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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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Honduras

Honduras

Chapter:
(p.302) 16 Honduras
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/9780198801085.003.0016

Abstract and Keywords

During the 2000s Honduras grew less than the average Latin American country and labour market indicators moved, in general, in a worsening direction. The only exceptions were the reduction in the unemployment rate and the improvements in the mix of employment by occupational group and educational level. The country underwent a recession as a consequence of the international crisis of 2008, from which it had not fully recovered by 2012. Most labour market indicators were affected negatively by the crisis, and the majority of them had not recovered their pre-crisis levels by 2012. Poverty has been rising steadily since 2008.

Keywords:   Honduras, labour market indicators, unemployment, educational level, recession, poverty

16.1 Introduction

This chapter on labour markets and growth in Honduras 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 Honduras 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 Permanente de Hogares de Propósitos Múltiples (EPHPM), for the years 2001 to 2012. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin America and the Caribbean (CEDLAS and (p.303) 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 Honduras’s household surveys, and on comparability issues of these surveys over time.

16.2 Economic Growth

Honduras experienced slow economic growth during the 2000s. The country underwent a recession as a consequence of the international crisis of 2008. While GDP returned to its pre-recession output level in 2010, GDP per capita did the same in 2012. (Cruces et al. 2015: figures 1 and 2)

During the period 2000 to 2012 Honduras experienced slow economic growth by Latin American standards. GDP per capita increased by 27.0 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 61.6 per cent, and GDP per employed person exhibited a rise of 21.3 per cent. The annual growth rate of GDP per capita was 2.2 per cent, and it varied from a minimum of −4.4 per cent in 2009 to a maximum of 4.5 per cent in 2006 (Table 16.1).

