99367 Volatility and Inequality as Constraints to Shared Prosperity: Paraguay Equity Assessment © 2015 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and con- clusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomina- tions, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for non-commercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover designed by Florencia Micheltorena Cover picture: “La Ventana” by Michael Burt Volatility and Inequality as Constraints to Shared Prosperity: Paraguay Equity Assessment solated by nature and recovering from a period of historically slow growth during the 1980s and 1990s, Para- guay has faced many economic and social challenges at the beginning of the 21st century. By the year 2000, gross domestic product (GDP) per capita was only 50 percent of the Latin American average and 34 percent of the average Paraguay’s MERCOSUR partners. High rates of poverty and inequality were an inherent characteristic of the country. Acknowledgements This study was led by Luis Felipe Lopez Calva and Maria Ana Lugo. The team included Karem Edwards Izquierdo, San- tiago Garriga, Alejandro Medina Giopp, Miriam Muller and Liliana D. Sousa, with significant contributions from Oscar Barriga Cabanillas, Carolina Diaz-Bonilla, Lyliana Gayoso, Megan Rounseville and Denisse Wolfenzon. The team thanks Louise Cord, Maria Eugenia Davalos, Rafael De Hoyos, Sarah Haddock, Zafer Mustafaoglu and Rossana Polastri for their valuable comments. Special thanks go to Elizabeth Barrios (General Director) and Norma Medina (Director of House- hold Surveys) of the Directorate General of Statistics, Surveys and Censuses (DGEEC – for its name in Spanish) for pro- viding access to the data used in the study and for always receiving the team with open arms, as well as to Minister José Molinas Vega for his thoughtful comments, which have strengthened the analysis and interpretation. The work was conducted under the general guidance of Louise Cord (Poverty Sector Manager for Latin America, World Bank). Summary Isolated by nature and recovering from a period of historically slow growth during the 1980s and 1990s, Paraguay has faced many economic and social challenges in the early 21st century. The high rates of poverty and inequality were an inherent characteristic of the country. By 2003, a little less than half of Paraguayans were in moderate poverty and one in five in extreme poverty. However, between 2003 and 2013, Paraguay performed well and achieved a reduction in the monetary and non-mone tary poverty. GDP grew by 33 percent, moderate poverty reached 24 percent, while extreme poverty affects only 10 percent of the total population. This was the result of a period of substantive average growth, though favoring more the poorest, particularly since 2011. This report explores the factors associated with the improvements observed in the welfare and inequality and inves- tigates the challenges to sustainability, taking into account Paraguay’s historical structural problems in sustaining growth and improving social indicators. The conceptual framework of the report is based on a tripartite definition of equity: mobility out of poverty, fairness, and agency. According to this framework, the report explores the following specific sets of questions: 1. How can be explained the limited effect of the reduction of the extreme poverty until 2011 and the recent reversal of this relationship? What has been the role of labor markets and public and private transfers in this process? 2. How the conditions at birth determined the access of the Paraguayans to basic services and opportunities throughout your life? What is the state’s role to reverse this situation through the provision of social services? 3. What are the challenges of autonomy and voice, especially among women, which prevent people to not have the elements to make effective decisions about their own development? Contents Executive Summary 9 Introduction 13 1. Growth, poverty, and inequality: Stylized facts 15 2. First Pillar: Mobility out of poverty 21 2.1 Factors behind poverty reduction 21 In Focus. Fiscal Policy: Results from the Commitment to Equity Project 25 2.2 Economic growth and the labor market 28 2.3 Drivers of rural poverty 31 In Focus. Addressing labor income volatility 35 2.3 Drivers of urban poverty 39 3. Second Pillar: The pursuit of opportunities for all 43 3.1 Equality of childhood opportunity 43 3.2 Equality of opportunity in the labor market 44 3.3 Challenges in the delivery of social services 44 4. Third Pillar: Strengthening agency 49 4.1 Improvements in gender outcomes in endowments 49 4.2 Limited economic progress among women 51 4.3 Manifestations of the lack of women’s agency in Paraguay 51 4.4 Perceptions and social norms 54 Conclusions and policy options 57 References 60 Figures Figure 1: GDP per capita, poverty rates and inequality 14 Figure 2: GDP per capita in Latin American countries, 2012 16 Figure 3: Growth of income of the bottom 40 compared with all and per capita GDP 16 Figure 4: Evolution of the gini coefficient, 2003–13 17 Figure 5: Share of agriculture in GDP (left) and growth volatility by economic sector, Paraguay 17 Figure 6: Evolution of poverty in rural and urban areas 18 Figure 7: Extreme poverty incidence and composition by department, 2013 18 Figure 8: Socioeconomic composition, 2003–13 18 Figure 9: Socioeconomic characteristics, by economic group, 2013 18 Figure 10: Multidimensional poverty and income poverty incidences, 2003–13 19 Figure 11: Deprivations by dimension and area, 2003, 2011, and 2013 20 Figure 12: Matrix of multidimensional and income poverty, 2003 and 2011 20 Figure 13: Extreme poverty change (left) and decomposition of extreme poverty changes (right), 2003–11 and 2011–13 22 Figure 14: Per capita household income distributions in 2003, 2011 and 2013 with respective extreme poverty lines 22 Figure 15: Moderate poverty change (left) and decomposition of moderate poverty changes (right), 2003–11 and 2011–13 23 Figure 16: Growth incidence curve, 2003-2011 and 2011-2013 25 Figure 17: Shapley decomposition by components of welfare measures; changes in extreme poverty, 2003–11 and 2011–13 25 Figure 18: Shapley decomposition, by components of the welfare measure; changes in inequality, 2003–11 and 2011–13 25 Figure 19: Tax collection as a share of GDP, the OECD and Latin American and the Caribbean 26 Figure 20: Comparative redistribution effectiveness of fiscal systems, Latin America and the Caribbean 26 Figure 21: The incidence of selected taxes and transfers, by income decile, 2010 26 Figure 22: Output by sector, 2003–12 29 Figure 23: Sectoral employment participation and growth, the five largest sectors of employment, 2003–13 29 Figure 24: Sectors of employment among low-skilled workers 29 Figure 25: Median hourly wages among employed men with primary schooling or less, 2003–13 30 Figure 26: Median monthly earnings of public administration and defense workers, by gender a nd educational attainment, 2003, 2009 and 2013 31 Figure 27: Employment and wage elasticity among men with primary schooling or less, 2003–11 31 Figure 28: Wage premiums associated with educational attainment, by gender, 2003–13 33 Figure 29: Share of income from primary sector activities over total labor income (left) and sector of employment for rural adults by poverty status (right), 2013 33 Figure 30: Proportion of rural households that receive at least 75 percent of their total income through self-employment, 2003–13 33 Figure 31: Macro-volatility of agricultural activities, 2003–11 33 Figure 32: Growth incidence curve, 2008–09 35 Figure 33: Annualized growth of labor income, by source, 2010 and 2013 35 Figure 34: Sector of rural employment, 2003–13 35 Figure 35: Family transfers, urban and rural areas, 2003–13 35 Figure 36: Proportion of households receiving Tekoporã and the mean share of household income 36 Figure 37: Proportion of the population that had a loan or were able to save during the previous year, 2011 37 Figure 38: Proportion of population with an outstanding loan, by the reason for the loan, 2011 37 Figure 39: Employment among adults (left) and median monthly earnings among workers who did not complete primary school, by employer type, 2003–13 37 Figure 40: Urban unemployment trends, 2003–13 38 Figure 41: Type of employment among urban adults in the labor force, by poverty status, 2013 38 Figure 42: Households deriving over 75 percent of their incomes from self-employment, 2003–13 38 Figure 43: Propensity to be in extreme poverty, by employment status in the previous year 38 Figure 44: Monthly earnings as a share of the minimum wage among full-time wage workers in the private sector 40 Figure 45: Employment status one year following unemployment, 2010–13 41 Figure 46: Trends in the human opportunity index, 2003–11 44 Figure 47: Access to flushing toilet (left) and tap water (right) in the dwelling, 2013 45 Figure 48: Test scores of sixth graders, by residence and parental background, Paraguay and other Latin American countries, 2006 45 Figure 49: Completing sixth grade and secondary school on time, 2013 45 Figure 50: Overall inequality and inequality of opportunity, 2003–13 46 Figure 51: Inequality of opportunity, by language, residence and gender, 2003–13 47 Figure 52: Distribution of new classroom investment, by classroom availability index quintile 47 Figure 53: Public sector employment included in centralized and decentralized public agency budgets, 2007–14 47 Figure 54: Sectoral employment and employment activity, by gender, 2013 50 Figure 55: Physical or sexual violence ever and within past 12 months, selected Latin American and Caribbean countries, various years 51 Figure 56: Adolescent fertility rate (per 1,000 women aged 15–19 years), by residence, 1990–2008 54 Figure 57: Proportion of respondents who agree that wife-beating is justified for at least one reason, selected countries in Latin America and the Caribbean, various years 55 Figure 58: Respondents who strongly disagree and strongly agree with the following statement “ When there aren’t enough jobs, men should have more rights to jobs than women” 55 Tables Table 1. Distribution of extreme poor, 2013 17 Table 2: Matrix of five-quarter transitions, by sector of employment, 2010-13 40 Table 3: Health insurance coverage 47 Boxes Box 1. Food prices and the extreme poverty rate 24 Box 2. Productivity gains over the past decade 32 Box 3. A comparison of minimum wages, Paraguay and selected Latin American countries 39 Box 4. Teenage pregnancy and lack of agency: Key results from a mixed-methods study in Paraguay 52 Executive Summary I Yet, between 2003 and 2013, Paraguay performed was stubbornly high until 2012. The economy depends well and experienced a reduction in moderate and increasingly and considerably on agriculture. Yet, two- extreme (monetary) poverty. This has been the re- thirds of the extreme poor live in rural areas and rely heav- 9 sult of a period of substantial average growth, combined ily on this volatile sector. with a reduction in inequality. The underlying question is whether the growth model behind these improvements The size of the middle class was expanding and came to and the consequent reduction in inequality are consistent represent the largest socioeconomic group in the coun- with positive social dynamics according to a comprehen- try. Nonetheless, as at the beginning of the decade, one in sive definition of equity, which includes the elimination four Paraguayans was still at risk of falling back into poverty. of absolute poverty, enhancement in the equality of op- portunity, and strengthening agency among all groups. There are signs of lasting structural changes in the profile of poverty. The extent of deprivation in the nonmonetary Given that a significant proportion of the improve- dimension (such as access to key goods and services) nar- ments in welfare occurred only after 2011, the analy- rowed throughout the decade even during periods when sis considers two periods: 2003 to 2011, when extreme the monetary poverty rate did not decline as much, such poverty was stable despite an increase in per capita GDP as in 2003–11. Still, though access to services has risen, by 22 percent, and 2011 to 2013, when the extreme pov- service quality is a challenge. erty rate fell by almost half. At the core of the explanation of the difference in these periods is the role of inequality, First pillar: The mobility out of poverty access to markets, and food prices. In 2003-11, while economic growth and enhance- Per capita GDP reached an historical peak in 2013, al- ments in distribution were contributing to a large rise though it was still only slightly above half the regional in the incomes of the poor, food prices were rising at average. The growth was pro-poor: the bottom 40 per- a higher rate than general prices, which dampened cent of the income distribution (the bottom 40) experi- to a great extent the reduction in extreme poverty. In enced a slightly higher growth rate than the top 60 per- contrast, since 2011, the three forces—positive economic cent of the distribution (the top 60). However, inequality growth, reductions in inequality, and declining food pric- es—have been trending in the same direction. Income ployment in the higher-paying large firm sector (such as growth among the less well off, especially in rural areas, construction and public and private services), and rising has been disproportionately high. In both periods (2003– incomes among the self-employed and workers in small 11 and 2011-13), rising labor incomes have been the firms. Nonetheless, like the rural poor, the urban poor are driving force because of greater earnings and because still exposed to household income volatility through high of the greater number of earners. Meanwhile, non-labor unemployment rates and high shares of self-employ- incomes, such as public transfers, only started to play a ment. Low-skilled and unskilled labor—the workers most noteworthy role in 2011–13, perhaps because of import- likely to be living in poverty—are largely unprotected by ant expansion in the coverage of major social programs. minimum wage legislation. The role of labor income. Economic growth in the past Despite the trend observed throughout the decade of decade has been driven principally by the two largest augmented employment in higher-paying large firms, sectors in the economy: agriculture and manufacturing. year-to-year transitions show that mobility into this However, the gains in output have not translated into ap- sector has been limited among the self-employed and preciable employment growth in these activities, partic- workers in microenterprises. The self-employed, rather ularly among the less well skilled, which led to increases than becoming small-business owners, typically transi- labor productivity. Other sectors, such as construction tion into employment in a micro firm or leave the labor and services, have become more relevant for the low- force. The share of low-skilled workers who are employ- skilled and, with higher wages than agriculture, present ers is almost negligible. Finally, while the unemployment improved labor opportunities for this group. rate has steadily declined, the persistence of unemploy- ment among those who are unemployed is particularly The importance of the rural sector. Agriculture is the alarming: one in five of the unemployed between 2010 main source of income of the extreme poor in rural ar- and 2012 was still unemployed one year later, suggesting eas, but most of these people in agriculture are self-em- that part of the population experiences either chronic or ployed or unpaid (especially women) and cultivate few frequent spells of unemployment. 10 crops for both home consumption and the market. With inadequate irrigation systems and agricultural practices Second Pillar: The pursuit of opportunities and limited access to markets, smallholders are exposed for all to exogenous shocks, such as drought, floods, price fluc- tuations, and infestation and diseases. In the absence of One of the greatest structural barriers towards an eq- good access to financial markets and because of the lim- uitable society today is the high and persistent level ited role of government, agricultural families are at risk of inequality in opportunity among various groups of falling (further) into poverty. In this context, income defined according to circumstances of birth, including diversification becomes essential in types of crops culti- family background. While access to services for children vated, in cattle raising and labor and non-labor income expanded throughout the decade, considerable differ- sources. In recent years, there has been a movement to- ences remain across groups so defined. Thus, coverage ward wage employment in agriculture and in nonagri- rates in the access to flush toilets or tap water are quite cultural sectors. This has generated alternative sources of different among poor and nonpoor people, and the dis- income that may be more profitable and stable. In addi- crepancies are also higher according to urban or rural tion, non-labor incomes have played an important role in residence. Similarly, educational attainment is highly cor- alleviating extreme poverty as a diversification strategy related with residence and socioeconomic status, which, (largely through family transfers and informal lending in turn, limits the mobility across generations. Inequality and, to a lesser extent, through public transfers such as of opportunity in the labor market has been widening in Tekopora and Adultos Mayores), as well as a strategy to recent years, and place of birth, the language spoken at cope with adverse shocks. home, and gender play an important role. The inadequate access to opportunities in childhood can have important The role of urban labor markets. The drop by half in the impacts on inequality in the labor market and thus influ- urban poverty rate has been associated with changes in ence intergenerational outcomes. the urban labor market between 2003 and 2013, includ- ing a reduction in the unemployment rate, surge in em- Social policies are not sufficiently effective in offset- ting inherited inequalities. The fiscal system is among well-paying, high-productivity jobs; enhancements in the weakest in the region. It incorporates a regressive tax risk management at the macro and micro levels to pro- system and limited redistribution through spending. In- tect households from falling back into poverty in the stitutional and operational inefficiencies such as the weak presence of shocks; ensuring equitable, efficient, and sus- civil service system and the lack of effective monitoring tainable fiscal policy to guarantee a solid fiscal position and evaluation are enfeebling the already compromised that allows for equitable redistributive policies; improv- delivery of social services. ing fairness and transparency among institutions in the provision of high-quality public goods without excluding Third pillar: Strengthening agency any segments of the population; and designing policies to expand women’s opportunities in the labor market and The third dimension in which Paraguay still has room enhance their agency, self-esteem, and aspirations. to make progress toward an equitable society relates to the strengthening of agency, the capacity of peo- ple to be actors in their own development. Paraguay has made progress over the last decade in promoting women’s empowerment and gender equality. The im- provements have been particularly good in women’s en- dowment in terms of sexual and health indicators, as well as educational attainment and achievement. There have also been important advances in the legal framework to provide for gender equality. However, challenges remain in youth unemployment and job quality and segmenta- tion, domestic violence, and teenage pregnancy. Conclusions 11 Paraguay has made substantial progress in the last decade in improving welfare and reducing inequali- ty. There is reason for optimism especially because of the enhanced labor productivity in agriculture and improved employment opportunities, which hints at the potential for long-lasting transformations. Still, the country faces challenges that threaten the sustainability of these improvements. A key obsta- cle is the fact that a large share of the population faces a volatile economic environment. Another area of con- cern relates to the persistent lack of opportunity across all groups. Even though income inequality has narrowed, problems in the structural determinants of inequity re- main. Finally, the