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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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Panama

Panama

Chapter:
(p.340) 18 Panama
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/9780198801085.003.0018

Abstract and Keywords

Between 2000 and 2012, Panama boasted the strongest economic growth in Latin America. The growth experience was not uniform: the 2000–2 period was marked by slow or negative growth rates, after which growth was exceptionally rapid. Although the international economic crisis of 2008 slowed the growth process down, it rebounded in the years following the crisis. Labour market indicators have clearly improved. The economic crisis led to a temporary increase in unemployment, a drop in the share of paid employees, and a rise in some poverty indicators; all these effects were reversed by the end of the period studied.

Keywords:   Panama, economic growth, negative growth, labour market indicators, unemployment, poverty

18.1 Introduction

This chapter on labour markets and growth in Panama 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 Panama 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 (EH), for the years 2001–12. 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 World Bank 2014).1 The resulting labour market indicators (p.341) 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 Panama’s household surveys, and on comparability issues of these surveys over time.

18.2 Economic Growth

The Panamanian economy grew rapidly during the period 2000–12. The international crisis of 2008 did not affect the economy substantially.(Cruces et al. 2015: figures 1 and 2)

Panama is the Latin American economy that exhibited the highest economic growth from 2000 to 2012. The country’s GDP (measured in PPP dollars of 2005) grew by 126.5 per cent, GDP per capita increased by 81.9 per cent, and GDP per person employed rose by 51.8 per cent. The annual growth of GDP per capita averaged 4.8 per cent, varying from −1.4 per cent in 2001 to 10.1 in 2007 (Table 18.1).