Table 16.1 Honduras: 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

2,880

2,898

2,946

3,019

3,143

3,268

3,414

3,554

3,631

3,473

3,531

3,593

3,657

Honduras

GDP per capita growth rate

3.57

0.63

1.67

2.46

4.12

3.95

4.47

4.10

2.18

−4.36

1.67

1.76

1.78

Honduras

Employment and Earnings Indicators

Employment-to-population ratio

59.91

58.39

54.76

56.07

58.65

57.72

57.07

57.19

59.32

59.36

57.24

56.21

Honduras

Unemployment rate

4.60

4.24

5.54

5.99

4.92

3.58

3.15

3.11

3.28

4.10

4.42

3.73

Honduras

Share of low-earnings occupations

61.93

62.49

63.07

61.13

62.12

61.71

59.72

61.34

Honduras

Share of mid-earnings occupations

25.21

23.56

22.74

23.85

24.69

25.40

26.74

25.67

Honduras

Share of high-earnings occupations

12.86

13.95

14.19

15.03

13.19

12.90

13.54

13.00

Honduras

Share of employers

10.38

9.33

9.07

11.90

11.56

11.88

13.74

13.66

12.54

13.21

11.12

11.59

Honduras

Share of wage/salaried employees

47.04

47.25

50.12

49.17

47.24

47.68

48.94

49.00

47.02

44.23

46.83

42.91

Honduras

Share of self-employed workers

33.58

33.22

32.21

29.34

31.29

31.19

29.06

28.52

31.50

32.07

30.71

34.73

Honduras

Share of unpaid family workers

9.00

10.20

8.61

9.58

9.91

9.25

8.25

8.81

8.94

10.48

11.34

10.77

Honduras

Share of workers in low-earnings sectors

46.51

52.73

48.94

49.67

48.21

50.91

48.84

47.70

48.66

49.91

49.43

50.11

Honduras

Share of workers in mid-earnings sectors

43.66

37.68

41.71

40.50

42.11

38.90

40.94

41.29

41.49

40.15

41.17

40.31

Honduras

Share of workers in high-earnings sectors

9.83

9.59

9.35

9.83

9.68

10.19

10.22

11.01

9.84

9.94

9.40

9.59

Honduras

Share of low-educated workers

77.60

79.51

79.24

76.52

76.15

75.48

74.48

72.23

73.22

70.97

69.32

70.19

Honduras

Share of medium-educated workers

17.30

14.86

16.07

18.11

18.63

19.00

19.60

21.25

21.18

22.72

24.04

23.60

Honduras

Share of high-educated workers

5.10

5.63

4.69

5.37

5.22

5.52

5.91

6.52

5.60

6.31

6.63

6.21

Honduras

Share of workers registered with SS

6.19

5.00

6.34

4.40

5.63

5.42

5.21

Honduras

Mean labour earnings

430.1

393.2

394.6

404.1

372.1

391.6

431.2

457.9

421.2

416.3

448.4

395.0

Honduras

Poverty and Inequality Indicators

Official extreme poverty rate

45.7

50.9

47.8

45.4

46.5

41.1

37.1

38.8

36.2

38.8

41.0

44.6

Honduras

Official moderate poverty rate

64.7

69.5

66.7

64.5

65.5

61.0

59.6

59.7

58.2

59.8

61.2

65.3

Honduras

Poverty rate 2.5 dollars-a-day

37.04

47.95

47.89

46.77

47.41

42.04

36.96

34.01

31.34

33.99

37.40

42.42

Honduras

Poverty rate 4 dollars-a-day

55.91

64.28

64.38

63.29

64.16

58.80

56.00

52.05

50.04

53.30

56.39

61.28

Honduras

GINI of household per capita income

0.539

0.577

0.583

0.581

0.593

0.573

0.560

0.556

0.516

0.534

0.572

0.573

Honduras

GINI of labour earnings

0.541

0.545

0.558

0.556

0.575

0.546

0.553

0.554

0.526

0.543

0.582

0.580

Honduras

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 beginning of the period was characterized by slow growth in Honduras. The economy was recovering from Hurricane Mitch that in 1998 affected four out of five Hondurans (García Merino 2009). However, the policy efforts were erratic and adulterated by institutional weaknesses which contributed to widespread social unrest (IMF 2006). In 2001, the country was also affected negatively by the slowdown of growth in the US and the collapse in world coffee prices (IMF 2001). Between 2000 and 2003, the GDP growth rate averaged 4.2 per cent and GDP per capita grew at 2.1 per cent annually.

Growth rebounded strongly in 2004, reflecting favourable external conditions that allowed for export increases and rising consumption through the strong growth in remittances (IMF 2006). From 2004 to 2008, the economy grew rapidly at 5.9 per cent a year, while GDP per capita increased at 3.8 per cent annually. Despite the strong economic growth, some social tensions re-emerged as a result of the implementation of a fiscal adjustment, of which the key element was the limitation of increases in the wage bill (IMF 2006).

(p.304) (p.305) (p.306) The international crisis of 2008 affected the country negatively, mostly in terms of a drop in exports, foreign direct investment, and remittances (Johnston and Lefebvre 2013). GDP declined by 2.4 per cent in 2009 while GDP per capita fell by 4.4 per cent the same year. Besides the international crisis, the country experienced problems stemming from a military coup in 2009. At the time of the coup, Honduras had proven itself relatively capable of responding to the recession and of stimulating growth. The debt-to-GDP ratio, debt-servicing costs, and fiscal deficit were at low levels, enabling an expansionary fiscal policy (Johnston and Lefebvre 2013). The political instability, though, prevented the country from adopting the measures needed to counteract the effects of the global recession, e.g. the new government reduced the public expenditure level (Cordero 2009). The economy returned to the pre-recession GDP level in 2010, but GDP per capita did not recover until 2012. After the crisis, annual GDP and GDP per capita growth rates stabilized at around 3.8 and 1.7 per cent respectively, led by increases in the external demand for Honduran exports, increases in their prices, and rises in remittances (Otter and Borja 2010).