relevance of strengthening agency and autonomy, particularly in the participation of women in markets, communities, and relationships, is at the core of an equitable society. To reduce structural inequities in monetary and non- monetary outcomes, the relevant structural deter- minants must be addressed. This will require the pro- motion of well-functioning and accessible markets that are able to provide all segments of the population with Introduction I solated by nature and recovering from a period inequality improved modestly. Per capita GDP grew of historically slow growth during the 1980s and by 33 percent, but experienced a major dip during the 1990s, Paraguay is faced with many economic and 2009 drought and global financial crisis when it fell by 5.2 13 social challenges at the beginning of the 21st century. percent relative to the previous year (figure 1). While the By the year 2000, GDP per capita was only 50 percent of moderate poverty rate declined by 12 percentage points the Latin American average and 34 percent of the aver- between 2003 and 2011, the extreme poverty rate only age among Paraguay’s MERCOSUR partners. High poverty fell by 3 percentage points. Based on comparable num- and inequality rates were an inherent characteristic of the bers, Paraguay reduced moderate poverty and extreme country. poverty by less than the region as a whole. As of 2011, 32.4 percent of Paraguayans were still living in poverty, Yet, between 2003 and 2013, Paraguay performed and 18 percent were living in extreme poverty. Income well and achieved a reduction in moderate and ex- inequality has fallen merely 0.03 points since 2003 and, treme (monetary) poverty. This was the result of a in 2011, remained high at 0.53. period of sizeable average growth, combined with a re- duction in inequality. Given that a large share of the im- However, there have been significant signs of improve- provements in welfare have occurred only since 2011, ment in recent years. In 2011-13, the economy grew 12 the analysis considers two periods: 2003–11, when ex- percent despite the dip in 2012; per capita income was 8.5 treme poverty remained stable despite the growth in percent higher; and extreme poverty as well as inequality per capita GDP by 22 percent, and 2011–13, when ex- finally started responding to growth. By 2013, 10 percent treme poverty was cut by almost half. At the core of the of the population were living below the extreme poverty explanation of the differences across these two periods line, 24 percent were living below the moderate pover- was the role of inequality, access to markets, and food ty line, and the Gini coefficient had declined 0.04 points, prices. placing it at a historical low.1 In 2003–11, economic growth was both substantial and volatile, and, while moderate poverty declined, 1  2012 estimates for poverty and inequality are considered pre- liminary and subject to change. Hence, these are excluded from the extreme poverty was more persistent, and income report. Figure 1: GDP per capita, poverty rates and inequality 2500 20% 70 0.60 2,078 18% 0.55 1,916 16% 60 0.52 0.55 2000 1,781 14% 1,565 12% 50 0.48 0.50 1,861 10% 1500 1,680 8% 40 44 41.3 43.7 41.2 6% 38.6 0.45 4% 30 37.9 35.1 1000 34.7 32.4 2% 0.40 0% 20 26.9 23.7 23.2 23.8 500 -2% 21.2 19.0 18.8 19.4 18 18.3 16.5 0.35 -4% 10 13.8 10.1 -6% 0 -8% 0 0.30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual growth rates GDP per capita (US$ constant 1994) Poverty rate Extreme poverty rate Gini coe cient Source: BCP and DGEEC. This report explores the factors associated with the Based on the framework, this report explores the follow- improvements observed in welfare and inequality ing specific sets of questions: and investigates the challenges to sustainability, given the historical structural problems of Paraguay 1. Why did growth have only a limited effect on the in maintaining growth and improving social indica- reduction of extreme poverty until 2011? What tors. The underlying question is whether the growth explains the recent reversal of this relationship? model and reduction in inequality are consistent with What is the role of labor markets and public and positive social dynamics according to a comprehen- private transfers in driving poverty reduction? 14 sive definition of equity, which includes the sustain- To what extent did the nonmonetary dimensions able elimination of absolute poverty, enhancement in of well-being improved throughout the decade? the equality of opportunity, and strengthening agency (section 2) across all groups. 2. To what extent do conditions at birth determine The conceptual framework of the report is based on the access of Paraguayans to basic services and op- a tripartite definition of equity: the equity triangle. portunities throughout their lifetimes? (section 3) The first dimension of the equity triangle—the elimi- nation of absolute poverty—entails the guarantee of a 3. What are the challenges in autonomy and voice, well-defined minimum standard of living to all members particularly among women? (section 4) of a society so that they can survive with dignity. All indi- viduals must have sufficient access to goods and services 4. What are the key policy lessons that can be drawn such that they are able to achieve appropriate outcomes. from the analysis to improve equity while foster- The second dimension—fairness—lies in the notion that ing growth? (section 5) initial background characteristics that are outside the control of individuals, such as gender or area of child- The next section provides a brief description of the main hood residence, should not limit opportunities or dictate features of growth, poverty, and inequality in Paraguay achievement. Finally, equity also involves agency, which since 2003. refers to the strengthening of the individual’s capacity to make choices and transform these choices into desired outcomes. Thus, an equitable society empowers citizens by providing them with voice and autonomy. The report provides a diagnosis of these three elements and propos- es key policy changes to improve equity and enhance shared prosperity. CHAPTER 1 Growth, poverty, and inequality: Stylized facts T his section describes the main stylized facts crisis, when it fell by 5.2 percent with respect to the pre- of the Paraguay economy in the past decade vious year. Yet, the record growth of 11.2 percent in 2010 in terms of growth, poverty, and inequality. It more than compensated for the loss (see figure 1). 15 concludes with a description of the demographics of poverty. The analysis begins in 2003 to ensure compa- The bottom 40 benefited from economic growth,3 this rability of the estimates that are drawn from the perma- group experienced higher growth than the top 60. nent household survey (Encuesta Permanente the Hog- In 2003-13, incomes of the lower two quintiles grew at ares, EPH) and includes the 2013 data set, but not the an annual rate of 5.9 percent (compared to 3.7 percent 2012 data set, which was released only on a preliminary of the average person) (figure 3). However, this perfor- basis. mance is the result of two distinct evolutions. In 2003- 11, above-average income growth raised the incomes of Paraguay’s per capita GDP reached its highest value the poorest 40 percent of Paraguayans (at 4 percent per in history in 2013, although it was only slightly over annum) vis-à-vis the mean income growth of the popula- half the regional average. In 2011, according to the tion (at 3.3 percent per annum). Paraguay’s performance World Development Indicators database, per capita GDP among the bottom 40 percent is close to that of the re- reached its highest value in history:2 $5,448 in constant gion as a whole, but still lags behind it and neighboring 2005 purchasing power parity (PPP) international pric- countries such as Argentina, Brazil, and Uruguay (World es), decreasing to $5,290 in 2012. This placed the coun- Bank 2014). But, in the two subsequent years, the rate of try well below the average in Latin American and the growth of the bottom 40 was two and a half times higher Caribbean, though higher than countries such as Boliv- than that of the mean: 14 percent compared with 5.6 per- ia, Guatemala, Guyana, Honduras, and Nicaragua (figure cent annually. 2). Over the decade, economic growth in Paraguay was high but volatile. In 2003-13, per capita GDP (in constant 3  Within the World Bank’s twin goals of ending extreme poverty 1994 U.S. dollars) grew by 33 percent, but experienced a and boosting shared prosperity, the latter has been defined as “ex- major dip during the 2009 drought and global financial panding the size of the pie continuously and sharing it in such a way that the welfare of those at the lower end of the income distribution rises as quickly as possible” (World Bank 2013e). Promoting shared prosperity has thus been enunciated as fostering the income growth 2  2013 GDP estimates are not yet available in the WDI database. of the bottom 40. Figure 2: GDP per capita in Latin American countries, 2012 18000 16000 14000 12000 10,354 10000 8000 6000 5,290 4000 2000 0 Dominican Uruguay Honduras Brazil Guatemala Costa Rica Nicaragua Ecuador Republic Colombia Peru Mexico Panama Paraguay El Salvador LAC Chile Bolivia Source: World Development Indicators. ably higher in rural areas than in urban ones, and the Figure 3: Growth of income of the bottom 40 gap was growing, by 0.06 percentage points in 2003–11. compared with all and per capita GDP In 2011, inequality in urban areas was 0.10 lower than in rural areas (0.47 versus 0.57). By 2013, however, the rural 15% Gini coefficient had fallen 0.08 points, narrowing the gap between rural and urban areas by half. Inequality contin- 12% ues to be higher in rural areas than in urban areas, and the Annual growth rates (%) 9% coefficient in Paraguay is one of the highest in the region, though it is still below 0.50. Section 2.1 explores the fac- 16 6% tors behind this noteworthy improvement. 3% The Paraguayan economy depends increasingly and considerably on agriculture and, as a consequence, 0% has become more volatile. By the end of the decade, 2003/11 2011/13 2003/13 Gowth rate mean income bottom 40% (annual) more than 20 percent of total GDP was derived from this Gowth rate mean income (annual) Growth rate pcGDP (annual) sector (figure 5). In comparison, the importance of agri- Source: EPH data (for mean income and mean income bottom 40). Per capita GDP culture in the region is below 5 percent. The high levels growth is based on Paraguay Central Bank data on per capita GDP (in constant 1994 of volatility of this sector because of weather shocks and U.S. dollars). fluctuations in commodity prices and external demand, While this growth was pro-poor, inequality remained combined with a great reliance on few export products stubbornly high, particularly in the rural parts of the and export destination, had a dramatic impact on the country, until 2012. During most of the past decade, the total economy (World Bank 2013b). Macroeconomic vol- Gini coefficient fluctuated around 0.51 and 0.52 (figure 4), atility, in turn, has adverse effects in terms of welfare and placing Paraguay’s inequality among the highest in the equity in most developing countries (Loayza et al. 2007). region, which is the most unequal region in the world. Section 2.3 explores the extent to which the volatility in Until 2011, jointly with Brazil, Paraguay was the most un- agriculture is reflected in variability in household incomes equal country in southern Latin America. In a period in and in household strategies to cope. which the region showed vast improvements in inequal- ity, Paraguay’s performance paled in comparison with Despite the increasing reliance on agriculture and that of other countries such as Argentina, Brazil, Chile, the substantive decline in poverty, two-thirds of the and Peru (World Bank 2013c). Nonetheless, since 2011, extreme poor live in rural areas and rely heavily on Paraguay appears to have caught up with these countries the volatile agricultural sector. By 2013, approximately by achieving a large decrease in the Gini coefficient from 138,000 families were unable to meet the cost of a basic 0.52 in 2011 to 0.48 in 2013. Inequality is also consider- food basket, and 68 percent of these families were living Figure 4: Evolution of the gini coe cient, 2003-13 0.6 0.6 0.58 0.57 0.56 0.56 0.56 0.55 0.55 0.54 0.53 0.52 0.52 0.52 0.52 0.52 0.52 0.51 0.51 0.51 0.50 0.49 0.49 0.50 0.49 0.5 0.48 0.48 0.5 0.47 0.47 0.46 0.45 0.45 0.42 0.41 0.4 0.4 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 National Urbano Rural Source: Calculations based on EPH (2003 to 2013). Figure 5: Share of agriculture in GDP (left) and growth volatility by economic sector, Paraguay 25 25 20-qurater standard deviation of 20 20 quarterly y-o-y growth Percent of GDP 15 15 10 10 17 5 5 0 0 1999:IV 2000:III 2001:II 2002:I 2002:IV 2003:III 2004:II 2005:I 2005:IV 2006:III 2007:II 2008:I 2008:IV 2009:III 2010:II 2011:I 2011:IV 2012:III 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Paraguay LAC Primary Secondary Tertiary Source: World Bank (2013b), based on data from the WDI and the Central Bank of Paraguay. Table 1. Distribution of extreme poor, 2013 Households % Population % National 138,226 100% 677,089 100% Urban 43,651 32% 202,264 30% Rural 94,575 68% 474,825 70% Source: Calculations using EPH 2013. in rural areas (table 1). The incidence of poverty is three points were accounted for in 2011–13. In urban areas, 40 times as high in rural areas as in urban areas (figure 6). percent of the reduction was observed in the first eight years of analysis.4 Both urban and rural areas benefited from the de- cade’s reduction in moderate and extreme poverty, 4  2006 poverty estimates are not strictly comparable with the rest although the decline was more recent in rural areas of the series because important budget constraints forced the DG- than in urban ones. Of the 14 percentage point reduc- EEC to postpone data collection until March 2007, while, in all other tion in rural extreme poverty in 2003-13, 12 percentage years, data collection was performed from August to December of each year (World Bank 2010). Figure 6: Evolution of poverty in rural and urban areas Figure 8: Socioeconomic composition, 2003–13 50.6 60 50 40 29.4 30 26.6 25.4 22.8 21.2 20 13.8 10.2 10 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 0 Extreme poor Moderate poor Vulnerable Middle Class+ 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Calculations using EPH (2003–13). O cial poverty lines were used for Rural - Extreme Poverty Urban - Extreme Poverty extreme and total poverty. Note: The vulnerability line (separating the vulnerable Rural - Moderate Poverty Urban - Moderate Poverty group from the middle class and above) is set at $10 PPP a day. All values are expressed in Asunción prices. Source: Calculations using EPH. Figure 7: Extreme poverty incidence and composition by department, 2013 30 Asunción 25 San Pedro 3% 13% Central 20 17% Caaguazú 18 15 16% Alto Paraná 10 10% 5 Itapúa Resto 10% 0 Asunción Central Alto Itapúa Resto Caaguazú San 31% Paraná Pedro Source: Calculations using EPH 2013 and the o cial extreme poverty line. Note: The red line corresponds to the extreme poverty rate at the national level. Figure 9: Socioeconomic characteristics, by economic group, 2013 (a) Years of education of household head (b) Number of children 9.6 10 3.5 3.1 3.0 2.8 8 6.8 6.0 2.5 2.1 6 4.9 2.0 4 1.5 1.2 1.0 2 0.5 0 0.0 Extreme poor Moderate poor Vulnerable poor Middle class Extreme poor Moderate poor Vulnerable poor Middle class Source: Calculations using EPH 2013. Figure 10: Multidimensional poverty viduals currently in the middle class or higher (figure and income poverty incidences, 2003–13 9). On average, household heads in the middle class have four more years of education than the poor and at least 35 two more than the vulnerable. Similarly, middle-class 30 families tend to have fewer than half the number of chil- dren in poor families (on average, 1.2 as opposed to more 25 than 3) and largely reside in urban areas. In relation to the 20 opportunities available to different groups, only a small 15 minority of the extreme poor speak only Spanish at home, in contrast to a third among middle-class families. 10 5 There are signs of lasting structural changes in the 0 profile of poverty because the extent of deprivation 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 in nonmonetary dimensions narrowed throughout Income Poor (extreme) Multidimensional poor the decade even during periods when monetary pov- Source: Calculations using EPH. erty did not decline so much as in 2003-11 (figure 10). Unlike monetary measures, which rely on cutoffs based Gaps in poverty incidence arise not only between ur- on income or consumption, nonmonetary indicators of ban and rural areas, but also across geographic areas. poverty measure the share of the population deprived of More than a fifth of the population is unable to satisfy a key good or service using defined standards.6 The share their basic food requirements in San Pedro and Caaguazú, of Paraguayans who are deprived in at least four of sev- whereas, in Asunción and Central, less than 5 percent of en key nonmonetary dimensions of well-being, including the population is in this situation (figure 7). These latter education, housing quality, access to water, access to san- two departments account for 20 percent of the extreme itation, access to electricity, and assets, has gone down poor in the country. The largest concentration of extreme from a 3rd of the population to less than a 10th. poor is in “other”, that is, other departments, excluding 19 Alto Paraguay and Boquerón. While important progress in nonmonetary dimen- sions were observed in both urban and rural areas, the The size of the middle class (and above) was growing country still faced challenges, especially in rural areas. and now represents the largest socioeconomic group Between 2003 and 2013, Paraguay successfully brought in the country (figure 8). In 2003-13, the proportion of the down the degree of deprivation to less than 5 percent in population earning more than $10 a day per person grew terms of access to electricity, educational attainment, and by over 20 percentage points, representing, in 2013, half secondary-school enrollments. At the national level, the the total population of the country.5 The rate of growth of number of people who did not own at least two key as- the middle class in Paraguay is similar to the rate in the re- sets (for example, a television, telephone, transportation gion, which also grew by 50 percent (Ferreira et al. 2012). device, or refrigerator) decreased from 69 percent of the population to 32 percent (figure 11). Similarly, the propor- Yet, as at the beginning of the period, one in four Par- tion of people who lived in dwellings without piped water aguayans was still economically insecure (the vulner- or a toilet facility decreased by 23 percentage points and able), with a sizable probability of falling back into 22 percentage points, respectively. poverty. In a highly volatile environment such as Para- guay and with the recent large improvements, it is more Improvements in the nonmonetary dimensions of important than ever to seek mechanisms to ensure that well-being during this period also suggest that there the gains of the periods of growth are not reversed as was a lower level of chronic poverty. While chronicity soon as the winds change. refers to the persistence of poverty over time, in the ab- sence of nationwide data that reflect individual-level in- Households living in poverty are headed by individu- come over time, the chronic poor are identified as those als who are considerably less well educated than indi- people who are both income poor and deprived in at 6  Countries are increasingly adopting multidimensional poverty 5  The threshold that separates the vulnerable and the middle class approaches to assess their progress. One of the pioneers in Latin is set at $10 a day per person (2005 PPP terms), following the defini- America is Mexico, see http://www.coneval.gob.mx/rw/resource/ tions in Ferreira et al. (2012). Metodologia_Medicion_Multidimensional.pdf. Figure 11: Deprivations by dimension and area, 2003, 2011, and 2013 90.0 80.0 68.7 70.0 60.0 43.4 50.0 38.4 31.7 34.8 40.0 25.8 30.0 21.9 20.0 16.1 7.9 10.3 11.6 10.0 7.0 4.2 4.0 4.9 3.9 1.6 0.6 2.9 1.3 1.2 0.0 2003 2011 2013 2003 2011 2013 2003 2011 2013 2003 2011 2013 2003 2011 2013 2003 2011 2013 2003 2011 2013 Lack of Assets (don’t Lack of Lack of ush If no household