Americas Quarterly - Winter 2011

the three definitions. In other words, Latin America’s economic elite attain levels of schooling that distance them from the rest of society, with more educational similarities seen across the middle class and the poor.

An important recent consequence of increased access to higher levels of education is a decline in income inequality. As the labor force becomes more educated, unskilled labor becomes scarcer and the economic benefits of education drops.

Educational expansion has offset the earlier increase in inequality driven by the technical change—a result of trade liberalization during the 1980s and 1990s—that made specialized skills more valuable. This change in the educational profile of the labor force and the resulting decline in inequality are common in Mexico and Chile as well as in countries like Brazil and Peru.

However, while education is important for entering the middle class, once families have reached a particular level of economic well-being, education may have a more limited

GROWTH BUT
VULNERABILITY

Education aside, Chile and Mex- ico suggest that an increase in the size of the middle class has been driven by economic growth and, to a much lesser extent, by a decline in economic inequality. However, these trends provide snapshots and say nothing about the trajectory of individual households. It may very well be true that the households identified as middle class are not the same over time.

Are middle-class households vulnerable to falling into poverty, or are they able to maintain their economic status over time?

Middle-class households that lack
the assets to withstand unexpected
shocks, such as macroeconomic
downturns, unemployment, or ad-
verse health events, will not develop
the long-term consumption capacity
and political preferences that are be-
lieved to foster economic growth and
political stability. In contrast, a stable
and secure middle class is more likely
overall economic growth shows simi-
lar patterns for Mexican and Chilean
middle class mobility. About one-
sixth of the middle class fell into pov-
erty from 2002 to 2006 in Mexico and
between 2001 and 2006 in Chile. In
the same period, a similar percentage
rose into the top income quintile in
both countries. The chances of down-
ward and upward mobility, in other
words, were roughly equal.

But there is an asymmetry at the income distribution extremes. In Chile, 57 percent of the upper class in 2001 remained upper class in 2006, while 47 percent of lower-income households remained poor over the same period. Comparable figures in Mexico are 53 percent for the upper class and 40 percent for the lower class. Only 1. 4 percent of lower-income households climbed to the upper class in Chile, while in Mexico this rose to 5. 2 percent. These findings show that while the Latin American upper class has a negligible probability of falling into poverty— 2 percent in Chile and 7 percent in Mexico—the lower classes’ chances of joining the rich are even slimmer.

The substantial mobility that characterizes the Latin American middle class raises the question of what determines such dynamics. Three factors help to explain it: rural residence, adding a household member to the labor force, and experiencing an unexpected income shock—such as illness, accident or weather-related event. Education, even if important in reaching the middle class, is not a major factor.

In both Mexico and Chile, living in a rural area or being geographically isolated substantially reduces the odds of moving up. The figures for these countries also show that when an additional household member enters the labor market, the likelihood of upward mobility is substantially increased. This finding is different from literature on responses to crisis in Latin America, which suggests that the incorporation of additional family members to the labor market is mostly a strategy to maintain a

THE MIDDLE CLASS REMAINS VULNERABLE, AFFECTING THE

OVERALL ECONOMIC AND POLITICAL
STABILITY OF MEXICO AND CHILE.

impact on further mobility.

Mobility will be affected only under two conditions. First, the distribution of schooling across the population should be such that it can reward talent and productivity among students regardless of class and location. Second, the labor market should be fluid enough so that people can move around, allowing them to exploit potential gains derived from more productive jobs within or between sectors.

to invest in its long-term well-being and to make political choices that support those investments.

Middle-class stability can also reflect the lack of opportunities for upward mobility. In a less fluid society, families that are forced to avoid sliding into poverty may, at the same time, be limited in their ability to improve their economic status.