Income mobility in Costa Rica, 2001-2007.

Author:Rowe, Samuel


En este artículo se estudia la movilidad interanual o intrageneracional del ingreso en Costa Rica. Para ello, se utilizan datos de panel construidos a partir de las Encuestas de Hogares de Propósitos Múltiples correspondientes a los años del 2001 al 2007, que permiten darle seguimiento a los mismos hogares y personas año con año. Se encontró que existe una sustancial movilidad de ingresos interanual, particularmente en el segmento medio de la distribución del ingreso. También se identificaron los factores que más afectan la movilidad interanual del ingreso en Costa Rica. Se encontró que el ingreso per cápita es condicionalmente convergente, esto es, las familias de bajos ingresos son más propensas a experimentar aumentos mayores en sus ingresos que las familias de alto ingreso. Además del ingreso per cápita inicial, los tres factores más importantes que explican los cambios en los ingresos per cápita en Costa Rica son los siguientes, en orden de importancia: (1) cambios en la situación de empleo de los miembros del hogar; (2) cambios en el número de dependientes (niños, adultos mayores y miembros inactivos económicamente) en la familia; y (3) la educación de los miembros, particularmente la del jefe del hogar.



In this paper we study year-to-year intra-generational income mobility in Costa Rica. To do so we use a panel data set constructed from the Household Surveys for Multiple Purposes (2001-2007) that allows us to follow the same households and persons from year-to-year. We find that there is substantial year-to-year income mobility in Costa Rica, especially in the middle of the income distribution. We also identify the factors that most affect year-to-year income mobility in Costa Rica. We find that per capita income is conditionally convergent; low-income families are more likely to experience an increase in income than are high-income families. Aside from initial per capita income, the three most important factors that explain changes in per capita household income in Costa Rica are, in order of importance: (1) changes in the employment status of household members; (2) changes in the number of dependents (children, elderly and other non-working members) in the household; and (3) the education of household members, especially the household head.



    Analyses and comparisons of the levels of income inequality and poverty at different points in time in developing countries are common, but comparisons of these static statistics hide important details about changes in family incomes that occur for individuals and households over time. At the micro level, the income of individual households can change dramatically over time, resulting in changes in poverty status and position in the distribution of income (Fields, Hernandez, Freije, & Sanchez-Puerta, 2007). Even if the levels of income inequality do not change over time, the specific households at different points in the distribution of income will differ over time; a household that is in the bottom quintile one year may be in the second or third quintiles in another year. Research on income mobility in developing countries has been growing as panel data have become more available for these countries (Fields & Sanchez-Puerta, 2010). This paper contributes to this literature by examining the magnitude and correlates of year-to-year intra-generational income mobility in Costa Rica from 2001 to 2007.

    Understanding which factors affect absolute and relative income mobility is important for several reasons. This type of research can help identify those who need help and the factors that are associated with their economic struggles, which can contribute to the design of social safety nets and other policy interventions to protect the vulnerable (Baulch & Hoddinott, 2000). Even if the level of income inequality remains the same, greater income mobility increases the incentives for individuals to invest in and improve their productivity and move up the income distribution. Studies that identify the characteristics that promote income mobility can therefore contribute to the design of policy interventions that increase both economic growth and improve equity.

    The rest of this paper is divided into several sections. First, a literature review will discuss income mobility studies in Latin America. The next section will review the data and methodologies needed for an analysis of intra-generational income mobility at the micro-level. We then measure the extent of relative income mobility (changes in the relative position of the household in the distribution of income, i.e. among quintiles). Finally, we conduct a multivariate analysis of which households--with what characteristics--have the most or least absolute and relative income mobility.


    Two major types of income mobility need to be distinguished. First, a distinction needs to be made between intra-generational and intergenerational income mobility. Intra-generational income mobility analyzes the dynamic evolution of income for an individual or household at two or more points in time, while intergenerational income mobility focuses on the relationship between the income of parents and their children (Fields, 2008). This paper analyzes intra-generational income mobility. A second major distinction needs to be made between macro-economic and microeconomic income mobility studies. Macro-economic income mobility studies focus on the question of how much mobility exists, while micro-economic income mobility studies focus on the correlates and the determinants of income or positional change of recipient units such as households (Fields, 2008). This paper analyzes the income mobility of households in Costa Rica at the macro-level using transition matrices and at the micro-level using multivariate analysis.

    Within micro-economic mobility there are additional issues to consider. First, there is a distinction between unconditional and conditional micro-mobility. Unconditional micro-mobility analysis focuses on how initial earnings relates to changes in earnings without holding other factors constant (Fields, 2011). Conditional micro-mobility analyzes the effects of the correlates of income mobility while holding other factors constant. The second issue that needs consideration is the concept of income. An analysis of absolute income mobility analyzes earnings changes in absolute earnings gains (Fields & Sanchez-Puerta, 2010). Conversely, an analysis of relative income mobility seeks to observe the positional changes or quintile changes among units in various positions within the income distribution (Fields, 2008). This paper analyzes micro-economic conditional mobility in both absolute and relative terms.

    The per capita income of a household can change because income changes, because the number of household members changes, or both (Fields, et al., 2003). Incomes of households derive from endowments of factors of production such as labor, land, physical capital, human capital (education, health, etc.) and social capital. "The allocation of endowments to activities, together with returns to endowments in these activities, generates income" (Baulch and Hoddinott, 2000, p.4). For example, an increase in the number of household members who enter the labor market or an increase in wages will both lead to an increase in household income. While changes in the allocation and prices of endowments can lead to income mobility, the level of endowments may also affect mobility. For example, greater endowments may reduce declines in household income when negative shocks occur because households may use endowments to stabilize incomes (for example, use savings or allocate more household members to the labor market). On the other hand, a higher level of endowments can also provide the funding for investments in new endowments such as human capital, health and physical capital and make it more likely that households will move up the income distribution.

    Changes in the labor market status (employment, sector of employment, etc.) have been shown to have a very important impact on income mobility. For example, Fields et al. (2003) present evidence that changes in the employment status of the household head are more important than changes in household size in explaining income mobility in South Africa, Spain, Indonesia and Venezuela. Sion and Zuniga (2006) present evidence that in Costa Rica the most important determinant of mobility between poverty states is the employment status of the household head. Households where heads gained formal sector employment experience the largest income gains (Fields, et al. 2003). Employment transitions between industry sectors has also been found to be a significant determinant of income mobility (Fields, et al. 2007).

    One of the strongest results in the literature is that endowments of education play an important role in income mobility. Ferreira, Messina, Rigolini, Lopez-Calva, Lugo, and Vakis (2013) find that education is strongly associated with upward mobility out of poverty and into the middle class in Latin American countries and a secondary or higher education is associated with higher probabilities of upward mobility compared to a primary education. Furthermore, these results are relatively consistent across Latin American countries (Ferreira, et al., 2013). Gindling and Trejos (2012) have shown that changes in the level of inequality in Costa Rica are driven primarily by changes associated with education.

    The education of the head of the household is typically used in micro-mobility studies. Using conditional micro-mobility analysis, it is found that an additional year of schooling by the head of the household has a positive effect on changes in per capita...

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