If any school-aged Lack of Lack of Tab have two or more of: electricity toilet or pit member has child is out of school non-precarious water in the tv, telephone, latrine completed 5 years of in years 7 to 15 wall materials dwelling transportation schooling or refrigerator) Rural Urban National Source: Calculations based on EPH 2003 and 2011. Figure 12: Matrix of multidimensional and income poverty, 2003 and 2011 2003 2013 MPI poor but Better o MPI poor but not monetary Better o 59.8% not monetary poor 19.1% 84.8% poor 5.1% Income poor 21% Income poor 10% 20 Chronic Poor Transiently Poor 13.8% 7.3% Chronic Poor Transiently Poor 2.6% 7.5% 7 6 5 4 3 2 1 0 7 6 5 4 3 2 1 0 Multidimensionally poor 32% Multidimensionally poor 7% Source: Calculations based on EPH 2003 and 2011. Note: The horizontal line shows the monetary extreme poverty line. The x-axis measures the number of household deprivations; the y-axis is the household per capita income. Seven dimensions were considered for the multidimensional axis: lack of assets (does not own two or more of the following items: television, telephone, transportation device, or refrigerator), lack of electricity, lack of ush toilet or pit latrine, if no household member has completed ve years of schooling, if any school-aged child is out of school in the age-group 7 to 15, lack of non-precarious wall materials, and lack of running water in the dwelling. least three nonmonetary indicators.7 This relies on the substantial increases in individual well-being. Today, idea that multidimensionally poor individuals are more the majority of the country has reached a level of income likely to have been monetary poor during more than one that is regionally considered as the middle-class thresh- period (López-Calva et al. 2014). Because of the improve- old. The improvements in nonmonetary dimensions also ment in monetary and nonmonetary poverty in the last suggest that the advances might be long-lasting. Howev- decade, there was a sizable decrease in the share of the er, a sizable proportion of the population, while not poor, population considered chronically poor, falling from 14 is vulnerable to falling back into poverty, and the large percent in 2003 to less than 3 percent in 2013 (figure 12). bulk of the monetary and nonmonetary deprivations are Meanwhile, the share of people who were not poor across concentrated in rural areas, which are intrinsically depen- either dimension (the more well off [the blue area]) rose dent on the highly volatile agriculture sector. by 25 percentage points, reaching 85 percent in 2013. The following section will dig into the drivers behind In sum, in the last decade, Paraguay has experienced the trends in poverty and inequality described above. Because of the essentially rural nature of poverty in the country, the analysis will be carried out separately for the 7  These are the multidimensional poor in the sense of Alkire-Fos- ter (2011). urban and rural extreme poor. CHAPTER 2 First Pillar: Mobility out of poverty T his section analyzes the factors behind the ob- This impressive drop was driven by two factors: (1) the served changes in poverty and inequality in the continuing effects of growth and redistribution and (2) a last decade. Growth, redistribution, and food prices decrease in food price inflation. Because the extreme pov- 21 all play an important role in explaining the stickiness of erty line is determined solely based on the price of a se- extreme poverty until 2011 and the sizable improvement lected basket of food, increases in food prices generated since then. Because labor incomes represent a driving sizable increases in the extreme poverty line. force behind the improvements in well-being, the section examines the link between output and employment at Between 2003 and 2011, while both growth and distri- the national level and describes specific issues in labor bution contributed to the large reduction in poverty, markets in rural and urban areas. food prices were rising at a higher rate than general prices in the economy and thus mitigated the reduc- 2.1 Factors behind poverty reduction tion in the extreme poverty rate. This can be seen by comparing, in figure 14, the shift to the right and the wid- Three factors explain the changes in poverty rates ening in the income distribution between 2003 (dotted across the two periods: (1) changes in the position of green line) and 2011 (dashed red line) as, at the same the poverty line, (2) changes in distribution in terms of time, the extreme poverty line moves to the right. Quan- growth, and (3) changes in the shape of distribution, tification of the effects of these three forces shows that that is, the effects of redistribution. These three factors growth and improved income distribution contributed to explain the stickiness of the extreme poverty headcount in a decline, by 9.48 percentage points, in poverty in 2003- 2003-11 and the impressive decline in poverty in 2011-13. 11, while rapid increases in the price of the food basket (relative to general prices) increased the poverty rate by Extreme poverty fell considerably in 2011-13 after 6.28 percentage points (see figure 13). The net effect was stubbornly fluctuating around 18 percent in 1997- minor poverty reduction despite the sizable economic 2011 despite periods of impressive economic growth. growth and the gains in redistribution. While the extreme poverty rate fell only slightly between 2003 and 2011, by 3.20 percentage points, it fell by 7.85 In contrast, since 2011, all three forces have been percentage points between 2011 and 2013 (figure 13). trending in the same direction. The deceleration of the Figure 13: Extreme poverty change (left) and decomposition of extreme poverty changes (right), 2003–11 and 2011–13 (a) Extreme poverty rate (b) Decomposition of changes in extreme poverty 25 2003 21.23 2011 2011 20 18.03 18.03 15 2013 6.28 10.17 10 -2.37 5 -7.64 -5.12 0 -1.84 -0.36 -5 -3.2 -10 -7.9 2003-2011 2011-2013 2003-2011 2011-2013 Source: Calculations based on EPH 2003, 2011, and 2013. Growth Redistribution Poverty line Figure 14: Per capita household income distributions in 2003, households with incomes near the extreme poverty 2011 and 2013 with respective extreme poverty lines line (see figure 14). Because of this clustering near the ex- 5.000e-07 1.000e-06 1.500e-06 treme poverty line, even slight shifts in the poverty line can have noticeable impacts on observed poverty rates. In the case of moderate poverty, food prices played a less crucial role in explaining the observed fall in pov- Density erty throughout the decade. Increases in the moderate 22 poverty line associated with rising food prices limited the reduction in moderate poverty between 2003 and 2011, but to a lower extent, because the basket used to define the line also contains nonfood items (figure 15; box 1). 0 0 1000000 2000000 3000000 Growth was the driving force in this first period, while IPCM prices 2011 2003 2011 2013 changes in the distribution contributed substantially to Source: Calculations based on EPH 2003, 2011, and 2013. Note: Per capita household incomes the equally impressive fall in moderate poverty between are expressed in 2011 prices, using the general consumer price index (CPI) as a de ator. 2011 and 2013. increase in food prices between 2011 and 2013 means Disproportionate income growth among the less well- that, in real terms, the extreme poverty line (updated us- off was a strong factor in the observed improvements ing food price data of the Central Bank of Paraguay) was in poverty. Average per capita household income grew marginally lower in 2013 than in 2011. As a consequence, more strongly 2011-13 than in the previous eight years, prices played a limited (but positive) role in the decrease but the growth in recent years was disproportionally in the extreme poverty rate, whereas the better income stronger among those at the bottom of the distribution. distribution reflected in the widening of the distribution Growth incidence curves depict the annual per capita (the solid blue line in figure 14) was behind 65 percent of household income growth rates by percentile of the dis- the total change in the headcount (5 percentage points tribution (figure 16). Three features emerge. First, the an- out of close to 8), and average income growth (the shift nual growth rates are considerably lower between 2003 to the right in the distribution) explains the remaining 35 and 2011 than in 2011–13 (see the change in the values percent of the fall (see figure 13). along the vertical axes). Second, the latter rates are con- siderably more progressive than the former. Finally, in An additional contributing factor behind the sensitiv- contrast to the first part of the period, income growth ity to food prices and the extreme poverty line is the was everywhere higher in rural areas than in urban areas fact that a large proportion of the population lives in during the more recent years. Figure 15: Moderate poverty change (left) and decomposition of moderate poverty changes (right), 2003–11 and 2011–13 (a) Moderate poverty rate (b) Decomposition of changes in moderate poverty 50 44 40 32.4 32.4 30 23.7 Line 2.8 Line 0.0 20 Growth 10 Growth -3.7 -11.3 Redistribution 0 -5.0 Redistribution -10 -3.1 -8.66 -11.6 -20 2003-2011 2011-2013 2003-2011 2011-2013 Source: Calculations based on EPH 2003, 2011, and 2013. Growth Redistribution Line Rising labor income was the driving force behind the In 2011-13, however, all the components of labor and reduction in extreme and moderate poverty. Income non-labor income contributed to the reduction in ex- from labor is not only the main source of income among treme poverty. While labor income continued to be the poor families (representing two-thirds of the incomes of main force behind the improvement, public transfers as the bottom quintile); it is the factor that has led many to well as “other incomes” (which include, notably, property move out of poverty (figure 17). This is, in similar propor- in the form of imputed rents) played a large role (see fig- tions, because of increased earnings and an increased ure 17). While public transfers represented a larger share number of earners. The prominent role of labor income in of total household income at the end of the period, they reducing poverty is consistent with the trends observed still accounted for less than 5 percent of the total at the 23 across the region as a whole: labor income accounts for 70 national level and less than 10 percent in urban areas. Pri- percent of the reduction of poverty in the region in recent vate (family) transfers continued to benefit the rural poor, years (World Bank 2014). while the opposite was true among the urban poor. In the case of extreme poverty reduction in 2003-11, As in the case of poverty reduction, almost 80 percent the changes over time of the non-labor components of the improvement in equality in the last decade—a of income, including pensions and transfers, were re- 7 Gini point fall—was driven by rising labor incomes. gressive. Among rural households, the negative effect This is because of the increased incomes among earners largely arose through pensions, or, rather, their lack of and a rise in the share of people working. Public transfers access to pensions, whereas, among urban households, contributed to a lesser extent: 7 percent of the decline in it was equally divided between intra-family transfers and inequality observed in both periods, though, in recent pensions. According to household data, government years, these transfers became more effective (figure 18). transfer programs such as Tekopora, which are included in Private transfers (remittances and within-country trans- the “other non-labor income” category, had little impact fers) had an equalizing effect between 2003 and 2011, but on poverty, which may be explained by the low program this effect ceased over the following two years. Finally, an coverage during the period. The role of family transfers important contributor to the decline in inequality in the (contributing to poverty reduction in rural areas, while last few years was the “other, non-labor income” compo- opposing poverty reduction in urban areas) suggests that nent, which includes property, capital income, and rents. low-income rural households were net recipients of the private transfers (from abroad and nationally), while less In Focus. Fiscal Policy: well-off urban households saw a fall in private transfers. Results from the Commitment to Equity Project The role of transfers in helping households cope with income fluctuations among the rural poor is explored in The limited role of public transfers in reducing pover- section 2.3. ty and inequality highlights the broader importance Box 1. Food prices and the extreme poverty rate In 2006-11, food price inflation outpaced overall inflation resulting in higher extreme poverty (figure B1.1). Fixed through the traditional approach to the measurement of income poverty, the extreme poverty line is set according to a basket of basic food items as determined using the 1997/98 household income and expenditure survey. The value of the basket is adjusted annually according to the increase in the food consumer price index (CPI, in Asunción; constructed by the Central Bank of Paraguay). Therefore, increases in food prices in the past decade, which were larger than the rise in the price of the overall basket, led to a sizable appreciation in the extreme poverty line, which climbed almost 30 percent, from ₲270,000 in 2003 to ₲343,000 in 2011 (both expressed in 2011 prices). Figure B1.1: Food CPI and the general CPI increases and the extreme poverty line in real terms, October 2011 350 337 343 337 325 319 324 325 330 1.300 304 310 1.250 290 270 270 274 259 263 259 1.200 270 249 245 248 250 250 234 1.150 230 207 207 210 239 244 239 1.100 210 231 227 230 231 216 1.050 190 194 170 192 192 1.000 Sep Sep Dec Dec Oct Oct Nov Oct Oct Oct Oct 150 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013* 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*2013* Asunción & Central Urbano Resto Urbano Area Rural CPI General Food CPI Source: Calculations based on data of the Central Bank of Paraguay and DGEEC. 24 If food prices had increased at the same rate as overall inflation, poverty would have fallen substantially between 2006 and 2007, from 20.7 to 17.6 percent; it actually fell by less than one percentage point (figure B1.2), that is, gains in the income of the poorest were largely absorbed by the rise in the price of the basic food basket. Because the poorest spend most of their budgets on food, this captures not merely a mathematical relationship, but an actual stagnation in the food purchasing ability of the poorest. Because food prices remained relatively high, poverty hovered around 18 percent between 2008 and 2011, roughly 5 percentage points higher than it would otherwise have been. In 2012 and 2013, however, food price infla- tion fell and closely tracked the overall CPI (figure B1.2). As a result, 2012 and 2013 saw important drops in extreme poverty because the income gains among the poorest overtook the increase in food prices. Figure B1.2: Observed and simulated extreme poverty headcount, 2003–13 25 21.2 20 15 10 18.0 12.9 5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013* Simulated (CPI-based poverty line) Observed (actual poverty line) Source: Calculations based on EPH 2003-2011 and 2013. Figure 16: Growth incidence curve, 2003-2011 and 2011-2013 7 40 35 6 30 5 Annual growht rate ( %) Annual growht rate ( %) 25 4 20 15 3 10 2 5 0 1 -5 0 -10 2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97 2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97 Percentile of per capita household income Percentile of per capita household income Source: Calculations based on EPH 2003, 2011, 2013. Note: Percentiles 1 and 99 are excluded from the charts. National Urban Rural Figure 17: Shapley decomposition by components of welfare Figure 18: Shapley decomposition, by components of the measures; changes in extreme poverty, 2003/11 and 2011/13 welfare measure; changes in inequality, 2003-11 and 2011-13 6.00 4.00 0.010 Changing in Extreme Poverty 0.000 Changes in Extreme Poverty 2.00 0.00 -0.010 -2.00 -0.020 -4.00 -0.030 -6.00 -0.040 -8.00 -0.050 -10.00 -0.060 25 -12.00 -0.070 -14.00 National Urban Rural National Urban Rural -0.080 2003-2011 2011-2013 2003-2013 2003-2011 2011-2013 Other Share of people with pensions Labor income Public transfers Labor People receiving Labor inc Pensions People receiving pensions Pensions Family transfers Share of people with Labor income Private Transfers Public Transfers Other non-labor income Sources: Calculations based on EPH 2003, 2011, 2013; Azevedo et al. 2012. Sources: Calculations based on EPH 2003, 2011, 2013; Azevedo et al. 2012. of fiscal policy, including taxes and government ex- compared with an average of 34.0 percent in the OECD penditures in transfers and public services. The Com- (OECD 2014) (figure 19).9 Lower tax revenues imply less mitment to Equity Project, a joint initiative of Tulane Uni- fiscal space for social investments, such as improved ed- versity and the Inter-American Dialogue, has produced ucation and infrastructure. Furthermore, while a quarter a comparative analysis of the degree of progressivity of of the OECD’s tax revenue was derived from personal in- fiscal systems in a few countries in the region, including come tax, a typically progressive tax, Paraguay did not Paraguay.8 enact personal income taxation until 2012 (Higgins et al. 2014). Instead, Paraguay relies on the value added tax In line with other countries in the region, Paraguay’s (VAT), which accounted for 48 percent of tax revenues tax collection is low relative to the average in the in 2010 (Higgins et al. 2014). This type of consumption Organisation for Economic Co-operation and Devel- tax is disproportionately paid by low-income consum- opment (OECD) and relies more heavily on consumer ers, who spend a higher proportion of their incomes on taxes. In 2010, tax revenue was only 16.5 percent of GDP, necessities. 