Table 18.1 Panama: 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

7,869

7,758

7,776

7,947

8,383

8,819

9,396

10,346

11,192

11,424

12,067

13,154

14,320

Panama

GDP per capita growth rate

0.66

−1.41

0.23

2.20

5.49

5.20

6.55

10.10

8.18

2.06

5.63

9.01

8.87

Panama

Employment and Earnings Indicators

Employment-to-population ratio

52.02

54.11

54.60

55.87

57.35

57.33

58.83

60.39

60.03

59.47

59.13

61.01

Panama

Unemployment rate

9.60

9.28

9.60

8.63

8.95

7.75

5.68

5.06

6.11

6.02

4.05

3.66

Panama

Share of low-earnings occupations

52.77

53.78

53.43

52.32

53.47

53.34

52.66

51.33

50.15

49.46

49.12

49.62

Panama

Share of mid-earnings occupations

30.86

29.78

29.76

31.48

30.52

31.09

30.99

31.87

32.29

32.35

27.11

25.77

Panama

Share of high-earnings occupations

16.37

16.45

16.82

16.20

16.01

15.57

16.35

16.80

17.56

18.19

23.77

24.61

Panama

Share of employers

2.54

2.94

2.90

3.23

3.07

3.08

3.06

3.21

3.11

3.21

3.05

2.74

Panama

Share of wage/salaried employees

63.20

62.45

61.71

62.63

61.77

62.99

65.33

66.06

64.67

65.89

68.00

68.06

Panama

Share of self-employed workers

29.45

30.29

30.75

30.00

30.33

28.96

26.44

25.87

27.13

26.48

25.20

24.39

Panama

Share of unpaid family workers

4.82

4.32

4.64

4.14

4.83

4.97

5.18

4.86

5.09

4.42

3.75

4.80

Panama

Share of workers in low-earnings sectors

31.72

31.47

31.32

30.27

30.12

30.49

29.83

28.50

28.05

27.07

25.41

25.26

Panama

Share of workers in mid-earnings sectors

47.62

48.22

48.06

48.81

49.64

49.39

49.67

51.13

50.77

50.99

50.86

51.28

Panama

Share of workers in high-earnings sectors

20.66

20.31

20.63

20.93

20.25

20.13

20.50

20.36

21.18

21.94

23.72

23.46

Panama

Share of low-educated workers

45.35

44.70

43.17

41.60

42.02

40.56

39.27

37.15

36.98

36.59

34.38

33.52

Panama

Share of medium-educated workers

36.11

36.46

36.94

37.41

37.39

38.14

40.06

41.37

40.83

40.88

40.27

40.45

Panama

Share of high-educated workers

18.54

18.84

19.89

20.99

20.60

21.30

20.67

21.48

22.19

22.52

25.35

26.03

Panama

Share of workers registered with SS

52.82

51.96

53.28

55.40

57.42

58.07

58.71

61.85

62.34

Panama

Mean labour earnings

641.7

630.7

637.7

626.7

596.3

605.5

606.2

610.3

637.1

643.7

715.8

730.5

Panama

Poverty and Inequality Indicators

Official extreme poverty rate

22.4

18.7

17.6

16.6

16.0

16.2

11.0

10.7

8.8

10.0

8.9

9.8

Panama

Official moderate poverty rate

45.9

43.5

42.4

40.8

40.0

39.3

31.0

27.5

27.2

25.1

22.6

22.4

Panama

Poverty rate 2.5 dollars-a-day

28.70

25.41

24.09

22.77

22.48

22.23

15.89

14.45

12.30

13.16

11.60

11.78

Panama

Poverty rate 4 dollars-a-day

43.39

40.72

39.04

38.33

37.48

37.14

28.63

26.18

25.34

23.96

21.25

20.90

Panama

GINI of household per capita income

0.565

0.564

0.561

0.549

0.538

0.549

0.526

0.526

0.520

0.519

0.518

0.519

Panama

GINI of labour earnings

0.501

0.535

0.528

0.521

0.515

0.515

0.491

0.480

0.484

0.472

0.475

0.481

Panama

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. The vertical lines indicate that series are not fully comparable before and after that line. For occupational indicators we compared 2001 and 2010.

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

From 2000 to 2002, the growth of the Panamanian economy was sluggish. GDP and GDP per capita annual growth rates averaged 1.8 and −0.2 per cent respectively. The poor performance of the Panamanian economy at the beginning of the 2000s is mainly attributable to the slow growth of the developed world and also to the setback of the Latin American region in 2002. As a consequence, three out of the four sectors which depend on external demand suffered a contraction (ECLAC 2002).2

From 2003 to 2012, the country experienced a real boom in the economy, even during the international crisis of 2008. On average, GDP increased by 8.3 per cent per year between 2003 and 2012, while GDP per capita grew at 6.3 per cent annually over the same period. The growth of the economy took place in a context of an expanding world economy and was led by sectors that provide services to the rest of the world, such as the Panama Canal, the international banking centre, the Colon Free Trade Zone, and also by the construction, communication, and transportation sectors (ECLAC 2005; IMF 2009).

During the international economic crisis of 2008, economic growth slowed due to the contraction in domestic credit, the slowdown of private construction, and the reduction in the international demand for tourism (ECLAC 2008; (p.342) (p.343) (p.344) IMF 2010). However, economic growth remained positive. GDP and GDP per capita grew by 3.9 and 2.1 per cent in 2009. In the following years, GDP per capita growth accelerated quickly to 5.6 per cent in 2010, 9.0 per cent in 2011, and 8.9 per cent in 2012. The recovery of high growth rates was related to public infrastructure projects, mainly the expansion of the Panama Canal, and to the increase in domestic consumption (IADB 2014).

18.3 Unemployment

The 2001–12 period witnessed a significant drop in the aggregate unemployment rate and in the unemployment rate for all population groups. The international crisis of 2008 led to a temporary increase in the unemployment rate. (Cruces et al. 2015: figure 3)

Panama experienced a dramatic reduction in its unemployment rate during 2001–12, which was one of the main improvements in the Panamanian labour market over the period. In the year 2001, the unemployment rate stood at 9.6 per cent (111,099 unemployed persons); twelve years later, it had fallen to only 3.7 per cent (61,714 unemployed persons), less than half its original level (Table 18.1). This is undoubtedly a major labour market improvement, one which mainly took place during the period of rapid economic growth. Between 2001 and 2005, the behaviour of the unemployment rate was erratic, with several ups and downs and an average level of 9.2 per cent. Starting in 2006, the unemployment rate began to fall. The downward trend was interrupted in 2009 and 2010, a period that included the Great Recession, when the unemployment rate reached 6.1 per cent (18,011 new unemployed persons in 2009 compared to 2008). Both the number of persons in the labour force and the number of employed persons increased between 2008 and 2009 by 36,850 and 18,801 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. In 2011, the unemployment rate recovered the downward trend and closed the period at 4.0 per cent in 2012.

