Poverty is a structural problem in Latin America. Its roots go back to the days of colonialism. To this day, even in countries with well-functioning economy, there is a gap between the minority that earns and has everything and the majority that earns nothing. The structure and dynamics of the labor market are of great importance in the problematic nature of poverty. Processes of industrialization, economic growth, and modernization are accompanied with the notorious unemployment. In the period from 1990 to 2003, economic growth averaged 5.1 percent, as well as new job growth was only 2.3 percent over the same period. Chile, Columbia, Panama, Uruguay, and Venezuela had 2-digit unemployment figures during the 80s. This was accompanied by an increase in the duration of the state of unemployment. The number of people living in poverty and extreme poverty in the region increased to 9 million people in 2009. This rate has a tendency to grow every year. These figures are worse than international experts have expected, which is explained by the lack of competent social policy in countries, including in the period of the global financial crisis (Blouet & Blouet, 2010).
The real problem is the fact that poverty and extreme poverty in Latin America and the Caribbean are becoming more evident among children and women. The problem of poverty among women applies to all countries in the region, but the sharpest appearance is in Panama, Costa Rica, Dominican Republic, Chile, and Uruguay. In all Latin American countries, with the exception of El Salvador, the gap between the social status of adults and children living in poverty and misery has increased in the past seven years. The worst situation is in Argentina, Brazil, Panama, Uruguay, and Venezuela.
The main obstacle to the provision of employment of women is domestic work, which is not paid, as well as caring for children and the elderly in need of care. For example, women are busy with households on average 5 hours a day in Uruguay and a little less than seven in Guatemala. At the same time, men on average pay attention to this kind of unpaid work no more than 2 hours a day (Ginsberg & Miller-Cribbs, 2005). This situation has a direct relationship to the level of family income. The poor plight of women also affects children. This policy should also promote access to education for children. At the moment, social programs and subsidies in countries of the region are allocated for ensuring that children go to school and the poorest families have access to free health care. They do not cover all people who really need it, but approximately 101 from 187 million of people.
The increase in poverty in 2012 in general slowed down the progress of one of the goals outlined in the United Nations Millennium Declaration, which states the eradication of poverty and hunger in countries of this region by 2015. In 2011, the countries of Latin America and the Caribbean made great progress in this direction (United Nations Publications, 2009).
The rates of poverty would negatively affect the general trend of poverty reduction, which was observed in the region under the influence of sustained economic growth, more equitable income distribution, increase of the purchasing power of the population from 2002 to 2009. After the so-called lost decade of 1980-1990s, which was not the best period for Latin America and the Caribbean in terms of their economic and social development, the region has managed to achieve a significant progress in the new millennium when 41 million people ceased to be poor for the period of six years (United Nations Publications, 2009).
Considering the fact that many countries of the globe have been constantly trying to develop and implement different programs directed to ease poverty in their countries, there are some possible programs, which could be applied in the countries of Latin America and the Caribbean. These are legislation of minimum wage, social insurance, negative income tax, as well as transfer payments in the neutral form.
Legislation establishing a minimum wage is a reason for continuing discussions. Its supporters see the definition of the lower limit wages as a way to help the working poor people who do not require direct government intervention. Some researchers believe that the law on the minimum wage is detrimental, especially to the poor people, the rights of which it seems to be intended to guarantee. The economic role of the minimum wage law is clarified when using the tools of supply and demand for the analysis. Its implementation means an increase in the wages of workers with low skills and experience above the equilibrium level of supply and demand. Consequently, the costs of firms are increasing and the amount of labor, which firms require, is decreasing. Thereby, unemployment rate among groups of people who are directly affected by this law is increasing. Those who have a job win by getting higher wages and those who could get a job at a lower wage, but appeared to be outside of companies, incur losses. The ratio of these effects is determined primarily by the elasticity of demand for labor (Ginsberg & Miller-Cribbs, 2005). The supporters of the higher minimum wage argue that the demand for unskilled labor is relatively inelastic. This is why, a minimum wage does not significantly reduce employment. The supporters of the lower limit wage argue that the demand for labor is elastic, especially in the long-term period when firms have the ability to change the number of employees and production capacity. It has been noted that many workers who receive the minimum wage are teenagers who come from the middle class, so the policy of establishing a lower limit wage as a policy aimed at helping the poorest people is ineffective.