8  For more information, see the Commitment to Equity Project website—http://www.commitmentoequity.org/—and Lustig, Pessi- 9  Tax revenue reported in Paraguay in the latest available year was no, and Scott (2014). an estimated 17.6 percent of GDP in 2012. Figure 19: Tax collection as a share of GDP, the OECD and Latin American and the Caribbean 40 30 Percent of GDP 20 10 0 Brazil El Salvador Countries Argentina Costa Rica Guatemala Chile Nicaragua Honduras Uruguay Mexico Panama Colombia Peru Ecuador Paraguay Bolivia Dominican R. OECD Other taxes Indirect taxes: Taxes on goods and services Direct taxes: Individual taxes on income, pro ts and capital gains Source: World Bank 2014; OECD statistics: 2010 Tax Data Base. Note: Other includes corporate taxes, social security contributions, payroll taxes, property taxes, and other sources. Figure 20: Comparative redistribution e ectiveness of scal systems, Latin America and the Caribbean 0.60 0.55 Argentina Bolivia Brazil 0.50 0.50 Mexico 26 0.48 Paraguay 0.45 Peru Uruguay 0.40 0.35 Market Income Net Market Income Disposable Income Post-Fiscal Income Final Income - Direct taxes + Direct transfers - Indirect taxes + Subsidies + Public spending on education and health Sources: Bucheli et al. 2014; Higgins et al. 2014; Higgins and Pereira 2014; Jaramillo 2014; Lustig and Pessino 2014; Paz Arauco et al. 2014; Scott 2014. Note: The gure shows Gini coe cients calculated based on each of the ve Commitment to Equity Project income de nitions. The data are from 2009 except for Mexico and Paraguay, for which the data are from 2010. Figure 21: The incidence of selected taxes and transfers, by income decile, 2010 40% 32% 30% Incidence (Share of Market Income) 20% 17% 15% 9% 12% 11% 9% 9% 8% 7% 10% 2% 1% 3% 0% -1% -3% -1% -2% -2% -3% -2% --3% -3% -10% -8% -5% -8% -12% 10% -11% -10% -9% -8% -12% -20% -30% -40% -9% -50% 1 2 3 4 5 6 7 8 9 10 Income Decile (Poorest to Wealthiest) Source: Higgins et al. 2014. Direct taxes Direct transfers Indirect taxes In-kind transfers Paraguay’s fiscal system is among the weakest in the Only 4 in 10 individuals living on less than $4 a day region. Based on comparable methodologies and har- (including a quarter of those living on less than $2.50 monized data, Paraguay appears to be the least effec- a day) were recipients of any direct transfer programs tive among seven countries—Argentina, Bolivia, Brazil, in 2010 (Higgins et al. 2014). While the spending was well Guatemala, Mexico, Paraguay, Peru, and Uruguay—at targeted, with 47 percent of expenditure reaching the ex- mitigating inequality through fiscal policy (figure 20).10 treme poor (measured at $2.50 a day) and a total of 68 The Gini coefficient for market incomes, earnings before percent reaching those living on less than $4.00 a day, taxes and transfers, in Paraguay was 0.50, similar to the the low coverage rate suggests that expansions of these coefficients for most of the other countries analyzed in programs could result in gains in poverty reduction. Fur- the region. Direct taxes and transfers reduced the Gini thermore, the transfers received are not sufficiently large coefficient by less than 1 percent, while indirect taxes to raise households out of poverty. For those living on reversed this progress: the post–fiscal income Gini coef- less than $2.50 a day who received any direct transfer, the ficient was slightly higher than the market income Gini, amount received was, on average, $0.38 a day. indicating that income inequality was slightly greater af- ter transfers and taxes are taken into account. Finally, the Though the Commitment to Equity analysis paints provision of public education and public health services a stark picture of fiscal policy in Paraguay in 2010, decreased the effective income inequality somewhat, to several recent policy changes have addressed these 0.48. Though slightly lower than the initial Gini of 0.50, shortcomings. Direct personal income taxation was in- Paraguay’s decline of 0.02 Gini points through fiscal policy troduced in 2012 (see above). Additionally, a tax of 10 is the smallest reported. percent on income from agriculture was passed in 2013. These taxes should have the effect of reducing the re- The combination of taxes and transfers in Paraguay gressivity of the tax system. On the other hand, these means that every income decile is a net payer to the changes have been accompanied by a new VAT on agri- fiscal system, the only country in the analysis in which cultural and livestock products and an expansion of the this is the case (Higgins et al. 2014). Figure 21 reports the VAT on most products, potentially decreasing the pro- average share of market income paid in taxes or received gressivity characteristic of higher direct taxation. On the 27 in direct transfers or in-kind transfers (such as public ed- spending side, the government’s Sembrando Oportuni- ucation). The bottom deciles, though largely impover- dades poverty reduction plan aims to fight poverty by ished, report that they pay direct taxes. This differs from targeting a quarter of a million families living in extreme many countries, where the poor do not typically pay any poverty. The plan involves the expansion of cash transfer direct taxes. In addition, the bottom decile pays a sizeable programs (such as the Tekopora, Tekoha, and Propais II) share of their market incomes, an average of 43 percent, in terms of coverage and the amount of benefits. Adul- in indirect taxes such as the VAT and the combustibles tax. tos Mayores has also been expanded. Additionally, the These indirect taxes result in increases in extreme poverty FONACIDE law passed in 2012 by Congress regulates the from 14.4 percent based on disposable income (market spending of extra revenue from electricity sales (to Brazil) income, less direct taxes, plus direct transfers) to 16.2 per- on infrastructure projects, including investments in edu- cent, as measured by the international $2.50-a-day pov- cational infrastructure. erty line. While direct taxes are progressive (that is, those with more income pay a higher share), indirect taxes are 2.2 Economic growth and the labor market regressive. Because indirect taxes are a larger share of all taxes collected, the net effect is a slightly regressive tax As in other economies in Latin America and the Carib- system (Higgins et al. 2014).11 bean, improvement in labor market outcomes—both employment rates and wages—has fueled much of 10  Higgins et al. (2014) and Lustig, Pessino, and Scott (2014) report the poverty reduction in Paraguay since 2003. While the Gini coefficient before and after taxes and transfers for several agriculture remains the primary sector of employment countries in the region. 11  The Kakwani coefficient is a measure of progressivity in taxa- among Paraguay’s poor, other occupations, particularly tion. It is calculated as the tax concentration coefficient, minus the sectors traditionally dominated by men, such as construc- market income Gini coefficient. A regressive tax has a negative Kak- wani coefficient. The Kakwani coefficient in Paraguay 2010 was −0.02 (Higgins et al 2014). For comparison, the Kakwani coefficients report- ed in the other countries included above are as follows: −0.13 in Bo- (Bucheli et al. 2014; Higgins and Pereira 2014; Jaramillo 2014; Lustig livia, 0.04 in Brazil, 0.11 in Mexico, 0.08 in Peru, and 0.07 in Uruguay and Pessino 2014; Paz Arauco et al. 2014; Scott 2014). tion, have become more relevant and, with higher wages tic services) suggest a high degree of mobility between than agriculture, offer better labor opportunities for low- the two sectors among low-skilled women: there was no skilled labor. structural change in employment among women. Economic growth in the past decade was driven in The share of employment in agriculture among the large part by the two largest sectors in the economy: low-skilled lost ground during the decade, but hour- agriculture and manufacturing. Though the manufac- ly wages in agriculture continued to be lower and did turing sector consistently dominated the Paraguayan not grow as much as in other occupations (figure 25). economy in terms of output during this period, account- Because agriculture is dominated by self-employed work- ing for 29 percent of national output in 2003 and 26 ers, hourly wages may be more difficult to estimate and percent in 2012, a substantial proportion of this output be prone to misreporting. However, the same pattern is is based on agricultural inputs (figure 22). The two larg- observed in monthly incomes, suggesting that the hour- est manufacturing subsectors in 2012, for example, were ly wages reported are accurate. While monthly incomes meat products (₲2.38 trillion) and beverage and tobacco grew in other sectors to a median of about ₲1.25 million production (₲1.58 trillion). per month, monthly incomes in agriculture were flat at ₲600,000 per month (in 2005 guaraníes). Indeed, agricul- However, these gains in output in manufacturing and tural workers reported a large fraction of income from agriculture did not translate into significantly higher other employment (secondary jobs), accounting for 40 employment growth in these activities, particular- to 50 percent of reported monthly incomes among low- ly among the less well skilled. Though agriculture ac- skilled agricultural workers. counted for 26 percent of the main occupations among individuals in 2013, the sector showed limited employ- Public administration and defense represent a niche ment growth between 2003 and 2013 (figure 23). Given by offering low-skilled men the highest hourly wages the employment growth in other sectors, total employ- (averaging ₲9,300 in 2005 guaraníes) and the big- ment is much less reliant on agriculture now than it was gest gains in employment, though the gains were not 28 at the beginning of the decade, when it accounted for a shared with similarly educated women (figure 26). This third of total employment. Similarly, manufacturing still is particularly the case among men who finished second- represents the largest sectors in terms of output (around ary school, but have no postsecondary training. Among 25 percent of the total economy), and, yet, it continues this group, the median earnings rose from ₲1.5 million to account for only 10 percent of total employment. The (constant 2005 prices) in 2003 to ₲2.5 million in 2013. most rapid employment growth was occurring in con- Meanwhile, women who completed secondary schooling struction, where employment more than doubled in and were working in public administration or defense saw 2003-13, from 98,000 to 214,000 jobs. Still, in 2013, only their median real earnings fall, from ₲1.6 million to ₲1.2 7 percent of total employment was concentrated in con- million, during this period. struction. Employment levels, rather than wages, of low-skilled Agriculture was still the main sector of employment men were more responsive to changes in output. This for 43 percent of low-skilled employed men and 32 may suggest that adjustments to low-skilled labor de- percent of low-skilled employed women (figure 24). mand were being made along the extensive margin The low skilled, here defined as adults with only a prima- (the level of employment) rather than in the price of ry education or less, are disproportionately more likely to labor. While overall employment elasticity was positive live in extreme poverty, accounting for two-thirds of all in both periods in agriculture and manufacturing (box 2), adults living in extreme poverty in 2011. In 2003-13, low- employment elasticity among low-skilled men was small skilled men moved away from agriculture; employment but negative in 2003–07 and 2007–11 in agriculture and in agriculture fell from 55 percent in 2003 to 43 percent large and negative in the latter period in manufacturing in 2013 among this group. At the same time, employment (figure 27). This suggests replacement of low-skilled labor in construction rose from 9 percent to 16 percent. Low- in these two sectors, potentially by new technologies and skilled women slightly increased their participation in by higher-skilled labor. On the other hand, employment agriculture throughout the period, though employment elasticity among low-skilled men in construction, though patterns in agriculture and services (including domes- falling across the two periods, was at 1.00 in the second Figure 22: Output by sector, 2003-12 12.00 10.00 Trillion Guaranis (Constant) Agriculture 8.00 Manufacturing Public and private services 6.00 Construction Commerce/Food services 4.00 Utilities 2.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: GDP per sector from national accounts, Central Bank of Paraguay. Note: Commerce and food services include commerce and restaurant and hotel services. Agricultural output includes agriculture, animal husbandry, forestry, and sheries. Commerce/food services also include workers in the hospitality sector. Public and private services include real estate and management services, public administration and defense, education, social and health services, private household services, external organizations, and other community, social, and personal services. Excluded sectors are nance and transportation/communications. Figure 23: Sectoral employment participation and growth, the ve largest sectors of employment, 2003–13 100% 240% 220% 80% 200% 60% 180% 160% 40% 29 140% 120% 20% 100% 0% 80% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 Agriculture Manufacturing Construction Agriculture Manufacturing Construction Comerce/Hospitality Public and private services Comerce/Hospitality Public and private services Source: Calculations using EPH data based on main sector of employment. Note: The values for 2012 are the average of 2011 and 2013 and do not include the EPH microdata as these are preliminary and subject to change. Figure 24: Sectors of employment among low-skilled workers (a) Men (b) Women 60% 60% 50% 50% 43% 40% 40% 30% 30% 32% 20% 20% 17% 10% 10% 0% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Agriculture Retail/Hospitality Construction Manufacturing Public and private services Source: Calculations using EPH. Note: The charts report the proportion of adults with a primary education or less who work in selected sectors. The values for 2012 are the average of 2011 and 2013 and do not include the EPH microdata as these are preliminary and subject to change. period, indicating that labor demand among low-skilled Figure 25: Median hourly wages among employed men Figure 26: Median men grew at the same rate as output in the sector. with primary schooling or less, 2003–13 and defense work 2003, 2009 and 2 The climb in construction and public sector jobs 9000 3000000 among low-skilled men may have had an effect on the 8000 2500000 skills premium, which has fallen slightly since 2003 7000 (figure 28). Compared with men who did not finish pri- 6000 2000000 mary school, the wage premium among men with post- 5000 1500000 secondary schooling dropped from 1.19 in 2003 to 1.10 in 4000 2013. Similarly, compared with men who completed pri- 3000 1000000 mary school, but did not complete secondary school, the 2000 wage premium fell from 1.14 to 1.07 in 2013. The wage 500000 1000 premiums among women in the corresponding school- 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Men Wom ing groups did not decline because wages among wom- Less than prim en were fairly constant in real terms. This highlights the Agriculture Retail/Hospitality Construction Manufacturing Public and private services important role of raising earnings opportunities among Source: Calculations of hourly wages in main sectors of occupation using the EPH. low-skilled men in sectors such as construction and de- Note: The values for 2012 are the average of 2011 and 2013 and do not include the Source: Calculations us fense and the lack of similar opportunities in sectors with EPH microdata as these are preliminary and subject to change. The gure reports median hourly wages fo median hourly wage for main job in constant 2005 guaraníes. greater employment among women. Overall, the growth in Paraguay in 2003–13 had two people are self-employed or unpaid workers (espe- features in terms of employment: first, output rises cially women) who cultivate few crops for both home in agriculture and manufacturing were accompanied consumption and markets. On average, 77 and 57 per- by falls in low-skilled employment, suggesting an in- cent of labor income in rural areas among households crease in labor productivity, which, however, was not living below the extreme poverty line and the moderate 30 reflected in higher hourly earnings; second, there was poverty line, respectively, is derived from activities in ag- a shift to other, more well paid sectors, which therefore riculture, cattle raising, or fishing (figure 29). In contrast, represented increased employment opportunities for the share of agricultural income among non-poor rural the low-skilled, such as construction and public ad- households is around 40 percent. Household agriculture ministration. Even in sectors that were not dominated by tends to rely on the cultivation of few crops for both men, such as employment in private households, restau- home consumption and the market (World Bank 2013d). rants, and hotels, low-skilled men saw a sharper climb in Among many of these households, agriculture is fairly their earnings than similarly educated women. These im- basic, with insufficient irrigation systems, inadequate provements in employment opportunities among people agricultural practices, and low use of technology. These with moderate education can potentially help families households also typically have limited access to markets, move out of poverty in rural and urban areas. especially in a context of low connectivity (World Bank 2013d). 2.3 Drivers of rural poverty The rural extreme poor are more likely to be self-em- Rural poverty in Paraguay is defined by depen- ployed or unpaid workers than the rural moderate dence on highly volatile income sources, particularly poor. In 2013, 82 percent of the rural extreme poor who self-employment in agriculture. Because of limited ac- were in the labor force were either self-employed or un- cess to financial markets and infrastructure, households paid workers (typical of family farms and microenterpris- face limited opportunities to diversify or insure against es), including production for both home consumption income volatility. Reliance on informal lending and family and the market. While those living in moderate poverty transfers are important strategies used by the rural poor were also frequently involved in self-employment and to cope with these limitations. unpaid labor, nearly one in three was a wage earner working in equal proportions in small or large firms, the Agriculture is the main source of income among the latter associated with higher wages and less employ- extreme poor living in rural areas, but most of these ment volatility. ployed men Figure 26: Median monthly earnings of public administration Figure 27: Employment and wage elasticity among men with and defense workers, by gender and educational attainment, primary schooling or less, 2003-11 2003, 2009 and 2013 10% 5 3000000 8% 4 Average Annual Growth 2500000 6% 3 Elasticity 2000000 4% 2 2% 1 1500000 0% 0 1000000 -2% -1 -4% -2 500000 -6% -3 2003/07 2007/11 2003/07 2007/10 2003/07 2007/10 0 2011 2012 2013 Men Women Men Women Men Women Men Women Manufacturing Agriculture Construction Less than primary Primary Secondary Post-secondary Construction Growth in employment Growth in output Wage elasticity ces 2003 2009 2013 Growth in media wage Employment elasticity cupation using the EPH. 3 and do not include the Source: Calculations using the EPH (2003, 2009, 2013). Note: The gure reports Source: Calculations based on EPH and national accounts data. Note: Wages are ange. The gure reports median hourly wages for main occupations in constant 2005 guaraníes. measured as median hourly wages in the main occupations among men with only s. primary schooling or less and who are employed. Reliance on a single source of income leaves many severely affected, but the impact was not equally dis- rural households exposed to poverty shocks. This is tributed (World Bank 2010). In 2008–09, families in the particularly true if the income source is itself volatile, such bottom quintile (which coincides with the pool of the as rural self-employment. Yet, over a third of rural house- extreme poor) saw large decreases in incomes and nega- holds living in poverty receive more than 75 percent of tive growth rates of 10 percent in some cases (figure 32). their total household incomes from self-employment (fig- Households in the top 10 percent of the distribution in ru- 31 ure 30). These households face volatile earnings year to ral areas experienced income growth, close to 10 percent year, largely dependent on factors outside their control, in some cases, possibly because of their more intensive such as weather conditions and market price fluctuations. use of irrigation methods and the higher level of diversifi- A more diverse household employment portfolio would cation in their sources of income. result in greater shelter from these exogenous shocks. In the context of this highly volatile agricultural sec- Agricultural activities are highly volatile at both the tor, income diversification becomes essential among macro and micro levels relative to other sectors (figure the rural poor in terms of the cattle raising, the types 31). Moreover, the production risks that the sector faces of crops, and the labor or non-labor income sources. lead to, on average, a loss equivalent to 5.4 percent of ag- Indeed, in recent years, there has been a movement to- ricultural GDP and affect large producers, but also can put ward wage employment in agriculture (larger farms) and household food security at risk (World Bank 2013d). This nonagriculture (mostly construction, transport, and pub- is related to the sector’s exposure to international com- lic and private services12), generating alternative sources modity price fluctuations and climate shocks (World Bank of income that are more profitable or stable. 2013b). In family agriculture, pests and diseases can also have a large impact on production. On the other hand, While working their own farms is important among the risks could be manageable with the aid of appropri- the rural poor, this group has also seen a rise in wages ate programs for the mitigation, transfer, and reduction of in agriculture and nonagriculture (figure 33). In 2010 risks (World Bank 2013d). Despite the volatility, fewer than and 2013, households in the bottom decile saw increases 2 percent of agricultural workers purchased agricultural in agricultural wages of the same magnitude as the in- insurance in 2011 (Demirgüç-Kunt and Klapper 2012). 