The unemployment rate decreased between 2001–12 for all population groups (youth, adults, men, and women), and all of them suffered a temporary increase in their unemployment rate during the international crisis. The unemployment rate of youth, adults, men, and women increased in 2009 and recovered the downward trend in 2010 (young workers and women) or 2011 (adults and men). By 2012, the unemployment rates of all population groups were below their pre-crisis level.

(p.345) 18.4 Job Mix

The employment composition by occupational group improved between 2001 and 2010 overall, for young and adult workers, and men, while there was a slight worsening for women. The international crisis of 2008 did not affect the improving trend in the aggregate, and for young, adult workers and men, while it led to an improvement for women. Between 2011 and 2012 there was a slight improvement in the structure of employment by occupational group in the aggregate and for youth, adults, and men, and a worsening for women. (Cruces et al. 2015: figure 4).

The share of the following occupations shrank between 2001 and 2010: agricultural, forestry, and fishery jobs (drop of 3.7 percentage points) and elementary occupations (drop of 1.0 percentage points). The share of the following occupations grew: crafts and trades (increase of 1.7 percentage points); services and sales workers (increase of 1.4 percentage points); and professionals (increase of 1.2 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 (agricultural, elementary, and services and sales occupations) reduced their share in total employment by 3.3 percentage points between 2001 and 2010, while high-earning occupations (management, professionals, and technicians and associate professionals) gained share in total employment (increase of 1.8 percentage points). These changes resulted in an increase in the share of mid-earning occupations (clerical jobs, plant and machine operators, craft and related trades occupations) in total employment over the period (increase of 1.5 percentage points) (Table 18.1). Between 2011 and 2012, the share of low and high-earning occupations in total employment exhibited a slight increase (rise of 0.5 and 0.8 percentage points respectively), and consequently, the share of mid-earning occupations fell (drop of 1.3 percentage points).

The improvements in the occupational composition of employment between 2001 and 2010 were observed for young and adult workers and for men, while there was a slight worsening for women. Between 2011 and 2012, young workers, adults, and men exhibited a small increase in the share of both low- and high-earning occupations, while women suffered a deterioration in the structure of employment through a reduction in the share of high-earning occupations and an increase in the share of low-earning occupations.

The international crisis of 2008 did not adversely affect the improvement in the composition of employment by occupational group in the aggregate and for young workers, adults, and men, while it led to an improvement for women. Between 2008 and 2009 the share of low-earning occupations continued to fall (p.346) and the share of high-earning occupations increased in the aggregate and for youth, adults, and men. For women, an improvement in their structure of employment took place between 2008 and 2009, reversing the slight deterioration of the previous years.

The employment structure by occupational position improved between 2001 and 2012 overall, and for young, adult workers, and men, while there was a worsening for women. The international crisis of 2008 affected negatively the employment structure by occupational position mainly through a reduction in the share of wage/salaried employees in total employment, which recovered its pre-crisis level by 2011. (Cruces et al. 2015: figure 5)

Between 2001 and 2012, the employment structure by occupational position exhibited a substantial increase in the share of wage/salaried employees in total employment and a corresponding reduction in the share of self-employed. The share of wage/salaried employees in total employment—the largest employment category in Panama—increased from 63.2 per cent in 2001 to 68.1 per cent in 2012, while the percentage of self-employed diminished from 29.4 to 24.4 per cent during the same period (Table 18.1). The shares of employers and unpaid workers remained largely unchanged over the period. These changes in the employment structure by occupational position can be interpreted as an improvement since the share of high-earning positions in total employment (wage/salaried employees and employers) increased, and the share of low-earning positions (self-employed and unpaid workers) diminished.

The distribution of employment by occupational position improved for youth, adults, and men, and deteriorated for women from 2001 to 2012.