16.3 Unemployment

The unemployment rate fell from 2001 to 2012, though erratically. It decreased for youths, adults, and for men, but it had a mild increase for women. During the international crisis, the unemployment rate increased and had not fully recovered by 2012. (Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) decreased from 4.6 per cent in 2001 to 3.7 per cent in 2012 (Table 16.1). The number of unemployed people, though, increased from 107,036 in 2001 to 120,832 in 2012. The downward general pattern in the unemployment rate over the period was driven by a more rapid increase in the number of people in the labour force (from 2,328,949 in 2001 to 3,237,912 in 2012).2 The behaviour of the unemployment rate over the period was erratic. The years 2001 and 2002 witnessed a drop from 4.6 to 4.2 per cent that was followed by an increase to 6.0 per cent in 2004. The increase in the unemployment rate in 2004 took place in the context of a rapidly growing economy and an expanding labour market (GDP increased by 6.2 per cent in 2004). The more rapid increase in the number of unemployed people compared to the rise in the (p.307) number of persons in the labour force indicates that the labour market was not able to absorb all new entrants. A major decline in the unemployment rate was observed in the following years. The unemployment rate fell as low as 3.1 per cent in 2008.

During and after the Great Recession and as GDP growth slowed, though, the unemployment rate increased and reached 4.4 per cent in 2011. Interestingly, the number of people in the labour force barely changed in 2011 and the number of employed persons declined (9,565 fewer employed persons), suggesting a reduction in the number of jobs. A major increase in the minimum wage implemented in 2008 is a factor that, jointly with the international crisis, had a worsening impact on the unemployment rate. There is evidence for Honduras showing that increases in the minimum wage led to disemployment effects in the private sector (Gindling and Terrell 2007). Specifically, the increase in the minimum wage in 2008 led to job losses in small and medium enterprises and in the industry sector (Villa and Lovo 2009). By 2012, a recovery took place, but the unemployment rate was still above the pre-crisis level (3.1 per cent in 2008 and 3.7 per cent in 2012).

The unemployment rate decreased for men, youth, and adult workers, while it increased slightly for women between 2001 and 2012. The effect of the international crisis on the unemployment rate was clear in 2010 and 2011. Adults and women suffered the largest increases in their unemployment rates compared to young workers and men. The unemployment rates of all population groups fell in 2012, but for adults and women they were still above their pre-crisis level of 2008.

16.4 Job Mix

The composition of employment by occupational group exhibited little changes between 2005 (when data on this variable started becoming available) and 2012. The few changes can be interpreted as an improvement as there was a shift overall from low-earning occupations such as elementary and trades occupations to better-paying occupations such as management and services and sales jobs. All population groups benefited especially adult workers and women. During the international crisis of 2008 the composition of employment by occupational group worsened for all population groups.(Cruces et al. 2015: figure 4)

The occupational structure of employment had a mild change over the period 2005–12.3 The few changes that did occur in the occupational composition of (p.308) employment can be interpreted as an improvement insofar as the share of low-earning occupations (elementary, agricultural, and craft and trade occupations) decreased by 0.6 percentage points, while the share of mid-earning (clerical, services and sales jobs, plant and machine operators) and high-earning occupations (management, professionals, and technicians) increased by 0.5 and 0.1 percentage points (Table 16.1). The small reduction in the share of low-earning occupations is explained by a fall in the share of craft and related trades jobs (drop of 3.0 percentage points) that was counteracted by an increase in the share of agricultural, forestry, and fishery occupations (rise of 2.8 percentage points). Among high-earning occupations, management jobs increased their share by 0.6 percentage points, and this change was almost offset by a reduction in the shares of professional and technical occupations. Finally, the small increase in mid-earning jobs was related to the rise in services and sales jobs (increase of 0.8 percentage points).

Adult workers and women appear to have benefited from the changes in the structure of employment by occupational group (they experienced a slight improvement and an improvement respectively) more than young workers and men respectively (both population groups exhibited a slight worsening).

During the international crisis of 2008, the composition of employment by occupational group worsened for all population groups. The years 2008 and 2009 witnessed an increase in the share of low- and mid-earning occupations in total employment and a reduction in the share of high-earning occupations. The increase was driven by agricultural and services jobs, which is in accord with previous evidence indicating that agricultural and services sectors were slightly affected by the crisis (Cruces et al. 2015: table 2). The share of low-earning occupations in total employment recovered the pre-crisis level by 2011 for adult workers, men, and women. Young workers could not regain the pre-recession share of low-earning occupations by the end of the period. The share of high-earning occupations, on the contrary, did not recover the pre-crisis level by 2012 for any of the population groups.