12  Public and private services include real estate and manage- The 2009 drought exemplifies the disproportionate ment services, public administration and defense, education, social impact on the poor. Households in rural areas were and health services, private household services, external organiza- tions, and other community, social, and personal services. Box 2. Productivity gains over the past decade In three of the most important sectors of employment (agriculture, manufacturing, and construction), employment elasticity was lower in 2007–11 than it had been in 2003–07, suggesting that there was a rise in productivity (figure B2.1]. Positive employment elasticity indicates that, on average, increased output is associated with increased employment. However, an elasticity of less than 1 indicates that output is growing more quickly than employment, which is attributable to a rise in productivity or rises in product prices. Employment elasticity of less than 1 was characteristic of agriculture in both periods, suggesting that recent gains in agricultural output were being driven by productivity (or price) gains rather than higher employment. While manufacturing and construction gains in the first period were associated with important increases in employment, the elasticities in the second period suggest that there were productivity gains and, as a result, a relative decline in the demand for labor. Figure B2.1: Employment elasticity based on average annual growth rate, 2003–11 0.12 5.36 6 0.10 5 Average Annual Growth 0.08 4 Elasticity 0.06 2.20 3 0.04 2 1.01 0.02 0.20 0.10 0.09 1 0.00 0 2003/2007 2007/2011 2003/2007 2007/2011 2003/2007 2007/2011 Manufacturing Agriculture Construction Growth in employment Growth in output Employment elasticity 32 Sources: Sectoral output data are from published national accounts (Central Bank of Paraguay); data on employment are from Calculations using the EPH. While recent employment and output trends suggest there was greater labor productivity, Paraguay’s level of total factor productivity is relatively low (figure B2.2). In 2011, Paraguay’s total factor productivity was 35 percent of that of the United States, showing a slight rise from the low of 31 percent in 2000; this is comparable with the total factor produc- tivity of Bolivia (38 percent), but lower than Brazil’s (43 percent) and Uruguay’s (56 percent). Figure B2.2: Total Factor Productivity at Current Purchasing Power Parity, as a Percentage of the level of the United States 80% 70% 60% 50% 40% 30% 20% 10% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Paraguay Uruguay Brazil Bolivia Source: Federal Reserve Bank of St. Louis. Figure 28: Wage premiums associated with educational attainment, by gender, 2003–13 116% Post-secondary Education Earnings Premium 114% 112% Did not complete 110% primary schooling (Men) Completed primary (Men) 108% Completed secondary (Men) 106% Did not complete 104% primary schooling (Women) Completed primary (Women) 102% Completed secondary (Women) 100% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Calculations based on EPH. Note: The gure plots the ratio of the mean log of hourly wages in the primary occupation among workers with some postsecondary training to the mean log of hourly earnings for three educational attainment groups (did not complete primary, completed primary, completed secondary). The analysis is limited to the employed population reporting positive earnings in their primary occupation. The values for 2012 are the average of 2011 and 2013 and do not include the EPH microdata as these are preliminary and subject to change. Figure 29: Share of income from primary sector activities over total labor income (left) and sector of employment for rural adults by poverty status (right), 2013 0.9 100% 0.8 0.7 0.6 0.5 50% 0.4 33 0.3 0.2 0.1 0.0 0% National Urban Rural Extreme Moderate Non-Poor Wage (Large Firm) Wage (Small Firm) Self-employed Extreme Poor Moderate Poor Non Poor Unpaid Employer/Professional Self-Emp Unemployed Source: Calculations using the EPH 2013. Note: The data universe refers to all adults aged 16–65 years in the labor force. Self-employed professionals (those who nished secondary schooling) are combined with employers. Figure 30: Proportion of rural households that receive at least Figure 31: Macro-volatility of agricultural activities, 2003-11 75 percent of their total income through self-employment 50% 40.0 34.2 30.0 40% 20.0 14.3 15.2 30% 9.2 10.0 6.9 5.9 4.1 2.8 4.3 3.8 20% 0.0 3.9 -0.1 3.6 -4.1 -1.3 10% -10.0 -17.3 0% -20.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Rural: Extreme Rural: Moderate Rural: Other Source: Calculations from EPH 2003–13. Note: The values for 2012 are the average of Total Value Added Agriculture, hunting, forestry, shing 2011 and 2013 and do not include the EPH microdata as these are preliminary and subject to change. Source: World Bank 2013b. creases in self-employment income. But, for households incidence of extreme poverty without the benefit of most likely to have exited extreme poverty (the second family transfers.14 For instance, in 2003, without fami- through fourth decile), the main source of labor income ly transfers (domestic or from abroad), the incidence of growth was wage gains, particularly in agricultural. The rural extreme poverty would have been 4 percentage rise in wage income reflected a declining reliance on ag- points greater (the equivalent of a 15 percent increase in ricultural production among the rural poor and the im- the poverty rate). Through 2009, family transfers rose in proved opportunities for income diversification as out- importance in reducing rural poverty. Without this type side employment opportunities expanded. Many of these of income, rural poverty would have been as much as 6.6 opportunities were occurring in other agricultural work, percentage points greater (or 20 percent greater than the often in larger farms. This may indicate the gradual real- observed poverty rate). Instead, extreme rural poverty ex- location of rural labor from less productive small farms to panded only 2 percentage points during 2009, a drought more productive agribusiness. year. Family transfers continued to reduce extreme rural poverty by 15–20 percent in 2010 and beyond even as Over the past decade, the self-employed have become poverty rates fell. increasingly more likely to live in extreme poverty rel- ative to people participating in wage employment. In The elderly and woman-headed households were re- 2013, even among households living below the moderate ceiving subtantially larger family transfers, suggest- poverty line, those in which the head was self-employed ing that migration was a household income diversifi- were almost three times more likely to be living in ex- cation and coping mechanism.15 In 2011, for example, treme poverty than those in which the head had wage households with older members received an average of employment. This represents a shift from the profile of ₲235,000 per month per capita (compared with ₲212,000 rural poverty in 2003, when the self-employed were only among other households). Woman-headed households slightly more likely to be living in extreme poverty than with children received an average of ₲218,000 per capita the wage employed.13 per month versus ₲84,000 among man-headed house- holds with children. These results highlight the impor- 34 The last decade saw greater employment opportuni- tance of intergenerational transfers in mitigating poverty ties in other sectors besides agriculture. While, in 2003, among children and the elderly in Paraguay. They may agriculture accounted for two-thirds of all rural employ- also suggest a household risk management strategy via ment, the share had fallen to only 50 percent 10 years lat- family migration, whereby family members with greater er (figure 34). Though the number of jobs in agriculture earnings potential migrate to areas with higher wages was roughly the same in 2003 and in 2013, the number of and remit earnings back to the family. jobs available to rural families in construction and trans- portation or communications had more than doubled, The conditional cash transfer program Tekopora while the number of jobs in public and private services (originally designed for the rural poor only) provides (including defense services and services in private house- a second mechanism to help reduce the household in- holds) has gone up by 90 percent. As these latter sectors come volatility associated with agriculture, though it grew, they could provide rural households with the possi- is limited. Among households that receive the transfer, it bility to diversify their labor income portfolios. represents a sizeable share of household income, but few households are covered. On average, in 2013, Tekopora In Focus. Addressing labor income volatility accounted for 20 percent of household income among the 6 percent of rural households living in extreme pover- Family transfers are playing an increasingly important ty that received it (figure 36). This amounts to an average role in reducing extreme poverty in rural areas, there- of over ₲200,000 per month among these households. by representing a strategy used by rural households to manage risk. Figure 35 reports on the potential 14  This exercise should be taken as an upper bound as it assumes no behavioral adjustment by households. In fact, family transfers and remittances may be used as substitutes for labor income. 13  This is based on a logistic regression controlling for gender of 15  The comparison of family transfers received by households the household head, the dependency ratio, the agricultural worker with members over the age of 65 and woman-headed households indicator, and the household head’s educational attainment. The with children controls for the variation in annual trends across rural likelihood of living in extreme poverty was 287 percent greater in and urban areas. These results are based on a log-linear regression households with a self-employed head than in a household with a of the total family transfers received on household composition and head in wage employment in 2013, but only 89 percent in 2003. year- and location-fixed effects. Figure 32: Growth incidence curve, 2008–09 Figure 33: Annualized growth of labor income, by source, 2010 and 2013 15 100 10 80 5 60 0 40 -5 20 -10 -15 0 -20 -20 1 2 3 4 5 6 7 8 9 10 3 8 13 18 23 28 33 38 43 48 53 58 63 68 73 78 83 88 93 98 Decile of per capita income Rural Urban Self-empl Agro wage Other wage Source: Calculations based on EPH. Source: Calculations from EPH 2010, 2013. Figure 34: Sector of rural employment, 2003–13 Figure 35: Family transfers, urban and rural areas, 2003–13 100% 7 6 80% 5 60% 4 35 40% 3 2 20% 1 0% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 Agriculture Commerce/Hospitality Public and private services Rural Urban Manufacturing Construction Other Source: Calculations from EPH 2003–13. Note: The values for 2012 are the average of Source: Calculations from EPH 2003–13. Note: The values for 2012 are the average of 2011 and 2013 and do not include the EPH microdata as these are preliminary and Extreme subject Urban -and 2011 and 2013 and do not include the EPH microdata as these are preliminary Povertyto change. The gure reports the extent to which the estimated extreme subject to change. Urban - Moderate Poverty poverty rate would be higher if households were not receiving family transfers. Four percent of households living in moderate poverty percent of the bottom 40 reported they had accounts. also received Tekopora; among these, Tekopora account- Though data on access to formal financial institutions are ed for an average of 12 percent of monthly household unavailable on the bottom 40 in rural areas, it is clear that income. formal banking is rare among the rural poor. Additionally, the savings rate (formal and otherwise) is exceptionally Limited access to credit and banking is a constraint low among the rural population: only 7.4 percent report- on the ability of households to smooth consumption ed they had any savings during 2010-11. This combination in the face of income volatility. Only 20 percent of Par- of low savings and poor access to formal financial institu- aguayans aged 15 or above reported that they had ac- tions poses a challenge in the event of household shocks. counts in formal institutions in 2011, which is less than half the regional average of 44 percent (Demirgüç-Kunt Informal lending thus represents an important third and Klapper 2012). This lack of access to banking is espe- mechanism that rural households employed to cope cially felt among the rural population, among whom only with potential shocks. Despite a lack of access to for- 10 percent reported they had accounts. However, only 3 mal financial markets, nearly a third of rural Paraguayans reported in 2011 that they had loans (figure 37). Among Figure 36: Proportion of households receiving Tekopora rural families, the main reasons for requesting loans are and the mean share of household income the need to confront a health issue or other emergency or to pay school fees (figure 38).16 These loans were often 25% obtained from friends and family (21.5 percent of the rural population). Given their insufficient savings and limited 20% access to formal banking and credit, rural households rely on family and social networks to address negative house- 15% hold shocks. 10% In sum, agriculture is still the main source of income 5% among the extreme poor in rural areas, but, in recent years, there has been a movement toward wage em- 0% ployment in agriculture (larger farms) and in nonag- Extreme poor Moderate poor Non-poor riculture (mostly construction, transport, and public Proportion of households reporting Tekopora Mean share of Household income and private services), thereby generating alternative Source: Calculations from EPH 2013. sources of income that may be more profitable and stable. In addition, non-labor incomes have played through high unemployment rates and high shares in an important role in alleviating extreme poverty as a self-employment. Though unemployment fell steadily diversification strategy (largely, family transfers and throughout the past decade, it was exceptionally high informal lending and, to a lesser extent, public trans- among those living in poverty: the extreme poor are four fers such as Tekopora and Adultos Mayores), as well as times more likely than the nonpoor to be unemployed, a strategy to cope with adverse shocks. and the moderately poor are more than twice as likely as the nonpoor to be found in this situation (figure 40). 2.3 Drivers of urban poverty In part, the rise in the unemployment rate among the 36 extreme poor reflected the lower propensity to be poor The drop in urban poverty by half corresponds to con- among those who are employed. As earnings and em- siderable improvements in the urban labor market ployment opportunities expanded, many exited extreme between 2003 and 2013: falling unemployment, em- poverty so that the unemployed came to represent a larg- ployment gains in more high paying large firms (particu- er proportion of the extreme poor. Thus, as the propor- larly in construction and in public and private services17), tion of the urban poor fell by half in recent years, from and greater labor incomes among the self-employed and 10 percent to 5 percent, extreme poverty became more workers in microenterprises. These changes had positive closely associated with the lack of jobs. effects on those most likely to be poor, the least skilled, among whom self-employment earnings grew by 46 Self-employment (mostly in commerce and agricul- percent and wage earnings from microenterprises grew ture) and small-firm employment—relatively informal by 23 percent between 2003 and 2013 (figure 39). The types of labor participation—are the dominant em- growth in employment opportunities among the low- ployment sector among the urban poor (figure 41). A skilled in sectors such as construction played a big role in third of the extreme poor are self-employed, and a quar- raising earnings and decreasing unemployment. ter is employed in microfirms, whereas a quarter of the moderately poor are self-employed, and 15 percent of the Nonetheless, like the rural poor, the urban poor con- moderately poor are small-firm employees. Yet, wage em- tinued to be exposed to household income volatility ployment in large (more well paid) firms are far more com- mon among the urban poor than among the rural poor, 16  Similarly, 17 percent of the bottom 40 (including both rural and particularly among the urban moderately poor. Jobs in urban) reported they had taken out a loan for a health or other emer- gency. Though crosstabulations are unavailable for the rural bottom larger firms are not only more well paid; they are also less 40, this population group probably had higher rates of borrowing to volatile and provide more job security and benefits. Spe- deal with emergencies. 17  Public and private services include real estate and manage- cifically, 70 percent of urban workers in large firms have ment services, public administration and defense, education, social formal contracts, and 54 percent have access to a pension and health services, private household services, external organiza- or retirement system. Small firms rarely offer pensions or tions, and other community, social, and personal services. Figure 37: Proportion of the population that had a loan or were able to save during the previous year, 2011 35 31.3 32.3 30.3 28.9 27.6 28.2 28.2 30 24.9 24.6 25 20 15 10 7.4 7.2 5 3.5 0 Rural Urban Bottom 40% Top 60% Primary education Secondary education or less or more Loan in 2011 Saved during the previous year Source: Demirgüç-Kunt and Klapper 2012. Note: The universe is the population aged 15 years and over. Figure 38: Proportion of population with an outstanding loan, by the reason for the loan, 2011 (a) Reason for loan (b) Source of loan 20 25 21.5 16 20 15 17.5 12.2 10.1 15 10 10.6 7.2 10 6.8 37 5 4.4 3.2 3.5 4.4 2.0 5 2.0 2.3 2.0 0 0 Health or Pay school Home Funerals Financial Private Employer Family or emergencies fees construction or weddings institution lender friends Source: Demirgüç-Kunt and Klapper 2012. Note: The universe is the population aged 15 years and over. Rural Urban Figure 39: Employment among adults (left) and median monthly earnings among workers who did not complete primary school, by employer type, 2003–13 60% 1500000 50% 40% 1000000 Guaranis 30% 20% 500000 10% 0% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 Large rm Small rm Self-employment Men: Wages (big rm) Wages (small rm) Self-employment Employer/Skilled SE Unemployment Women: Wages (big rm) Wages (small rm) Self-employment Source: Calculations using EPH. Figure 40: Urban unemployment trends, 2003–13 Figure 41: Type of employment among urban adults in the labor force, by poverty status, 2013 30% 1.0% 25% 0.8% 20% 0.6% 15% 0.4% 10% 5% 0.2% 0% 0.