The international crisis of 2008 led to a deterioration in the employment structure by occupational position overall and for young, adult workers, and men, while it did not interrupt the deterioration that was taking place for women. Between 2008 and 2009, the share of high-earning positions in total employment decreased, mainly through the reduction in the share of wage/salaried employees. Consequently, the share of low-earning positions in total employment increased by the same magnitude. The increase in the share of low-earning positions took place through an increase in the share of self-employment. The worsening in the employment structure by occupational position is in accord with the increase in the unemployment rate, as economic necessity may compel workers to look for free-entry self-employment activities. All population groups returned to their pre-crisis structure of employment by 2010.

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 did not interrupt the improving trend in the structure of employment by economic sector. (Cruces et al. 2015: figure 6)

(p.347) The period from 2001 to 2012 witnessed a reduction (from 31.7 per cent to 25.3 per cent) in the share of workers in low-earning sectors in total employment (domestic service, primary activities, and low-tech industry). The primary activities sector was the one that experienced the largest reduction in the share of workers in total employment, in accordance with the shrinking of the agricultural sector as a share of GDP. There was, during the same period, an increase (from 20.7 per cent to 23.5 per cent) in the share of high-earning sectors (skilled services, utilities and transportation, and public administration) in the total. Among the high-earning sectors, the skilled services sector was the one that exhibited the largest increase in the share of workers in total employment. This evidence is in keeping with the role that finance services and real estate activities had in the Panamanian growth process. All these changes resulted in an increase in the share of mid-earning sectors in total employment (education and health, construction, high-tech industry, and commerce) over the period. Construction and commerce were the sectors that led this increase (Table 18.1).

The employment composition by economic sector improved between 2001 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 did not halt the improving trend in the employment composition by economic sector overall and for adult workers, men, and women, but led to a slight worsening for youth. Between 2008 and 2009, the share of low-earning sectors continued to decrease, while the share of high-earning sectors in total employment kept on increasing in the aggregate and for adult workers, men, and women. Young workers exhibited an increase in the share of both low- and high-earning sectors in total employment between 2008 and 2009. By 2010, young workers recovered their pre-crisis structure of employment by economic sector.

The educational level of the Panamanian employed population improved steadily over the period, overall and for all population groups. The international crisis of 2008 had no effect on this upward trend. (Cruces et al. 2015: figure 7)

The share of workers with low educational levels (eight years of schooling or less) declined from 45.4 per cent in 2001 to 33.5 per cent in 2012, while the share of workers with medium education levels (nine to thirteen years of schooling) grew from 36.1 per cent in 2001 to 40.5 per cent in 2012, and those with high levels of education (over thirteen years of schooling) increased from 18.5 to 26.0 per cent (Table 18.1).3 We interpret this result as (p.348) 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.4 Panama has one of the highest shares of employed workers with medium and high educational levels in the Latin American region. However, the quality of education in Panama, measured by the Programme for International Student Assessment (PISA) and national evaluations, is among the lowest in the region (Harris 2007; OECD 2010). The government has launched several programmes during the 2000s aimed at increasing coverage and improving the quality of Panamanian education, such as school nutrition programmes, delivery of resources for students, scholarships, and a curricular change programme (Rodríguez Mojica 2013).

The educational level of the employed population improved between 2001 and 2012 for all population groups (young and adult workers, men and women).

The pattern of improvement in the educational level of the employed population in Panama was not affected negatively in the aggregate or at the population group level by the international crisis of 2008.

The share of workers registered with the social security system increased from 2004 (the earliest year with data on this indicator) to 2012, overall, for youth and adults, and for men and women. The international crisis of 2008 led to a slowdown in the upward trend of the registration rate. (Cruces et al. 2015: figure 8)

The Panamanian social security system is administered by the Caja del Seguro Social (CSS), which is organized in three programmes: (1) disability, old age, and death benefits; (2) health and maternity care; and (3) professional risks. A reform of the social security system in 2005 created two contributory subsystems. First, the old defined benefit system, in which affiliates at the moment of the reform could decide whether to remain or not. Second, a mixed subsystem which combines a defined-benefits component with an individual savings component. The affiliation to the CSS is mandatory for all workers employed in public and private firms and, since 2007, for independent workers. The affiliation for informal workers, domestic workers, and housekeepers is voluntary. The system is financed by employees’ and employers’ contributions and by government funds. The social security system also contains non-contributory programmes totally funded by the government, such as the 100 a los 70 programme (Rodríguez Mojica 2013).