The employment structure by occupational position deteriorated between 2001 and 2012. The percentage of paid employees 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—the largest category—in total employment decreased by 4.1 percentage points over the period, from 47.0 per cent in 2001 to 42.9 in 2012. The share of the self-employed, on the other hand, increased by 1.2 percentage points, climbing from 33.6 per cent in 2001 to (p.309) 34.7 per cent in 2012. The share of unpaid workers also grew, increasing by 1.8 percentage points over the period, as did the share of employers, which witnessed an increase of 1.2 percentage points between 2001 and 2012 (Table 16.1). Insofar as the share of low-earning categories (self-employment and unpaid employment) increased by a total of 1.5 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 over the period for youth and adult workers and for both men and women. Between 2001 and 2012, all population groups exhibited an increase in the share of low-earning positions in total employment and a reduction in the share of high-earning categories.

The deterioration in the employment structure by occupational position in the aggregate and for all population groups occurred mainly during and following the international crisis of 2008. Between 2001 and 2008, the shares of wage/salaried employees and employers increased, while they fell during and after the international crisis (from 2008 to 2012). The share of the self-employed and the share of unpaid workers fell before the international crisis (from 2001 to 2008), while they increased during and after that event (from 2008 to 2012). The worsening in the structure of employment by occupational position is striking considering that the unemployment rate is low in Honduras—it suffered a slight increase during the crisis but recovered the downward trend by the end of the period—and that the labour force participation rate was falling over time. The changes in the structure of employment by occupational position can be interpreted in light of our previous finding related to the changes in the employment structure by occupational group. Between 2008 and 2012, services and agricultural jobs were among the occupations that exhibited the largest share of increases of total employment, and self-employed workers have a high relative weight in these occupational groups. On the other hand, technical jobs were among the occupations with the largest share of reduction in total employment, and wage/salaried employees have a high relative share in these occupations. By 2012, the employment structure by occupational position had not recovered the pre-crisis levels in the aggregate and for any of the population groups.

The employment composition by economic sector worsened over the course of the period studied, overall and for all population groups (youth, adults, men, and women). The deterioration occurred especially during the international crisis of 2008. (Cruces et al. 2015: figure 6)

The period 2001–12 witnessed an increase from 46.5 per cent to 50.1 per cent in the share of workers in low-earning sectors (domestic services, primary (p.310) activities, and low-tech industries). The increase was driven by the rise in the share of the primary activities sector. The share of workers in high-earning sectors (public administration, skilled services, and utilities and transportation) was largely unchanged over the period, shifting from 9.8 per cent in 2001 to 9.6 per cent in 2012. These changes resulted in a reduction in the share of mid-earning sectors (high-tech industry, construction, commerce, education, and health) in total employment (Table 16.1).

The employment composition by economic sector worsened for all population groups between 2001 and 2012—that is, young and adult workers, men, and women.

The international crisis of 2008 led to a worsening in the employment composition by economic sector in the aggregate and for all population groups. The growing share of workers in the primary activities sector—a low-earning sector—intensified during 2008–9. On the other hand, the share of workers in the low-tech industry sector—another low-earning sector—suffered a decline as the maquila was one of the subsectors most affected by the international crisis. However, the decline in the share of the low-industry sector was not enough to compensate for the increase in the share of the primary activities sector. At the other end of the scale, the share of workers in public administration and in the skilled services sectors—high-earning sectors—began a downward trend in 2008. All these changes determined a worsening in the employment structure by economic sector during the international crisis. By 2012, young workers, adult workers, and men had a worse employment composition by economic sector compared to the pre-crisis year (2008). Women finished the period with lower shares of low- and high-earning sectors than in 2008 and a larger share of mid-earning sectors.

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

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 77.6 per cent in 2001 to 70.2 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 17.3 per cent in 2001 to 23.6 per cent in 2012 and from 5.1 per cent to 6.2 per cent respectively (Table 16.1).4 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 (p.311) 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.5

The improvement in the educational level of the employed population occurred for all population groups, and primarily for young workers.

The pattern of improvement in the level of education of the employed population in Honduras continued even during the international crisis of 2008. That was also the case for all population groups.