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Extreme Moderate Other Extreme poor Non-poor Moderate poor Overall Unemployed Employer/Professional Self-Emp Wage (Large Firm) Wage (Small Firm) Unpaid Self-employed Source: Calculations from the EPH 2003 through 2013. Source: Calculations from the EPH 2013. Note: The data universe refers to all adults aged 16–65 years in the labor force. Self-employed professionals (those who nished secondary schooling) are combined with employers. Figure 42: Households deriving over 75 percent Figure 43: Propensity to be in extreme poverty, of their incomes from self-employment, 2003–13 by employment status in the previous year 45% 30% 40% 38% 25% 35% 38 30% 20% 25% 24% 15% 20% 15% 10% 10% 5% 5% 0% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 Wage Wage Employer/ Self- Unemployed Out of the (Large Firm) (Small Firm) Prof. Self- employed labor force Urban: Extreme Urban: Moderate Urban: Other Employed Source: Calculations from EPH 2003–13. Note: The values for 2012 are the average of Source: Calculations using linked ECE panel data (2010–11, quarter 1; 2011–12, 2011 and 2013 and do not include the EPH microdata as these are preliminary and quarter 2; 2012–13, quarter 3). Note: The gure reports marginal probabilities of subject to change. living in extreme poverty in year 2 by employment status of the household head in year 1. This was calculated using a logit model, including control variables for year and for poverty status in the initial year. The lines around the points estimate represent the 95 percent con dence interval. contracts (at 8 percent and 15 percent, respectively). The more than 75 percent of their income from this source. As self-employed have limited access to pensions; pensions in the case of unemployment, the recent rise in the share are nonexistent among the low-skilled self-employed, of households deriving more than 75 percent of their in- and only 6 percent of the skilled self-employed and em- come form self-employment is, in part, a reflection of the ployers have pensions. fact that greater employment opportunities in urban ar- eas were associated with the fall by half in the extreme Despite more wage employment opportunities in poverty rate during the period. cities, over a third of urban households in extreme poverty rely largely on incomes from self-employ- The households most insulated from extreme pover- ment (figure 42). This is similar to the share among the ty were those in which the heads were wage earner rural poor. The urban moderately poor are less reliant on in firms with more than five employees. Among these self-employment than the rural poor: only a quarter draw households, only 4 percent were still living in poverty in the following year was (figure 43). Households in which management, skilled professionals, and midlevel pro- the heads were self-employed, unemployed, or out of fessionals and technicians—earned more than the min- the labor force showed a 16 percent likelihood of falling imum wage. into extreme poverty, that is, these households were four times more likely to fall into poverty than households in The bulk of private sector employment associated which the heads were employed in large firms. In terms with earnings below the minimum wage is found in of poverty outcomes, households in which the heads microenterprises: 63 percent of wage workers who earn were self-employed were more similar to households in less than half the minimum wage work in firms with 5 or which the heads were not employed than to households fewer employees, and another 14 percent in firms with in which the heads were wage employed. only 6 to 10 employees. Similarly, 47 percent of workers who earn between 50 and 99 percent of the minimum To a large extent, low-skilled and unskilled labor— wage work in firms with 10 or fewer workers. the workers most likely to be living in poverty—were unprotected by minimum wage legislation (box 3). Despite the trend throughout the decade of rising em- Nearly two in every five full-time wage workers in the ployment in more well paying large firms, year-to-year private sector earned less than the monthly minimum transitions show that job mobility into these firms wage, including 70 percent of unskilled laborers (figure among the self-employed and workers in microenter- 44). Indeed, among unskilled laborers, one in five earned prises is limited: fewer than 3 percent of the employed less than half the minimum wage. Over three-quarters in either of these categories transitioned into large-firm of the workers in the most highly skilled occupations— wage employment in the following year. A five-quarter Box 3. A comparison of minimum wages, Paraguay and selected Latin American countries At 6 percent of GDP per capita, Paraguay’s minimum wage in 2013 was in line with minimum wage legislation 39 throughout Latin America. In the majority of countries in the region (10 of the 18 selected), minimum wages are 4 or 5 percent of per capita GDP (figure B3.1). There are a number of outliers, including Mexico, where the minimum wage is 1 percent of per capita GDP; El Salvador and Uruguay, at 2 percent; and Guatemala and Honduras, at 10 and 19 percent, respectively. A proposed increase of 25 percent in Paraguay, would raise the minimum wage there to 7 percent of the GDP per capita in 2012, pushing the minimum wage slightly higher relative to most Latin American countries. Figure B3.1: Minimum wage as a share of GDP per capita, selected Latin American countries, 2013 Minimum wage as percent of 2012 GDP per capita $700 20% 18% Minimum wage in June 1, 2013 (USD) $600 16% $500 14% $400 12% 10% $300 8% $200 6% 4% $100 2% $0 0% Brazil El Salvador Costa Rica Guatemala Honduras Nicaragua Uruguay Argentina Mexico Panama Colombia Peru Jamaica Ecuador Paraguay Haiti Bolivia Dominican R. Monthly minimum wage (USD) as % of GDP per capita Source: Minimum wage values are from the Doing Business Project (International Financial Corporation); GDP per capita in current U.S. dollars is from the World Development Indicators database. Figure 44: Monthly earnings as a share of the minimum wage among full-time wage workers in the private sector Unskilled labor 50% 20% Machine operators 27% 5% 39% 8% 125% of min wage or higher Skilled labor and crafts Services and sales 32% 8% 100-125% of min wage O ce assistants/clerks 26% 4% 50-99% min wage Midlevel professionals 20% 3% <50% min wage Overall and technicians Skilled Professionals 10% 2% Management 6% 0% 0 20 40 60 80 100 120 Source: Calculations using ECE 2013 data, quarters 1–4. Note: The data universe is all adults whose main occupations are reported as wage workers in private rms working more than 30 hours in the reference week and whose typical hours are over 30 hours per week. Domestic workers and public sector workers are excluded. Table 2. Matrix of five-quarter transitions, by sector of employment, 2010–13 Origin Wage Wage Self- Unemployed Out of Employer/ Total (Large Firm) (Small Firm) employed the LF Professional SE Wage (Large Firm) 91% 4% 2% 2% 1% 1% 11% Wage (Small Firm) 2% 80% 4% 4% 7% 3% 36% 40 Self-employed 1% 13% 60% 5% 13% 8% 13% Unemployed 3% 40% 6% 20% 29% 3% 6% Out of the LF 2% 12% 7% 12% 65% 3% 25% Employer/ Professional SE 2% 9% 12% 4% 6% 67% 8% Total 11% 37% 13% 7% 23% 9% Source: Calculations using linked ECE panel data (2010–11, quarter 1; 2011–12, quarter 2; 2012–13, quarter 3). Note: The data universe is all adults aged 16–65 years. The unpaid sector (1.7 percent of the total) is excluded. matrix of employment transitions reveals evidence of this employment sector most associated with extreme pover- limited mobility from high-volatility low-wage sectors to ty—were self-employed one year later. employment in large firms (table 2). Wage employment in larger firms is the most persistent employment sector: a Microenterprise employment is also persistent: four full 91 percent of wage workers in larger firms report that in five workers in small firms were working in small they were working in large firms the following year. To firms five quarters later. While some self-employed some degree, this reflects the higher employment stabil- or formerly unemployed workers transitioned to em- ity and improved labor outcomes associated with larger ployment in microenterprises, there were relatively few employers. transitions between small and large firms, that is, while employment in small firms could potentially serve as a Rather than becoming small-business owners, the stepping-stone to large-firm employment by providing self-employed typically transition into employment in opportunities for building experience and human capital, a microfirm or leave the labor force. The proportion of this does not seem to have been happening. Instead, one- low-skilled workers who are employers is almost negligi- year employment transitions suggest that there were two ble. The majority of the self-employed (60 percent)—the distinct labor markets in urban Paraguay: workers in large Figure 45: Employment status one year following in more well paid, more stable jobs in large firms, year- unemployment, 2010–13 to-year transitions show that mobility into such employ- ment is limited among the self-employed and workers in 100% microenterprises, even in a favorable economy, such as in recent years. These challenges threaten the sustainability 80% 24% 20% of the improvements in the country. 37% 60% 20% 18% 40% 20% 48% 54% 20% 29% 0% 2010-2011 2011-2012 2012-2013 Large rm Self-employment Out of the labor force Unemployed Small rm Source: Calculations using linked ECE panel data (2010–11, quarter 1; 2011–12, quarter 2; 2012–13, quarter 3). firms (mostly covered by minimum wage legislation) and workers with more employment uncertainty who may transition from tenuous employment situations (unem- ployment and self-employment) to microenterprises. The persistence of unemployment is particularly alarming: one in five of the unemployed in 2010-12 41 were unemployed one year later (figure 45). This indi- cates that part of the population was experiencing either chronic or frequent spells of unemployment. Additional- ly, a large proportion of the unemployed exited the labor force one year later, potentially as discouraged workers. This tendency was less apparent after 2010, when over a third of the unemployed dropped out of the labor force. By 2013, only 20 percent of those who had been em- ployed the previous year had exited the labor force. The most likely outcome among the formerly unemployed is employment in small firms. While less than a third of the unemployed in 2010 reported they were wage employed in small firms a year later, more than half of those who had been unemployed the previous year were working in small firms by 2013. In sum, through increased employment opportunities and higher earnings, labor markets played an import- ant role in reducing the incidence of both extreme and moderate poverty in urban areas. The challenges remain twofold: self-employment and unemployment are still prevalent among the least well off, who are thus exposed to fluctuations in the economy and largely untouched by minimum wage legislation. In addition, despite the trend observed throughout the decade of rising employment CHAPTER 3 Second Pillar: The pursuit of opportunities for all A mong the greatest structural barriers to equity the penalties associated with unequal access were less se- that Paraguay faces today is the high and per- vere at the start than at the end of the decade (figure 46). sistent level of inequality in opportunity across 43 population groups. A society is equitable if socioeconom- Access to basic services still depends, to a large extent, ic achievement and access to opportunities are not depen- on whether a child is born in a rural or urban house- dent on circumstances of birth over which individuals have hold and, to a lesser, though yet considerable extent, no control, including family background. If inequality in on the socioeconomic status of the family. Half the one generation affects the life chances of children, it trans- children born in rural areas have access to flushing toilets mits the existing inequitable pattern into the next genera- inside their home; this is so among almost all children in tion. A growing literature shows that deficiencies in nutri- urban areas, but particularly children in non-poor house- tion, education, and health at early stages in life can have holds (figure 47). The situation is substantially worse long-lasting effects. In Paraguay, differences in living stan- among children born in extremely poor households: only dards are substantial in many dimensions of well-being and one in five children in poor families has proper sanitation are expressed at various points throughout the life cycle. and slightly fewer if the household only speaks Guaraní at home.18 A similar, though less pronounced situation 3.1 Equality of childhood opportunity is found with respect to access to water in the dwelling. Children born in rural areas have a 76 percent chance Equality of opportunity among children in Paraguay of having tap water in their homes, whereas, if they had has been improving since 2003, in line with the find- been born in an urban area, their chances would increase ings in section 1 regarding improvements in nonmone- to 97 percent. Chances are not much better in rural areas tary dimensions. The human opportunity index measures if they are born in non-poor households (81 percent). inequality-adjusted access to services among children according to circumstances at birth, that are beyond the While differences in school enrollment are less pro- control of the children such as ethnicity, the socioeco- nounced, the quality of schooling varies widely across nomic status of parents, place of birth, or gender (Molinas et al. 2012). The trend in the index in Paraguay shows that, 18  Guaraní is an official language in Paraguay, Though it is an in- while overall inequality of opportunity was expanding, digenous language, it is also spoken by nonindigenous people, par- ticularly in rural areas. Figure 46: Trends in the human opportunity index, 2003–11 guide them to complete their studies without dropping out or repeating grades. There are striking disparities be- 80 tween urban and rural areas and, within these areas, by so- cioeconomic group in the completion of both sixth grade 70 and secondary education. While the non-poor group in 60 urban areas shows a completion rate of around 90 percent 50 in sixth grade and over 70 percent in secondary education, 40 the rates among the extreme poor in rural areas are below 30 55 and 20 percent, respectively (figure 49). 20 10 3.2 Equality of opportunity in the labor market 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 HOI Coverage Inequality of opportunity in the labor market has been expanding in recent years. Inequality of opportu- Source: Calculations based on EPH 2003–11. Note: The human opportunity index includes access to electricity, completion of sixth grade on time, access to sanitation, nity is measured by differences in mean income among school attendance, and access to water. groups based on circumstances not governed by choice or effort (such as language spoken at home, rural or urban groups, particularly between urban and rural areas. residence, and region of birth). Whereas total inequality While school enrollment rates among children aged 7–15 has fluctuated, ultimately dropping between 2003 and years are quite high, the extreme poor in rural areas show 2013, the share of inequality accounted for by differenc- a markedly lower likelihood of attending school than es in the circumstances of individuals increased from 18 nonpoor children in urban areas (89 percent compared percent in 2003 to over 22 percent in 2012 and then fell to with 99 percent), although this trend has been improv- 19 percent in 2013 (figure 50). This worsening in inequal- ing. School quality in Paraguay at the elementary level is ity driven by circumstance, which is found at the national 44 extremely low by Latin American standards. According to level, is also observed in rural areas; the inequality of op- the Second Regional Comparative and Explanatory Study portunity index in rural areas rose by 50 percent between carried out by the United Nations Educational, Scientific, 2003 and 2013. and Cultural Organization in 2006, Paraguay is among the bottom five countries of the 17 Latin American coun- Birth’s location and the language spoken at home are tries included. Additionally, depending on where they important factors associated with the observed in- live and the level of education of their parents, there are equality of opportunity in labor markets (figure 51). noticeable differences in the performance of Paraguayan This is in line with the finding that 75 percent of the peo- children who reach sixth grade. Children in households ple who remained in poverty in both 2003 and 2013 only with higher socioeconomic status in rural areas perform spoke Guaraní at home. While the vast majority of the only marginally better than children in households with population is bilingual, the language of choice is highly lower socioeconomic status in urban areas (figure 48). In correlated with economic outcomes. Additionally, gen- addition, an urban child in a household with wealthier so- der has become a more important factor in explaining cioeconomic background scores similarly to the average opportunity inequality: while gender did not appear as Brazilian child on tests (Brazil was sixth among the coun- a factor in 2003, it had appeared as a contributor to be- tries studied), whereas a poor rural child is likely to score tween-group inequality by 2011. below the mean in any country in the sample, including the Dominican Republic, Ecuador, and Guatemala, the 3.3 Challenges in the delivery three countries at the bottom overall. of social services Considerable differences are also found in the time- Addressing income inequality and boosting intergen- ly completion of grades, another indicator of school erational mobility require inclusive growth and the quality. The indicator aims to capture the capacity of the implementation of effective policies to foster gains education system in general and of schools in particular among population segments that do not directly ben- to deal with children from different backgrounds and to efit from growth. Access to basic opportunities in child- Figure 47: Access to ushing toilet (left) and tap water (right) in the dwelling, 2013 Non poor 100 100 Average 96.9 97.6 Average 94.5 Non poor 96.3 Extreme poor Extreme poor Non poor 80 80 + guarani 87.8 91.7 81.1 Average 75.9 Extreme poor Extreme poor + guarani 70.6 73.8 Non poor Extreme poor Extreme poor 60 66.6 60 Average 54.1 + guarani 60.3 62.5 40 40 20 Extreme poor 20 Extreme poor 21.2 + guarani 17.3 0 0 Urban Rural Urban Rural Source: Calculations based on EPH 2013. Figure 48: Test scores of sixth graders, by residence and parental background, Paraguay and other Latin American countries, 2006 540 650 HIGH SES = 529 520 600 500 550 480 Average 482 500 456 HIGH SES = 463 460 450 45 440 LOW SES = 444 400 Average 428 420 350 LOW SES= 411 400 300 Rural Urban DOMECU GTM PRY NIC PAN PER SLV ARG COL BRAMEX*URY CHL CRI CUB Source: Calculations based on the 2006 Second Regional Comparative and Explanatory Study. Note: High SES = parents who have completed tertiary education. Low SES = parents who have, at most, completed primary education. Mexico is represented by the state of Nuevo Léon only. Figure 49: Completing sixth grade and secondary school on time, 2013 Sixth grade Secondary schooling 100 100 Non poor 89.5 Non poor 87.6 80 80 Average 75.7 Non poor 72.2 Extreme poor 72.1 Average 71.3 Average 65.4 60 60 Extreme poor 53.7 Extreme poor 47.6 Non poor 44.3 40 40 Average 36.0 20 20 Extreme poor 19.1 0 0 Urban Rural Urban Rural Source: Calculations based on EPH 2013. hood is poor and inequitable in Paraguay. Good delivery Figure 50: Overall inequality and inequality of opportunity, of social services and sustainable fiscal policy can play 2003–13 an important role in reducing inequality and providing access to opportunities. Expanding the fiscal space for 0.70 0.24 investments in boosting the access to and the quality of 0.22 0.65 basic opportunities is one essential element in the effort Inequality of opportunity 0.20 to enhance fairness. There is substantial room for im- 0.60 Total inequality provement in Paraguay in terms of progressive taxation 0.18 0.55 policies, combined with well-targeted transfer programs. 0.16 The effort should seek to reduce income inequality and 0.50 0.14 alleviate poverty by providing essential safety nets so people may weather fluctuations in the labor market and 0.45 0.12 offset the effects of inequality in the access of children to 0.40 0.10 basic services. A key to well-designed, well-implemented 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 social service delivery is appropriate fiscal policy and so- Total inequality Inequality of opportunity cial spending. Shortfalls in the delivery of social services Source: Calculations based on EPH 2003–13. Note: Total inequality is measured by the and in fiscal policies explain much of the inequality of op- mean log deviation, whereas inequality of opportunity is measured as between-group inequality relative to overall inequality, whereby groups are de ned by language portunity and the associated outcomes in Paraguay. spoken at home, place of birth (rural versus urban, and region), and gender. Though social expenditure in Paraguay has grown is not only low (and declining) in Paraguay compared with rapidly, from $95 per capita in 2003 to $584 in 2010, other Latin American countries, but also that investment key, basic social services, such as access to improved in new classrooms is concentrated among schools serv- sewerage and running water, continue to be relatively ing the top quintile in the classroom availability index, inadequate (Guillen Estella 2010). The coverage of ba- while investments are lower where the need is most ur- sic services is inequitable, as shown through the human gent, among poorer quintiles (figure 52) (Wodon 2014).20 46 opportunity index (see above). To some degree, the per- sistence of extreme poverty through 2011, despite eco- Other relevant social services such as water and san- nomic growth, can be attributed to ineffectual social ser- itation, electricity, and health services are also char- vice delivery. The paradox of greater social spending and acterized by inefficient resource allocation. In the case stubbornly inadequate service delivery can be explained of water and sanitation, a recent study finds that, while by at least three factors: access to treated water is relatively good, at 86 percent, particularly in urban areas (but also covering 66 percent 1. The ineffective allocation of resources of the rural population), reliability and quality are lack- ing, especially in rural areas and among poor households. 