One of the ways for improving the lives of the poorest citizens is direct replenishment of their revenues by the government through a system of social insurance. Social insurance is a broad term that includes a variety of government programs, particularly in the USA. There is a program of assistance to families with children, which is shortly called AFDS. The typical family receiving assistance under the AFDS is the family without a farther with a non-working mother. Adopted in 1996, this law on social security reform initiated significant changes in the program AFDS. Another program of social security (SSI) is aimed at providing assistance to ill or disabled low-income citizens. The participants of these programs are not all citizens with low incomes. Recipients should have certain additional, compared with other poor people, needs associated with the education of young children or a person’s disability (Ginsberg & Miller-Cribbs, 2005). The criticism of social insurance programs is that they create incentives for obtaining public support. For example, they encourage fathers of families to real or fictitious abandoning because many families receive financial support only in cases when the children’s father lives separately. They lead to an increase in the number of births outside of marriage as single woman assistance is provided only when she has children. The critics of social insurance programs argue that such a policy will only exacerbate the problems, which it seeks to solve. Nobody knows how serious the problems of social security are. The supporters of the social insurance system indicate that a poor single mother living on public assistance can hardly be regarded as a role model. Moreover, the analysis shows that the decrease in the number of families with two parents is unlikely related with the social security system, as its critics sometimes claim. Thus, for example, the social security benefits in the United States (adjusted for inflation) have decreased since the beginning of the 1970s, although the proportion of children living in single-parent families has increased (Ginsberg & Miller-Cribbs, 2005).
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Whatever the tax system the government has chosen, it affects the distribution of income, especially in the case of a progressive income tax when families with higher incomes give to the government a larger percentage of earnings in taxes as compared to low-income families. Equality between groups receiving different incomes is an important criterion for the creation of the tax system. Many economists advocate for the redistribution of income in favor of the poor through a negative income tax when wealthy families pay taxes based on the income and low-income families receive a government subsidy, which means that they pay negative tax. Suppose the government is using the following formulas for calculating the tax liability, which is tax payable = 1/3 of income – $10,000. In this case, a family whose income has amounted to $60,000 would have paid $10,000 as taxes, a family with income of $90,000 – $20,000, a family with income of $30,000 should not pay taxes and a family whose members received only $15,000 over the year pays a negative tax equal to $5,000, which means that the government pays $5,000 to this family. Negative income tax system allows poor families to receive financial assistance without any inquiries about the plight situation. The sole basis for assistance from the community is low income. Depending on the point of view, this feature can be both an advantage and a disadvantage. On the one hand, the negative tax income will not affect the number of children born outside of marriage or divorce statistics (unlike the modern system of social insurance, according to its critics). On the other hand, the negative income tax subsidizes lazy people who, according to some economists and politicians, do not deserve help from the government. Negative income tax resembles a tax credit on earned income, which allows members of the working poor families receive income tax refund, which exceeds the amount paid in taxes during the year. Some economists believe that since the tax credit on earned income applies to the working poor people, it encourages recipients to work, unlike other programs against poverty. However, the tax credit cannot be applied in cases of unemployment, sickness, or disability of the poorest segments of the population (Ginsberg & Miller-Cribbs, 2005).