Despite economic growth of the Honduran economy, the share of wage/salaried employees registered with the social security system exhibited a slight reduction between 2006 (when data on this variable started becoming available) and 2012, especially amongst adult workers and women. Most of the reduction took place during the international crisis of 2008. (Cruces et al. 2015: figure 8)

The social security system in Honduras is highly stratified. There are four contributory schemes and no non-contributory pension schemes (Martínez Franzoni 2013). First, the IHSS (Instituto Hondureño de Seguridad Social) grants benefits in the areas of illness, maternity, accidents at work, professional illnesses, disability, old age, death, and involuntary unemployment to workers of the private sector. Second, the INPREMA (Instituto Nacional de Previsión del Magisterio) provides life insurance, a disability pension, and a separation and retirement benefit to teachers in the public and private systems. Third, the INJUPEMP (Instituto Nacional de Jubilaciones y Pensiones de los Empleados y Funcionarios del Poder Ejecutivo) provides benefits in the case of retirement and death while in active service, as well as a disability pension to workers from the Executive branch. Finally, the IPM (Instituto de Previsión Militar) provides retirement benefits to the military, the police force, and firefighters. All contributory schemes are funded through contributions from employers and employees, and there is also a contribution from the government for the IHSS. Health care services are provided by the IHSS as part of the social security system.

Social security records show a small decrease in the percentage of wage/salaried employees registered with the contributory schemes of the system between 2006 and 2012, from 6.2 per cent in 2006 (76,301 registered workers) to 5.2 per cent in 2012 (69,730 registered workers) (Table 16.1). Thus, the employed population in Honduras has been largely informal—just 5.5 per cent registered over the period 2006–12.

All of the population groups, and primarily adult workers and women, suffered a reduction in the share of wage/salaried workers registered with the social security system over the period.

(p.312) The bulk of the reduction in the share of wage/salaried workers registered with the social security system took place during the international crisis of 2008. The share of wage/salaried workers enrolled with the social security system dropped between 2008 and 2009. Those figures improved in 2010, but then resumed the downward trend. The same pattern of adjustment was observed for all population groups.

16.5 Labour Earnings

Labour earnings decreased erratically from 2001 to 2012. Workers were affected by the 2008 international crisis and, as of 2012, earnings had not returned to pre-crisis levels. Adult workers, men, and women lost labour income between 2001 and 2012, while young workers increased their earnings. The evidence of earnings changes by employment categories indicates that labour earnings increased for low-earning categories and fell for high-earning categories in most cases. (Cruces et al. 2015: figure 9)

Average monthly earnings, expressed in dollars at 2005 purchasing power parity (PPP), decreased by 8.2 per cent, dropping from US$430 in 2001 to US$395 in 2012 (Table 16.1). For most of the period, changes in labour earnings did not reflect variations in the country’s economic performance. From 2001 to 2005, labour earnings decreased while GDP grew. Much of the drop in labour earnings during the period can be attributed to a falling hourly wage pattern (an average annual reduction of 1.9 per cent) (Cruces et al. 2015: table 7). The downward trend in hourly wages was related to the implementation of a fiscal adjustment, of which the key element was the limitation of increases in the wage bill (IMF 2006). From 2005 to 2009, there was a positive relationship between changes in GDP and in labour earnings; both increased from 2005 to 2008 and then fell in 2009 during the international crisis. The increase in labour earnings between 2005 and 2008 can be explained by higher hourly wages fuelled by continuous minimum wage increases that reached their historical maximum in 2009 (Otter and Borja 2010). However, average wage increases were always below the rises in the minimum wage for two reasons. First, because only wage/salaried employees benefit by its increase and they have represented less than half of the total employed population in Honduras over the period analysed. Second, among wage/salaried employees, only two thirds of them receive a wage above the minimum established by law. There is evidence showing that in Honduras minimum wages are effectively enforced in medium- and large-scale firms, but not in small firms or for the self-employed through a lighthouse effect (Gindling and Terrell 2007). While GDP had resumed its upward trend by 2010, labour (p.313) earnings continued to fall until 2011, when they increased briefly only to drop again in 2012.