2. Institutional and operational inefficiencies About 40 percent of the population does not have home connections; as a result, it takes an average of 16 minutes 3. The lack of an effective monitoring and evaluation to provide water to household members (by an adult system woman in 49 percent of the cases). At the national level, even among households with connections, only 73 per- Ineffective allocation of resources cent have 24-hour service without interruption. In sew- erage, the problem is twofold: coverage and quality. Less Although the government’s poverty strategy provides than 10 percent of the population is connected to sani- for a process for the allocation of resources to social tary sewers, and essentially no sewerage system involves programs that is based on socioeconomic indicators water treatment. by geographical location, some resource allocations at the sectoral level are regressive.19 A recent study shows, for example, that public investment in education 20  The classroom availability index represents “the number of classrooms available in a school normalized by the number of class- rooms that should be available so that a value of 100 means that the school has exactly the number of classrooms it needs given its 19  This refers to the flagship Sembrando Oportunidades Program student population (all schools with an index value at or above 100 launched by the government in September 2013. are not infrastructure poor)” Wodon (2014, 10). Figure 51: Inequality of opportunity, by language, residence and gender, 2003–13 0.25 0.25 (IOR - Between type inequality) 0.20 0.20 Inequality of Opportunity 0.15 0.15 0.10 0.10 0.05 0.05 0 0 2003-04 2003-04 2003-04 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total IOp Language Area of birth Region of birth Gender Total Urban Rural Source: Calculations based on EPH 2003–13. Note: Total inequality is measured by the mean log deviation, whereas inequality of opportunity is measured as between-group inequality relative to overall inequality, wherein groups are de ned by language spoken at home, place of birth (rural versus urban, and region), and gender. Figure 52: Distribution of new classroom investment, Figure 53: Public sector employment included in centralized by classroom availability index quintile and decentralized public agency budgets, 2007-14 60 350000 48.5 300000 50 250000 47 40 200000 30 20.8 150000 20 16 100000 10 7 7.7 50000 0 0 Q1 Q2 Q3 Q4 Q5 2007 2008 2009 2010 2011 2012 2013 2014 Central Administration Decentralized Administration Source: De Hoyos 2014. Source: Ministerio de Hacienda. Table 3. Health insurance coverage Health insurance Total Poor Nonpoor Extreme Total Without health insurance 76.5 97.4 93.3 67.6 With health insurance 23.5 2.6 6.7 32.4 IPS 16.5 2.4 5.9 22.1 Private health insurance 5.5 0.1 0.4 8.2 Military or Police Health 1.5 0.1 0.4 2.1 Source: World Bank Policy Notes Volume 2 (2013a). Health insurance coverage is low, at approximately timeliness, quality, and cost of projects. There is no in- 24 percent of population and less than 3 percent of tegrated inventory of the beneficiaries of social programs the extreme poor (table 3). The poorest quintile is the and no national effort to integrate the few monitoring most underserved, with a coverage rate of only 1 percent, and evaluation initiatives that exist. With the exception sharply lower than the 52 percent coverage rate among of the evaluation of some programs by the Ministry of Fi- the richest income quintile. Unemployed workers and nance as part of a pilot exercise, there is no viable system workers in the informal sector are served by the health to measure the performance of public sector manage- care network of the Ministry of Public Health and Welfare, ment. This has negative consequences in accountability, which delivers priority programs, including a prenatal and the management of public programs, and the budget al- child health program, an HIV/AIDS program, a noncom- location process. Because there is no mechanism for the municable disease program, and a reproductive health assessment of the quality of service delivery, identifying program (World Bank Policy Notes 2013a). Although optimal policies and strategies is problematic. health services in the public network are provided with- out charge at the point of delivery, drugs and other medi- In sum, while the country has improved the access of cal supplies are not always sufficient to meet demand. households to basic services, there are still substan- tial, persistent inequalities across population groups Institutional and operational inefficiencies as defined by circumstances at birth, such as place of birth and socioeconomic status, over which the indi- Social services are not delivered in a timely, regular, vidual has no control. Similarly, the inequalities in the or coordinated manner, and there is no quality con- quality of education and access to the labor market trol. There are four reasons for this outcome. First is the are considerable. This poses challenges for the sus- weak national planning system and, especially, the lack of tainability of recent improvements. Social policies a tradition of strong national development planning that are not sufficiently effective to counterbalance these aligns service agencies to strategic goals at the national, inherited inequalities. In addition to a weak fiscal sys- sectoral, and local levels. Second, there is a lack of integra- tem, institutional and operational inefficiencies such 48 tion across planning and programing developed by the as an inadequate civil service and the lack of effective public sector and the government budgeting process. monitoring and evaluation tend to enfeeble the al- This prevents public sector managers from properly track- ready deprived social service delivery system. ing social expenditures relevant to the delivery of goods and services. Third, although the Social Cabinet has been strengthening coordination among social service delivery agencies, there is still lack of efficient fiscal, strategic, and management coordination among executive agencies, departments, and municipalities, and there is no quality control over the delivery process. Finally, the civil service system is weak. This weakness is expressed in high turn- over rates among public servants and the absence of a formal training system, resulting in substantial instability across public servant positions and a shortage of profes- sional skills. Meanwhile, the number of public employ- ees has risen considerably in the last seven years; almost 70,000 public sector jobs were included in the budget for centralized and decentralized public agencies. This rep- resents an overall 32 percent expansion (figure 53). Lack of an effective monitoring and evaluation system A final obstacle facing service delivery is the lack of regular, efficient monitoring and evaluation of the CHAPTER 4 Third Pillar: Strengthening agency T he third dimension in which there is abundant from 71.4 years in 1996 to 74.4 in 2011 among women space for Paraguay to achieve progress toward and, among men, from 66.9 years in 1996 to 70.0 years an equitable society relates to the strengthen- in 2011.21 More women who were pregnant were receiv- 49 ing of agency, understood as the capacity of individ- ing prenatal care, from 94.2 percent in 2004 to 96.3 per- uals to be actors in their own development by being cent in 2008, and they are more likely to be attended by able to make effective choices that help them estab- skilled health staff during birth, from 77 percent in 2004 lish and pursue life plans they value. This pillar has to 82 percent in 2008, thought this was still below the av- manifestations in various realms and dimensions. There erage across the region (90 percent in 2010). As a result, is, however, one aspect that is salient and that may be an- the maternal mortality rate showed a clear improvement alyzed using available data: the economic and social role in the last decade: 180 deaths per 100,000 live births in of women. This section describes the improvements in 2002 versus 100 deaths per 100,000 live births in 2010, gender outcomes in the last decade and the challenges 20 deaths per 100,000 live births more than the average that remain, particularly in the labor market and in three in the region. specific manifestations of the lack of agency in Paraguay. Girls now outperform boys in educational attainment 4.1 Improvements in gender outcomes in and achievement. While the female-to-male ratio in pri- endowments mary enrollments was steady over the decade, at 0.96, the gender gap is in favor of girls at higher levels of school- Paraguay has made progress over the last decade in ing. The female-to-male ratios in secondary and tertiary promoting women’s empowerment and gender equal- education in 2010 were 1.07 and 1.27, respectively. The ity, particularly in women’s endowments in health, ed- share of girls completing primary school was larger than ucation, and the legal framework. the share of boys in 2010 (83.8 percent and 81.4 percent, respectively). This was on a par with results in the region. Specifically, sexual and reproductive health indicators The repetition rate was higher among males than among have improved over the last decade, though Paraguay still lags behind the region in some areas. Female and male life expectancy at birth increased by three years, 21  If not otherwise stated, data are from World Development Indi- cators (November 2013). Figure 54: Sectoral employment and employment activity, by gender, 2013 (a) Sector of employment (b) Activity of employment 60% 50% 53 41 50% 46 46 40% 39 40% 29 30% 26 29 23 30% 20 20 20% 15 20% 17 17 12 14 14 13 12 12 11 11 11 8 10% 10% 5 5 6 2 6 6 5 6 3 3 4 2 2 0 1 0 0% 0% Women Men Women Men Finance/ Real estate private services Utilities Agriculture Manufacturing Construction Retail/ Hospitality Transport Public and Rural Urban Large Firm Small Firm Self-employment Unemployment Unpaid Employer/ Skilled SE Women Men Source: Calculations based on SEDLAC data (CEDLAS and the World Bank). female in 2010 in primary school (5.7 percent versus 3.6 ee as grounds for firing the employee and prohibits wage percent, respectively) and secondary school (1.3 percent discrimination based on gender. Law 834/96 of the Elec- versus 0.5 percent, respectively). toral Code sets a quota for a minimum level of participa- tion by women candidates at 20 percent and establishes The legal and institutional framework has improved penalties for parties that do not comply. The law contains such that the stage is set for the realization of equal an explicit prohibition of gender discrimination in elec- 50 gender rights in the country. Paraguay has ratified ma- toral and political campaigns. Finally, Law 1600 of 2000 jor international human rights instruments to protect and the Penal Code address a major problem in Paraguay: and promote women’s rights and gender equality. 22 For domestic violence. instance, the country ratified the Convention on the Elim- ination of All Forms of Discrimination against Women Furthermore, to promote women’s empowerment and through Law 1215 on November 28, 1986. By Law 605/95, gender equality, Paraguay elevated the Women’s Sec- on June 21, 1995, Paraguay ratified the Convention on retariat of the Presidency of the Republic to the Minis- the Prevention, Punishment, and Eradication of Violence try of Women through Law 4.675/2012. against Women, promoted by the Organization of Amer- ican States, as well as the convention’s Optional Protocol 4.2 Limited economic progress (Law 2396/04). among women Over the past decade, laws were amended, and new Despite these improvements, challenges persist in the laws were implemented by the government to pro- effort to achieve gender equality. The female-to-male mote women’s empowerment and gender equality in labor force participation ratio remains low, at 0.65, indi- the country.23 Under Law 496/95, which amended and cating that there is a persistent gender gap in the labor updated Labor Code Law 213/93, women and men enjoy force. Female unemployment is greater than male unem- the same rights and duties without discrimination in the ployment (6 percent versus 4 percent in 2012), especially workplace, including special protections for maternity. among youth (18 percent among girls versus 10 percent The law also establishes sexual harassment by an employ- among boys).24 22  “Observatorio de Género de la Corte Suprema de Justica de Par- Men’s and women’s jobs differ greatly across sectors, aguay,” http://www.pj.gov.py/contenido/537-observatorio-de-gen- industries, occupations, characteristics, and firms ero/537. 23  Unless otherwise indicated, “III Plan Nacional de Igualdad de Oportunidades entre Hombres y Mujeres, 2008-2017,” http://www. mujer.gov.py/userfiles/file/IIIPNIO(1).pdf. 24  World Development Indicators database. Figure 55: Physical or sexual violence ever and within past 12 months, selected Latin American and Caribbean countries, various years 60 18.9 Honduras 2005/06 29.3 50 Bolivia 2008 18.1 40 31.5 Ecuador 2004 8.2 30 35.7 20.4 12.9 20 Paraguay 2008 44.8 10 Guatemala 2008/09 30.7 58.5 0 31.4 Jamaica 2008/09 61.7 Colombia 2005 Paraguay 2008 Honduras 2005/06 El Salvador 2008 Peru 2007/08 Nicaragua 2006/07 Guatemala 2008/09 Bolivia 2003 Bolivia 2008 Ecuador 2004 Haiti 2005/06 Jamaica 2008/09 Nicaragua 2006/07 25.7 61.9 El Salvador 2008 36 65.5 0 20 40 60 80 Ever Past 12 months Sought institutional help Told friends and family Source: Bott et al. 2012. and, thus, earnings. Women are more likely than men 4.3 Manifestations of the lack of women’s to work in the informal sector (51 percent among wom- agency in Paraguay en in the labor force compared with 44 percent among men), particularly among the rural population (72 percent Given the progress reported in women’s endowments, among all women in the rural labor force compared with why are women still trailing men in labor market out- 63 percent among men).25 Informal sector workers typi- comes? “Investments in health and education—human cally lack the social protection afforded to formal sector 51 capital endowments—shape the ability of men and wom- workers, such as worker benefits and health insurance. en to reach their full potential in society. The right mix of They also tend to work under irregular or casual contracts such investments allows people to live longer, healthier, and are paid lower wages than in the formal sector. In- and more productive lives” (World Bank 2012b, 104). The deed, women receive lower earnings than men, and the quality of women’s participation in the labor market may size of the gender wage gap was steady over the decade: be affected by a combination of factors, including their women earned around 70 percent of the earnings of their human capital endowments, the opportunities available male counterparts (World Bank 2012a). The female-male to them, and their preferences and goals, as well as oth- earnings gap does not necessarily reflect discrimination, er societal factors such as social norms and gender roles but arises primarily because of differences in the types that urge a specific division of labor between the genders. of tasks performed. Women tend to hold lower-level po- In Paraguay and throughout the Latin American and Ca- sitions in firms. Only one in five firms had a top woman ribbean region, women have primary responsibility for manager in 2011, and, in 2013, only 1.5 percent of women childcare and domestic work. This has consequences for in the labor force were employers, compared with 7.7 per- the distribution of labor outside the home, where women cent of men in the labor force. Furthermore, women tend are considered secondary earners, while men are consid- to work in less productive sectors, but also less produc- ered primary breadwinners. tive activities within these sectors: 40 percent of wom- en workers in the labor market are active in public and The lack of women’s agency blocks women from ful- private services, and many of these women are domestic ly utilizing their human capital endowments (World workers in private households (figure 54). Bank 2012b). Enhanced agency enables women to use endowments and benefit from economic opportunities, thereby fostering gender equity. While measuring agency through quantitative methods is difficult, manifestations 25  Informal is defined as wage workers in microenterprises, the of the lack of agency are numerous. Limited political par- nonprofessional self-employed, and zero-income workers (EPH 2013). ticipation and voice, the prevalence of domestic violence, Box 4. Teenage pregnancy and lack of agency: Key results from a mixed-methods study in Paraguay A mixed-method study was conducted in 2012–13 on risk factors and social circumstances related to adolescent parenthood in Paraguay.a For the qualitative component, the study consisted of semistructured in-depth interviews and mini focus groups, and, for the quantitative component, a standardized survey among 1,000 boys and girls in the target age-group of 15–19 years. The goal of the study was 1) to gather comprehensive information about perceptions, attitudes, knowledge, values, and concerns 2) to illuminate on essential contextual information such as peer effects and cultural and social norms The study found that lower levels of agency and agency enablers such as aspirations and empowerment are associated with a higher risk of becoming a teenage mother. Thus, a girl may become pregnant because she lacks the capacity to take control over her life projects; instead, life (including pregnancy) simply happens to her. Furthermore, the surroundings within which adolescent mothers grow up may not provide them with positive role models to help them identify concrete educational and occupational goals or the steps necessary to achieve these goals. Additionally, social norms may favor the passivity women within relationships, communities, and society, which, in itself, is contrary to the exercise of agency. Finally, multiple factors within relationships and the community may disempower young girls, thereby hindering them from making decisions and engaging in the necessary steps to implement these decisions. Both the qualitative and the quantitative parts of the study showed that one of the key constraints facing teenage mothers in making meaningful choices and making decisions to shape their own future is related to the capac- ity of these girls to aspire. With regard to the quality and the remuneration of the jobs they will be performing in the coming decade, adolescent mothers have lower expectations than their peers who do not have children in adolescence. When they were asked about their educational aspirations, the adolescent mothers interviewed for the study generally agreed that education is important, but this appreciation was generic: their recognition of the value of education was not accompanied by a clear plan of the concrete steps they would have to take to improve their own educational outcomes. 