(p.349) Social security records show an increase in the percentage of workers registered with the contributory schemes of the system, from 52.8 per cent in 2004 (632,497 registered workers) to 62.3 per cent in 2012 (1,011,130 registered workers) (Table 18.1). Between 2004 and 2008, the share of workers registered with the social security system increased by 1.2 percentage points annually. The Great Recession led to a slowdown in this upward trend and between 2008 and 2010, the share of registered workers increased by only 0.6 percentage points a year (19,078 new registered workers per year). In 2011, the share of registered workers grew rapidly (3.2 percentage points), and in 2012 it slowed down again (increase of 0.5 percentage points).

All population groups exhibited an increase in the share of workers registered with the social security system between 2004 and 2012, and the increase was larger for youth compared to adults, and for men compared to women.

The international crisis of 2008 led to a slowdown in the upward trend of registered employment overall, for young and adult workers and men, while the improving trend stalled for women.

18.5 Labour Earnings

Real labour market earnings increased overall from 2001 to 2012. Within the period, labour earnings decreased from 2001 to 2005, and increased from 2006 to 2012, rising even during the international crisis. Labour earnings increased for all population groups over the period, and workers in low-earning categories tended to experience a larger increase in labour earnings than did workers in high-earning categories.(Cruces et al. 2015: figure 9)

Average monthly earnings, expressed in PPP dollars of 2005, increased by 13.8 per cent, from US$642 in 2001 to US$730 in 2012 (Table 18.1). However, there were substantial fluctuations in labour incomes during this period, which cannot be entirely attributed to the variations in the country’s economic performance. Average labour earnings decreased slightly at the beginning of the period (from 2001 to 2002), mirroring the slow growth in GDP per capita. In the following years, from 2003 to 2005, GDP per capita rose by around 11.0 per cent while average labour earnings fell by 6.5 per cent. Galiani (2009) claims that the decrease in average real earnings during the 2001–5 period was due to a composition effect. The jobs created during this period were mainly informal (without a contract) which paid less than a formal job, bringing down average labour earnings. From 2006 to 2008, real labour earnings were stable (increase of just 0.8 per cent), while GDP per capita was increasing (growth of 19.1 per cent). From 2009 to 2012, real labour earnings increased (p.350) along with GDP per capita, although at a slower pace (14.6 and 25.4 per cent respectively). An interesting characteristic of the Panamanian labour market is that the minimum wage has increased more than the mean hourly wage of the economy over the 2000s, indicating an increase in the rate of non-compliance with labour market regulations (Cruces and Galiani 2013).

When changes in earnings are analysed by population groups and employment categories, they follow the overall pattern: a reduction from 2001 to 2005 followed by a stabilization from 2006 to 2008, and an increase from 2009 to 2012. Men exhibited a larger gain in earnings compared to women, while young workers increased their labour incomes by more than adult workers. Among occupational groups, workers in low-earning occupations experienced a mild increase in labour earnings between 2001 and 2010, while workers in high-earning occupations suffered a reduction.5 Among occupational positions, workers in low-earning positions increased their labour earnings more than workers in high-earning positions. Labour earnings of workers in low-earning sectors were largely unchanged between 2001 and 2012, while earnings of workers in high-earning sectors increased (rise of 6.0 per cent). Workers with medium educational levels experienced the largest increase in labour incomes, followed by workers with low levels of education. Workers with high levels of education suffered an earnings reduction over the period.

The evidence of falling labour earnings for workers with high educational levels and labour earnings increases for workers with medium and low levels of education can be interpreted in light of previous findings of improving employment structure by occupational group and economic sector over the period. The improving employment structure by occupational group and economic sector implied an increase in the share of occupations and sectors that can be expected to employ workers with high and medium levels of education, like professional and technical occupations, and skilled services sectors, and a reduction in the share of occupations and sectors that employ workers with low educational levels, like agricultural and elementary occupations, domestic service, primary activities, and low-tech industry. This evidence indicates that the demand for workers with high and medium educational levels relative to those with low educational levels increased between 2001 and 2012. On the other hand, the educational levels 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 (p.351) 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 Panamanian labour market the relative wages of workers with high and medium educational levels relative to those with low educational levels fell over the period, though slightly, and the relative wages of workers with high educational levels relative to those with medium levels of education 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 medium levels of education (Cruces et al. 2015: table 9).

