labour market outcomes compared to women, and suffered more from the negative impacts of the international crisis. The unemployment rate was higher for young compared to adult workers, the shares of young employed workers in low-earning occupations 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. In addition to the generally inferior situation of young workers in the labour market compared to adults, youth labour market indicators were more adversely affected by the episodes of crises. The youth unemployment rate increased by more than the adult unemployment rate, the shares of workers in low-earning occupations and positions increased for young workers, while they decreased for adults, and the share of registered workers decreased more for young workers than for adults. Disaggregating by gender, we found that women had better labour market outcomes than men, with the only exceptions being the share of workers in low-earning positions that was larger among women and labour earnings that were higher for men. Moreover, men were hit hardest by the international crisis, as the unemployment rate and the shares of workers in low-earning occupations and positions increased more among men.

In summary, slow economic growth during the 2000s resulted in mixed changes in labour market conditions for Salvadoran workers.

References

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Azevedo, J. P., G. Inchauste, and V. Sanfelice (2013b). ‘Decomposing the Recent Inequality Decline in Latin America’. Policy Research Working Paper 6715. Washington, DC: World Bank.

Cáceres, L. R. and N. N. Saca (2006). ‘What Do Remittances Do? Analyzing the Private Remittance Transmission Mechanism in El Salvador’. Working Paper 06/250. Washington, DC: International Monetary Fund.

(p.301) Castillo Ponce, R. A. and L. Rodríguez Espinosa (2009). ‘La dolarización de El Salvador: ¿Una contribución negativa al crecimiento económico?’, Comercio Exterior 59 (11): 898–909. Mexico, DF: Banco Nacional de Comercio Exterior.

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Notes:

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

(2) The most frequent value of years of education for employed workers in El Salvador was twelve over the entire period under study (around 16.5 per cent of employed workers had twelve 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 El Salvador in section 15.5.