Is productive capacity a key factor to reduce inequalities in South America?

Abstract

Economic inequality in South America decreased steadily since 2002. However, as the beginning of the 2010s marked the end of the commodities boom in the region, economic inequality showed constant or even increasing rates in some of these countries. The decrease in economic inequality has often been related to the impact of the macro economic changes, like the boom of the commodity prices and the institutional reinforcement, and changes in the labor market. Therefore, the proposedhyphotesis is that productive capacity improvement of the less educated has played a key role in reducing inequality. Productive capacity takes into consideration three variables related to hard and soft skills to work, which are educational coverage, internet access and life conditions. Results show that, in addition to demand forces, the improvement of the productive capacity of the less educated is positively and significantly related to the reduction of inequality in South America in 2002-2011.