The international crisis of 2008 did not affect the upward trend in labour earnings overall, for all population groups and most employment categories. Average labour earnings in Panama increased from 2008 to 2009. Young and adult workers, men and women also experienced an increase in their labour earnings during the international crisis. Among employment categories, some groups were hurt by the crisis. Managers and plant and machine operators suffered an earnings reduction between 2008 and 2009. By 2010, they had not reached their pre-crisis earning levels. Workers in low-tech industry, utilities and transportation, and public administration sectors exhibited a fall in earnings during the international crisis, and all of them surpassed their pre-crisis level of earning by the end of the period.

18.6 Poverty and Inequality

Poverty fell between 2001 and 2012 for all poverty lines used. The rate of working poor households also exhibited a decreasing trend. The pattern of poverty reduction over time was slowed down or temporarily reversed during the international crisis of 2008 depending on the poverty line used.(Cruces et al. 2015: figure 10)

The moderate poverty rate (measured by the country’s official poverty line) fell from 45.9 per cent in 2001 to 22.4 per cent in 2012; the extreme poverty rate decreased from 22.4 to 9.8 per cent; the percentage of the working poor (defined as the proportion of persons in the population living in poor households with at least one working member) decreased from 31.3 to 13.5 per cent over the same period. An analysis based on the 2.5 and 4 dollars-a-day PPP international poverty lines also shows a drop in the poverty rate from 2001 to 2012. The 4 dollars-a-day poverty rate fell from 43.4 per cent in 2001 to 20.9 per cent in 2012, and the 2.5 dollars-a-day poverty rate diminished from 28.7 to 11.8 per cent over the same period (Table 18.1).

(p.352) Despite the superb growth performance, poverty reduction in Panama was less responsive to economic growth compared to other Latin American countries. The low growth elasticity of poverty reduction in Panama compared to the rest of the region is associated with the large contribution of indigenous population to poverty, as the indigenous poor have very low levels of human capital and skills, and are less able to take advantage of the growth process (World Bank 2011).

The international crisis of 2008 led to a slowdown in the pattern of poverty reduction measured by the moderate poverty line and the 4 dollars-a-day international poverty line, and in the percentage of working poor, while the extreme poverty rate and the 2.5 dollars-a-day poverty rate increased slightly between 2009 and 2010. The moderate poverty rate fell by only 0.4 percentage points between 2008 and 2009, while it had decreased by 2.6 percentage points a year from 2001 to 2008. Those figures were 0.8 and 2.5 percentage points for the 4 dollars-a-day poverty rate, and 0.5 and 1.9 percentage points for the percentage of working poor. The extreme and 2.5 dollars-a-day poverty rates suffered a slight increase between 2009 and 2010 (46,861 new extremely poor persons and 35,551 new poor by the 2.5 dollars-a-day poverty line). The 2.5 dollars-a-day poverty rate was below the level of 2009 by 2011. The extreme poverty rate never reached the level of 2009, but was below the level of 2008 by 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 income increased between 2001 and 2012. Government transfers increased between 2001 and 2011, but an important reduction took place in 2012 determining an overall reduction from 2001 to 2012. Incomes from pensions and capital income diminished over the same period (Cruces et al. 2015: figure 11). From 2004 to 2009, the government of Panama implemented the Red de Oportunidades conditional cash transfer programme, which targeted extremely poor households. During this period, government transfers captured by the EH increased at 3.4 per cent annually. The programme accounted for one quarter of the extreme poverty reduction among the indigenous population between 2003 and 2008, who make up the largest share of the extremely poor in Panama (World Bank 2011).