Labour earnings of both men and women dropped from 2001 to 2012, as did the earnings of adults. The labour earnings of young workers, however, increased during that period. Among occupational groups, labour earnings of low-earning occupations enjoyed an average increase, while high-earning occupations suffered an average earnings reduction between 2001 and 2012. Among occupational positions, self-employed workers experienced the largest reduction in labour earnings between 2001 and 2012, followed by employers and wage/salaried employees, whose labour earnings varied only slightly. When broken down by economic sector, labour earnings increased for low-earning sectors and decreased for high-earning sectors. Disaggregating by educational levels, workers with medium levels of education experienced the largest decrease in earnings over the period. They were followed by workers with high educational levels; the earnings of workers with low educational levels exhibited a small increase over the period.

The evidence of falling labour earnings for workers with medium and high levels of education and almost no change for workers with low levels of education can be interpreted in light of previous findings of deterioration in the employment structure by occupational group and economic sector over the period. The deterioration in the employment structure by occupational group (especially during and after the international crisis) and economic sector implied a decrease in the share of occupations and sectors that can be expected to employ workers with high and medium educational levels, such as professional and technical occupations and the public administration sector, and an increase in the share of occupations and sectors that employ workers with low educational levels, such as agricultural, forestry, and fishery occupations, and the primary activities sector. This evidence indicates that the demand for workers with high and medium educational levels relative to those with low educational levels fell over the period in Honduras. 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 fall. In the Honduran labour market, the relative wages of workers with high and medium educational levels relative to those with low educational levels fell over the period, while the relative wages of workers with high educational levels with respect to workers with medium educational levels increased slightly (Cruces et al. 2015: table 7). The adjustment process also led to a reduction in the unemployment rate of workers with low educational levels and to an increase in the unemployment rate of workers with medium educational levels. (p.314) The unemployment rate of workers with high levels of education remained essentially unchanged over the period (Cruces et al. 2015: table 9).

The international crisis of 2008 impacted negatively on labour earnings overall and for most employment categories. Labour earnings decreased between 2008 and 2009 and could not regain the pre-recession level by 2012. Workers in agricultural, forestry and fishery occupations, management, service and sales occupations, and professionals were affected negatively by the international crisis; only workers from agricultural, forestry, and fishery occupations had returned to pre-crisis levels of income by 2012. Workers from all occupational positions were impacted adversely by the international crisis. Employers had returned to pre-recession earning levels by 2011; wage/salaried employees recovered more quickly, surpassing pre-crisis levels of income by 2010. As of 2012, self-employed workers had not recovered their pre-crisis income level. Workers in most economic sectors were affected negatively by the crisis. Labour earnings in low- and high-tech industries, commerce, utilities and transportation, skilled services, and education and health services began a downward trend in 2008 and had not recovered as of 2012. The earnings of workers performing primary activities had returned to pre-crisis levels by 2011, and the earnings of domestic workers appear not to have been affected by the crisis. The earnings of workers in the construction and public administration sectors were unstable, climbing and then dropping after the crisis. Amongst educational groups, as of 2012 none of them had recovered pre-crisis levels of earnings.

16.6 Poverty and Inequality

Whether poverty rose or fell over the period depends on the definition used. The moderate poverty rate and poverty rates based on international lines showed a mild increase between 2001 and 2012, while the extreme poverty rate fell over the same period. Within the period, poverty rates based on national and international poverty lines fell from 2002 to 2008 and increased during and after the Great Recession. The rate of working poor households was largely unchanged.(Cruces et al. 2015: figure 10)

The moderate poverty rate (measured by the country’s official poverty line) increased slightly, going from 64.7 per cent in 2001 to 65.3 per cent in 2012; the extreme poverty rate declined from 45.7 per cent to 44.6 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) barely changed from 54.3 per cent to 54.5 per cent over the same period (p.315) (Table 16.1). The analysis based on the 2.5 and 4 dollars-a-day lines indicates that poverty rates based on international poverty lines grew over the period as a whole (5.4 percentage points using both international poverty lines).