52 Furthermore, when asked about their visions for their own lives, they expressed little clarity in general, and they had identified no concrete mechanisms that were available to them so they could shape their own future. This lack of control over their life projects is reflected in their pregnancies: the in-depth interviews conducted during the study showed that pregnancy was neither completely intended nor completely unintended in the vast majority of cases. Most interviewees did not mention an explicit, conscious motivation for pregnancy; at the same time, pregnancy does not seem to interrupt careers or planned life paths. Thus, pregnancy occurred without the majority of the girls showing signs of control over or conscious decision making about this important life event. Context-related factors can limit or strengthen agency among adolescent girls. Not only the family environment, but also peers and society influence the way adolescent girls see themselves, how they imagine themselves in the future, and if and how they are enabled to make meaningful decisions regarding their present and their future. Aspirations are also shaped by observation. Thus, compared with their nonpregnant peers, a smaller share of adolescent mothers said their families provided them with some form of role model (89 percent versus 75 percent).c Similarly, sever- al results from the qualitative and quantitative components of the study indicate that role models for teenage mothers are not common among their peers. Teenage mothers are more likely to know male peers that engage in risky behavior, such as violence and gang activities, compared with girls who are not mothers. Teenage mothers also reported that their friend groups had earlier sexual debuts. Gender norms can limit the options of individuals in terms of behavior, occupations, and roles, for example. The survey shows that teenage mothers agree with gender stereotypes more often compared with their peers who are not mothers.d Box 4. Teenage pregnancy and lack of agency: Key results from a mixed-methods study in Paraguay Girls in several social and cultural contexts lack the power to influence the behavior of others, which can turn them into passive figures in relationships, in families, or in communities. Limitations in access to information are motivated to a much greater extent by constraints such as fear, economic issues, and shame among teenage mothers relative to girls who are not mothers: 40 percent of teenage mothers declared these to be the reasons they did not access relevant information compared with 29 percent of girls who were not mothers. This suggests that adolescent mothers are not sufficiently empowered to receive the information they need and want, while girls who are not mothers lack access mostly because of choice (no necessity or no interest were the more common responses). Access to accurate and com- plete information is an essential basis for decision making.e Finally, the average age gap between teenage mothers and their partners (if the girls are in relationships) was twice the corresponding age gap among girls who were not mothers (six years versus three). Significant age gaps can result in greater constraints on women’s decision making as a result of the power imbalances within the couple. Some adolescent mothers also depended financially on their partners, and sev- eral interviewees mentioned that their decision-making capacity was limited by their partners. A larger share of teenage mothers reported some form of controlling behavior by their partners (47 percent among girls who were not mothers versus 76 percent among teenage mothers). a. The study was implemented by the Sociedad de Estudios Rurales y Cultura Popular, led by Daniel Campos Ruiz Díaz, María Celsy Benavidez, and Pedro Amado de Llamas Granada. b. Following López-Calva and Cord (2013), the study groups enablers of agency as follows: (1) enablers internal to individuals (aspirations, self-drive, and so on), (2) context-related environmental enablers (norms, informal and formal sector institutions that enable or prevent one from acting), and (3) external empowerment (economic, political, and other conditions that help society act to further the appropriate rights and interests of the individual). The results described here are correlations; they do not show causal effects. c. Teenage mothers are more likely to have witnessed psychological violence between their parents such as screaming and insults: 31 percent of teenage mothers report this behavior by their parents versus 23 percent of notpregnant teenagers. d. Teenage mothers responded to the following statements in a way that reflected gender stereotypes: women should not work, but should be devoted to the home and the children; the man should be the economic provider of the household; men should not cry; university education is 53 more important for men than women; if jobs are scarce, men have more right to the available jobs compared with women; men are generally better political leaders compared with women; and to be a man, it is necessary to have at least one child; to be a woman, it is necessary to have at least one child. Teenage mothers also tended to respond in a more biased manner to statements that reflected traditional gender stereotypes with regard to sexual behavior, such as female submission and male domination. The survey included the following statements: the woman not the man should use contraception during sex; condoms are difficult to use; people who use condoms have frequent sex with lots of people; I feel ashamed to buy contraceptives; my partner does not like to use condoms; the majority of men do not like to use condoms; it is not necessary to use condoms if one knows one’s partner; if I use a condom, my partner will be suspicious of me; if a girl goes out with a boy for a long time and does not want to have sexual relations, she does not love him; the majority of my friends have lost their virginity; if my first sexual experience is (or was) much later in life than the first sexual experiences of my friends, they will make fun of me; for a woman, losing one’s virginity is an act of love. e. The effective use of contraceptives is an important factor in a woman’s control over her own body and fertility. Teenage mothers show lower self-efficacy in contraceptive use in their current relationships compared with girls who are not mothers: 66 percent of girls who were not moth- ers said they were either very or somewhat secure that they would not have sexual intercourse if their partners did not want to use any birth control method, compared with 55 percent of teenage mothers. Figure 56: Adolescent fertility rate (per 1,000 women there is a shortage of trained medical personnel able to aged 15–19 years), by residence, 1990–2008 treat woman victims properly.27 160 Another manifestation of lack of agency among wom- 138 140 140 128 en is represented by the rate of pregnancy among 120 107 teenagers (box 4). As elsewhere in the region, the adoles- 97 91 100 87 85 cent fertility rate—the number of births per 1,000 women Fertility rate aged 15–19 years—is higher than expected in Paraguay 80 64 63 82 considering the country’s GDP and primary school com- 60 68 pletion rate. The rate declined from 86 births per 1,000 in 40 51 52 47 2000 to 68 in 2011, slightly below the regional average of 20 69. However, the rate in Paraguay is higher than the aver- 0 age in lower-middle-income countries (49 percent). While 1990 1995/1996 1998 2004 2008 adolescent fertility has been declining, as has the fertility Rural Urban National rate among adult women, the decline has been slower; Source: ENDSSR 1990, 1995/1996, 1998, 2004, 2008. thus, the contribution of adolescent fertility to total fer- Note: The universe is limited to women aged 15–19 years. tility actually rose, from 10.5 percent in 1987–90 to 12.8 percent in 2005–08.28 and high rates of teenage pregnancy are ready examples of the lack of women’s agency. The incidence of teenage pregnancy is greater in rural ar- eas than in urban areas, and it is greater among teenagers The political participation of women at the central in households of lower socioeconomic status. While the ministries has increased in recent years, but it is still fertility rate was 85 among rural teenagers in 2008, it was constrained in parliament and at the local level. Wom- only 47 among urban teenagers (figure 56). Similarly, so- en’s representation in ministerial positions has rose from cioeconomic status and the level of education of young 54 14.3 percent in 2008 to 27.8 percent in 2010 and 30 per- women are inversely proportional to the probability of cent in 2013. Nonetheless, women occupied only 12.5 experiencing at least one pregnancy. percent of the parliamentary seats, and the share of wom- en mayors was small, at 7.5 percent in 2011.26 4.4 Perceptions and social norms Despite recent measures to protect woman victims, To some extent, the challenges faced by women are domestic violence is a serious problem. The first shelter related to social norms, which are enablers of agency. for victims of domestic violence was created recently, and According to a 2008 survey by the Sociedad de Estudios comprehensive services for victims of domestic violence Rurales y Cultura Popular, Paraguay is ranked third in the have been established, including six specialized police region in terms of women’s agreement that wife-beating stations equipped to receive and address complaints of is sometimes justified (23 percent) (figure 57). A third of violence against women, children, and adolescents. How- the survey interviewees believed that wives must obey ever, these measures are insufficient. One in five women in their husbands regardless of whether they agree with Paraguay acknowledges that she has experienced physi- him or not; one in four thought that the man must show cal violence, including sexual violence, by a partner at his wife that he is the boss; and 8 percent believed that some point in her life; 8 percent reported such violence in having sex is a wife’s obligation even if she does not want the previous 12-month period (figure 55). Yet, only 12 per- to have sex. cent of these women turned to institutions for support. Women cited many reasons for not seeking institutional Almost 40 percent of Paraguayans believe that, in help, including shame, fear of retaliation, not knowing times of job scarcity, men should have more right where to go, and not believing that anyone would help. to paid work than women (figure 58). Men were more There is a lack of a coordinated and coherent institutional system for collecting data on gender-based violence, and 27  The Concluding Observations of the Committee on the Elimina- tion of Discrimination against Women, 2011. 28  2008 Encuesta Nacional de Demografía y Salud Reproductiva 26  Observatorio de Igualdad de Género de la CEPAL (ENDSSR 2008). Figure 57: Proportion of respondents who agree that wife-beating is justi ed for at least one reason, selected countries in Latin America and the Caribbean, various years Jamaica 2008/09 2.9 Dominican Rep. 2007 4.3 Peru 2007/08 5.3 Nicaragua 2006/07 13.8 Honduras 2005/06 15.6 Bolivia 2008 16.5 Paraguay 2008 22.9 Haiti 2005/06 28.5 Ecuador 2004 38.2 0 5 10 15 20 25 30 35 40 45 Source: Bott et al. 2012. Figure 58: Respondents who strongly disagree and strongly agree with the following statement“When there aren’t enough jobs, men should have more rights to jobs than women” (a) Strongly disagree (b) Strongly agree 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 55 20% 20% 10% 10% 0% 0% Paraguay Uruguay Argentina Brazil Paraguay Uruguay Argentina Brazil Male 2012 Female 2012 Male 2012 Female 2012 Source: Latin American Public Opinion Project, (LAPOP) 2012 data. Note: Overall agreement is represented by responses 5 to 7 on a 7-point scale, in which 7 is “agree very much.” likely to agree with this statement. In a comparison of improvements, challenges persist in achieving gender the extreme answers (very much disagree or very much equality in the labor market, where a smaller share of agree) among neighboring countries, Paraguay shows women tends to participate compared with their male more stereotypical attitudes: a relatively smaller propor- counterparts. Women thus exhibit a lower capacity to tion of both men and women strongly disagree with the earn income. Women are also active in less productive statement, and a slightly larger share strongly agree with sectors and positions and lack social protection more fre- it. Attitudes such as these show that men are preferred quently than men. Paraguay seems to lag considerably in as breadwinners over a fair and equitable distribution women’s agency. Women in Paraguay continue to show of jobs and economic opportunities based on merit and low rates of political participation and high rates of ado- talent. lescent fertility and suffer from high rates of domestic vio- lence. The lack of women’s agency is important as a devel- In sum, Paraguay has made progress over the last de- opment outcome, but it is also a missing catalyst: women cade in promoting women’s empowerment and gen- are thereby prevented from fully utilizing their human der equality, particularly in women’s endowments in capital endowments. Thus, if women’s agency is effec- health and education and in strengthening the legal tively promoted, it is likely that development outcomes framework to promote gender equality. Despite these in other dimensions will be positively impacted as well. CHAPTER 5 Conclusions and policy options P araguay has made substantial progress in the access to good-quality basic services, such as safe water last decade in improving welfare and reducing and education, is limited to more well off population seg- inequality among the population. There are rea- ments, especially in urban areas. These inequalities reflect 57 sons for optimism, including the greater labor productiv- the lack of productive capacity and institutional weak- ity in agriculture and the enhanced employment oppor- nesses in the delivery of high-quality services. tunities, suggesting that long-lasting transformation is possible. Nonetheless, the country faces challenges that Finally, agency and autonomy, particularly among may threaten the sustainability of the improvements. women in the participation in labor markets, com- munity structures, and personal relationships, are at A key obstacle is the fact that a large share of the the core of an equitable society. Women in Paraguay population faces a volatile economic environment. continue to show low rates of political participation, and Both the rural and urban poor rely on volatile earnings domestic violence appears to be widely prevalent. While streams, leaving them exposed to labor market and mac- the adolescent fertility rate declined substantially after roeconomic risks. While the urban poor have limited job 2000, it continues to be higher than the average in low- prospects, leading to high rates of unemployment and er-middle-income countries, and it is now contributing self-employment, the rural poor disproportionately de- a greater share to total fertility relative to 20 years ago. pend on agriculture for their incomes, exposing them to Each of these manifestations of the lack of agency must macroeconomic price fluctuations and local risks such as be addressed directly. Furthermore, considering the cata- bad weather and agricultural pests. Large segments of lyzing effect of agency, it is essential to strengthen wom- the population that have escaped poverty therefore re- en’s agency. This will most likely show positive effects on main vulnerable to poverty and seem unable to join the other development outcomes, such as opportunities in ranks of the middle class. the labor market. A second key obstacle relates to the persistent lack of The objective is to reduce structural inequities in opportunity for all. Although income inequality has monetary and nonmonetary outcomes by addressing fallen, some structural determinants of inequity re- the relevant structural determinants, namely, (1) poli- main. Inequalities persist across geographical areas, and cies to protect those who are vulnerable to falling into poverty in the face of shocks, (2) equality of opportu- as good practices in irrigation and pest control and nity, and (3) the capacity of all individuals to benefit the commercialization of the products of these house- from agency and voice in society. The dynamics of equi- holds so that they are incorporated into value chains. tability in these dimensions constitute a precondition for ensuring shared, sustainable shared growth. d. Expanding access to formal financial markets and insurance instruments (both health and agricultur- The following are areas of appropriate policy focus in Par- al) can help households mitigate their exposure to aguay in coming years: income volatility. Additionally, it may be relevant to consider the creation of contingency funds for fami- First Pillar: Mobility out of poverty lies affected by weather shocks. • Well-functioning, accessible markets are required to e. Broadening the coverage and enhancing the respon- support the ability of all segments of the population siveness of targeted programs—such as conditional to procure well-paying, high-productivity jobs. This cash transfers (Tekopora) and temporary employment involves, for instance: programs—can help households cope better with price shocks and systemic and idiosyncratic shocks a. Promoting activities aimed at increasing the produc- in general (in the absence of integrated social safety tivity, income generating capacity, and asset accu- nets). mulation of households that have been able to leave poverty, but are vulnerable to the risk of downward f. Longer-term risk management policies can support mobility will facilitate economic security and the engagement in second-generation reforms in the so- growth of the middle class. Appropriate activities cial protection system, including elements of social include an expansion of the benefits going to em- assistance for the poor and social insurance for the ployees in small firms and the self-employed such as large vulnerable population that can easily fall back minimum wage coverage for low-skilled wage labor, into poverty were the external environment to dete- 58 access to public retirement savings plans (or contin- riorate. Such policies would include wide-coverage ued expansion of noncontributory pensions), and ac- unemployment insurance programs for the informal cess to unemployment insurance. Because the poor sector and temporary food assistance for needy fami- are largely self-employed, the provision of adult train- lies. ing programs and microcredit could lead to greater productivity among these people. • Equitable, efficient, and sustainable fiscal policy can ensure a solid fiscal position that fosters redistributive b. While strengthening value chains linked to the dy- fiscal policy. namic sectors of the economy and emphasizing val- ue added in the service sector will require substantial g. Increase tax revenues through progressive taxation investments in human capital and are important in all policies to create fiscal space for more effective redis- sectors, investing in connectivity and human capital tribution via the diversification of the asset holdings in rural areas will allow rural households to diversify of the poor and the establishment of social safety their income sources and benefit from more dynamic nets, as well as enhancing targeting mechanisms to markets. reduce ex post inequality in income distribution in the short run. • Enhanced risk management at the macro and micro levels can protect households from shocks. Second Pillar: The pursuit of opportunities for all c. As highlighted by a recent World Bank report (2013d), to help prevent, cope with, and mitigate the agricul- • Ensuring the fairness and transparency of institutions tural risks faced by poor families in rural areas, it is in the provision of public goods requires the use of crucial to ensure crop diversification (including crops credible, stable institutions to deliver high-quality ser- that are less seriously affected by drought or that are vices without excluding any segments of the popula- characterized by short cycles such as sesame) as well tion and to enhance the equality of opportunity for all. a. Conditional targeted programs can promote better access to health care and education among children, resulting in enhanced equality of opportunity and greater intergenerational mobility. b. Improved quality of services for all will require both infrastructure and human capital investment. c. Improved service delivery implies improving the fiscal and strategic coordination among the central govern- ment, departments, and municipalities, as well as in- tegrating planning and programing processes within the budget process to track progress in social delivery. d. It will be crucial to design a monitoring and evaluation system to track progress in social service delivery, re- sults, and impacts and developing tools for targeting services on the segments of the population with the most urgent needs. Third Pillar: Strengthening agency • Policies to expand women’s opportunities in the labor market will reduce labor gaps (employment, earnings, and quality) and will also enhance women’s agency, self-esteem, and aspirations. 59 a. Strengthen and expand systems that support wom- en’s inclusion in the labor market through, for in- stance, access to childcare and professional training. b. 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