Household per capita income inequality diminished substantially between 2001 and 2012, and labour earnings inequality also fell, but to a smaller extent. (Cruces et al. 2015: figure 12)

Household per capita income inequality decreased slowly but steadily from 2001 to 2012. The overall evolution is captured by the Gini coefficient, which fell from 0.565 in 2001 to 0.519 in 2010, remaining at that level until 2012. (p.353) On the other hand, the inequality of labour earnings also decreased over the period under study. The Gini of labour earnings among employed workers was 0.501 in 2001 and 0.481 in 2012. It increased from 2001 to 2002, when it peaked at 0.535, and then fell steadily until 2010, when it reached the lowest level of the twelve-year period (0.472) before rising to the level of 2012 (0.481) (Table 18.1). This reduction in labour earnings inequality is in keeping with the fact that earnings increased more for low-earning employment categories compared to high-earning categories. However, it is interesting to notice that earnings declined for some high-earning employment categories. Consequently, the reduction in labour earning inequality occurred at the expense of income losses for some categories.

Changes in household per capita income inequality in Panama 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 2002–10 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 0.564 to 0.519 between 2002 and 2010). Changes in non-labour incomes, such as government transfers and pensions were also inequality-reducing, while demographic changes, like the share of adults per household, were inequality-increasing. Other studies have analysed the factors behind the evolution of labour income inequality. Azevedo et al. (2013a) used a decomposition approach and found that changes in the education wage premium (or the ‘price effect’) were inequality-reducing, while changes in the distribution of the stock of education (the ‘quantity effect’) were inequality-increasing in Panama between 2001 and 2009. 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 Panama between 2001 and 2009. The shrinking educational earnings gap can be explained by factors related to supply and demand: the relative supply of skilled workers increased steadily while the relative demand for those workers fell.

18.7 Conclusions

The economic performance of Panama during the years 2000 to 2012 was outstanding, and it boasted the strongest economic growth in Latin America in that period. The economy suffered a slowdown as a consequence of the international crisis of 2008, but Panama was one of the few countries in Latin America to have sustained positive growth during that episode.

(p.354) The result of this impressive economic growth was a clear improvement in labour market indicators. By 2012, unemployment had fallen to less than half its level in 2001. The composition of employment also improved steadily in a number of dimensions. The share of workers in agricultural and elementary occupations diminished, while the share in professional and technical jobs increased. The share of wage/salaried employees rose and the share of self-employed workers decreased. The employment composition by economic sector improved as workers moved from primary activity, domestic service, and low-tech industry to better-paying sectors, such as skilled services. The share of registered workers increased between 2004 and 2012. There was also a steady improvement in the educational level of the employed population. Average labour market earnings increased between 2001 and 2012, though not steadily. All poverty indicators decreased between 2001 and 2012, as did the Gini coefficient of household per capita income and labour earnings.

The international crisis of 2008 affected some of these indicators, even while GDP continued to rise. The unemployment rate rose, the share of paid employees fell between 2008 and 2009, and some poverty indicators increased between 2009 and 2010. The worsening of these indicators was reversed by the end of the period studied.

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, but women suffered more from the negative impacts of the international crisis. The unemployment rate was higher for young compared to adult workers; the share of young employed workers in low-earning occupations, positions, and economic 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. 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 crisis. The youth unemployment rate increased by more than the adult unemployment rate, and the share of workers in low-earning positions increased for young workers, while it decreased for adults. Disaggregating by gender, we found that women had better labour market outcomes than men, with the only exceptions being the unemployment rate that was larger among women and labour earnings that were higher for men. However, women were hit hardest by the international crisis, as the unemployment rate and the share of workers in low-earning positions increased more among women.

In summary, Panamanian workers benefited from the impressive economic growth over the decade as their labour market conditions were in a better state in 2012 than they were at the start of the millennium.

(p.355) 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.

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Notes:

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

(2) The international banking centre, the Colon Free Trade Zone, and exports contracted between 2000 and 2002, while the Panama Canal continued to grow.

(3) The most frequent value of years of education for employed workers in Panama was six from 2001 to 2009 (around 21.2 per cent of employed workers had six years of education) and twelve from 2010 to 2012 (around 22.4 per cent of employed workers had twelve years of education).

(4) The improvement in the employment structure by educational level is related to changes in the relative demand and supply of workers with high levels of education with corresponding implications for the wage gap by educational groups and the unemployment rate of each educational level. We introduce a discussion about the role of these factors in Panama in section 18.5.

(5) Labour earnings by occupational group can only be analysed from 2001 to 2010 and from 2011 to 2012 due to comparability problems in the classification of occupations.