A closer look at the evolution of these poverty indicators reveals a steady downward trend from 2002 to 2009 followed by an increase after the international crisis. The reductions in all poverty indicators from 2002 to 2008 ensued during a period of relatively quick growth and of rising social spending and minimum wages (Johnston and Lefebvre 2013). Gillingham et al. (2008) indicate that social assistance instruments such as school lunches, PRAF (programmes among beneficiaries’ families) education grants, and other subsidies were all very well targeted during the poverty-reducing period, with at least two thirds of the benefits reaching the lowest two welfare quintiles. However, Honduras had difficulty implementing conditional cash transfers programmes: their impacts were limited and a duality emerged between the domestically directed and the externally financed programmes (Moore 2010). For the subperiod that spans from 2001 to 2004, Gindling and Terrell (2010) also demonstrate that an increase in the minimum wage led to a reduction in poverty. Following the international crisis of 2008, all poverty indicators began an upward trend which led to the vanishing of the improvements observed in the previous years. In fact, due to the rise at the end of the period, poverty rates based on international poverty lines grew over the period as a whole (5.4 percentage points using both international poverty lines). Poverty rate increases were associated with reductions in public spending in education, health, housing, and transport from 2010 to 2012 (Johnston and Lefebvre 2013).

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 income increased between 2002 and 2008, and decreased afterwards, mimicking the poverty indicators time trend (Cruces et al. 2015: figure 11). Incomes from pensions increased overall, especially during the poverty-reducing period (from 2002 to 2006). Income from poverty alleviation PRAF programme and Merienda Escolar programme mainly suffered a reduction between 2007 (the earliest we have detailed data on these variables) and 2009. In 2010, an upward trend started with the introduction of the Bono 10.000, a programme for education, health, and nutrition. Remittances have become an increasingly important source of income for Honduran families, especially in the first half of the 2000s. They represented around 10.0 per cent of total household income in 2007 (Villa and Lovo 2009). The explanatory factors for the increasing share of remittances in total household income are immigration to the US after Hurricane Mitch and the declining transaction costs for sending money from abroad (IMF 2006). However, remittances started a downward trend during the international crisis and had not recovered the previous levels by 2012 (Johnston and Lefebvre 2013).

(p.316) While there were some ups and downs, the period as a whole witnessed a slight increase in household per capita income inequality and labour earnings inequality. (Cruces et al. 2015: figure 12)

Between 2001 and 2012 the Gini coefficient of household per capita income grew from 0.539 to 0.573, while the Gini coefficient of labour earnings among employed workers increased from 0.539 to 0.573 (Table 16.1). Household per capita income and labour earnings inequality increased from 2001 to 2005, as did GDP. The Gini coefficient of household per capita income grew from 0.539 in 2001 to 0.593 in 2005 and the Gini coefficient of labour earnings increased from 0.541 in 2001 to 0.575 in 2005. The Gini fell from 2005 to 2009, reaching 0.516 in the case of household per capita income and 0.526 in the case of labour earnings. An upward trend resumed after the international crisis, with a slight recovery in 2012. Nonetheless, the inequality level measured by the Gini coefficient is still well above the pre-crisis level for both household per capita income and labour earnings.

Changes in household per capita income inequality in Honduras have been related mainly to changes in non-labour incomes. Azevedo et al. (2013b) decomposed the change in the Gini coefficient of household per capita income for the period 1999–2010 and found that changes in incomes from transfers and the share of adults by household contributed the most to the inequality reduction over this period (the Gini coefficient of household per capita income decreased from 0.543 to 0.534 between 1999 and 2010). Changes in labour incomes had only a small effect that was inequality-increasing. Otter and Borja (2010) analysed the period 2002–7 and found labour income reductions in the lower tail of the distribution of household per capita income that were compensated for by government transfers and remittances from abroad. On the other hand, there were labour income gains in the upper tail of the distribution. These structural changes resulted in a small change in the Gini coefficient of household per capita income, but made poorer people less able to improve their wellbeing through the labour market. Azevedo et al. (2013a) used a decomposition approach and found 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 Honduras between 1999 and 2009. However, both effects are small and most of the increase in the Gini coefficient over the period studied by these authors remained unexplained. Gasparini et al. (2011) found a reduction 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 Honduras over the 2000s. The shrinking educational earnings gap can be explained by factors related to supply and demand: the relative supply of skilled workers increased (p.317) steadily while the relative demand for those workers fell. Another factor associated with the evolution of earnings inequality is the minimum wage. Otter and Borja (2010) highlighted that increases in the minimum wage in Honduras only benefit wage/salaried workers, e.g. hourly wages of self-employed workers do not follow the trend of the minimum wage, and among wage/salaried workers one third receive less than the wage established by law, e.g. minimum wages are not completely enforced. As a result, self-employed workers end up receiving lower real wages than wage/salaried workers even in periods of economic growth.

16.7 Conclusions

By Latin American standards, Honduras experienced slow economic growth during the 2000s. The country underwent a recession as a consequence of the international crisis of 2008, and while the Honduran economy returned to the pre-recession GDP level in 2010, GDP per capita did not reach the pre-crisis level until 2012.

The evidence regarding the changes in labour market indicators between 2001 and 2012 showed more deteriorations than improvements. The improvements were as follows. The unemployment rate fell from 2001 to 2012. The composition of employment by occupational group improved slightly from 2005 to 2012, shifting overall from low-earning occupations such as elementary and trade occupations to better-paying occupations such as management and services and sales jobs. The educational level of the employed population improved over the period. On the other hand, some labour market indicators deteriorated. The employment structure by occupational position worsened during 2001–12 as the proportion of workers in high-earning categories (paid employees and employers) fell and the proportion in low-earning categories (self-employment and unpaid employment) rose. Employment composition by economic sector also worsened over the course of the period studied as the share of workers in low-earning sectors (domestic service, primary activities, and low-tech industries) increased while the share of workers in high-earning sectors (public administration, skilled services, and utilities and transportation) was largely unchanged. Despite the growth of the Honduran economy, the share of wage/salaried employees registered with the social security system experienced a slight reduction during 2006–12. Finally, labour earnings decreased from 2001 to 2012. The moderate poverty rate increased slightly from 2001 to 2012, as did household per capita income and labour earnings inequality measured by the Gini coefficient. On the other hand, the extreme poverty rate decreased over the period and the rate of working poor households was largely unchanged.

(p.318) Looking specifically at the international crisis of 2008, most labour market indicators were affected negatively by the crisis. The unemployment rate increased and had not fully recovered by 2012. The employment structure by occupational group worsened during the crisis. Most of the deterioration in the employment structure by occupational position and economic sector over the period 2001–12 took place during and after the international crisis of 2008. Labour earnings were affected negatively by the crisis and, as of 2012, earnings had not returned to pre-crisis levels. The poverty rates based on national and international poverty lines and the inequality of household per capita income and labour earnings increased during the international crisis and none of them returned to their pre-recession level by 2012.

Young workers had worse labour market outcomes over the period compared to adults, and men and women exhibited a balanced situation in the labour market. The international crisis affected adult workers more than young workers, while the impacts were evenly distributed between men and women. The unemployment rate was higher for young compared to adult workers, the share of young employed workers in low-earning occupations and sectors was larger than the share 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 positions was lower compared to adults. Despite the generally inferior situation of young workers in the labour market compared to adults, adult labour market indicators were more adversely affected by the episode of the international crisis. Disaggregating by gender, we found that men had better labour market outcomes than women in some cases, such as the unemployment rate, the share of workers in low-earning positions, and average labour earnings, while women were better than men for other labour market indicators, such as the share of workers in low-earning occupations and sectors, and the share of unregistered workers. Both men and women were evenly impacted by the international crisis.

In summary, slow economic growth in Honduras during the 2000s was associated, in general, with labour market conditions that moved in a worsening direction. Most of them were affected adversely by the international crisis of 2008 and did not recover their pre-crisis level by 2012.

References

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Notes:

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

(2) A more rapid increase in the number of working-age people with respect to people in the labour force determined a reducing labour force participation rate in Honduras over the period.

(3) There was a break in the composition of employment by occupational group in 2005, when the classifications used by Honduras were changed. Despite attempts to adapt the pre- and post-2005 classifications to our preferred categories, this rupture is evident. As a result, we decided to limit our description of the changes in the employed population by occupational group to the subperiod 2005–12.

(4) The most frequent value of years of education for employed workers in Honduras was six during the entire period (around 28.0 per cent of employed workers had six years of education).

(5) 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 Honduras in section 16.5.