Another way to help poor people is the direct provision of certain goods and services. For example, charity organizations may provide food, shelter, and toys for Christmas. The government gives poor families food stamps, which are used to purchase products in stores. It can also provide medical care with the help of special programs. There is no answer to whether efficacy transfers in neutral forms are comparable with transfers in direct cash payments. However, the supporters of transfer in neutral forms claim that they guarantee poor families with getting the most necessary. It is the poorest households, in which the use of alcohol and drugs is being widespread. Providing poor population with food and shelter, the society can be more confident that it contributes to the limitation of such addictions. It is for this reason that transfers in neutral forms are more popular than cash payments. The supporters of cash payments argue that transfers in neutral forms are inefficient and unethical. The government does not know what products and services are needed the most by the poor population. Many law-income citizens are ordinary people who are just unlucky in their lives, but they have the right to choose the path to higher living standards (Ginsberg & Miller-Cribbs, 2005).
The situation with education is rather good in Latin America and the Caribbean. The level of literacy is about 91.1% in the region, which is a lot for a developing region. Everywhere, except in Jamaica and the Dominican Republic, there is about a 90 percent level of primary education, which is at the same level as in other countries of Central America. The enrollment of the second stage (secondary education) in South America is about 2/3 (exceptions are Chile, which has about 85 percent, while Ecuador and Paraguay have about 60 percent), while there are about 50-60 percent in other countries of the region. The enrolment in higher education is on average on the 30 percent level. Expectancy of learning is 15-16 years. At the same time, its level is at 18 percent in Cuba. In Nicaragua and Guatemala, this figure is only 10-11 years. The actual period of study is 4-6 years over there. Educational infrastructure of the region is developed. In Columbia, Venezuela, Bolivia, Argentina, and Uruguay, there is one teacher accounted for 20 pupils. In Central America (except Mexico) and the Caribbean, there is a general pattern: the well-to-school teachers (also about 20 students per teacher), many teachers (about 20%) do not have teacher education. For example, unprofessional teachers constitute the bulk of educators in Belize and Honduras (Veas, 2008). Perhaps, the only problem of education system, which takes place in Latin America and the Caribbean, is the uselessness of educational services for the population. On average, primary schools are being left by about 18 percent of pupils. In prosperous Argentina and Chile, about 5 percent of pupils are doing that, there are about a quarter of all pupils doing so in Brazil, and half of the students in Nicaragua. In some countries, even those with good coverage of education, high rates of school dropouts do not take a full advantage of the education system. For example, people study for at least 7 years in Venezuela, Honduras, Nicaragua, and the Dominican Republic, while pupils take less than 5 years in Guatemala and Haiti, although they have all the opportunities to continue their education later. This phenomenon requires a special study, but we can assume that the roots of this phenomenon lie in the mentality of the inhabitants or absence of high-skilled jobs. In addition to this, the education system requires to be adapted to the realities of the labor market, as it has been discussed above. Today, the market remains in structural unemployment with a large number of educated people. The consequence of the reluctance of the population to learn in schools and the non-adjustment of the system of education is the wasted embezzlement of part of the public funds (Veas, 2008).
As an example of the government’s struggle with social problems in Latin America, it is possible to consider a reform of the Brazilian President Luiz Inácio Lula da Silva, which began in 2002-2003. Some reforms were carried out in the similar mechanism in Mexico and Chile. The main problems of human welfare in Brazil of that period were population poverty, income inequality, and unemployment.
The program Bolsa Familia was directed to the fight against poverty and inequality, which combined social programs of Lula’s predecessor Fernando Cardoso. Under this program, super poor families allocated allowances from the government’s budget. This program used Mexican intervention, which was a mechanism of conditional cash transfers. All super poor families are issued in the amount of approximately $32 per month. Poor families also receive benefits only if there are children or pregnant women (up to three benefits). In addition to this, all people applying for assistance must undergo regular medical examination. The program covered more than 11 million households, which was up to ¼ of the Brazilian population (Soares, Ribas, & Osório, 2010).
A part of the program is School Purse aimed at increasing the number of schools. The problem has ripened since about 24 percent of pupils leave schools. This has led to the fact that secondary education has only about 22 percent of Brazilian pupils. The program is built on the same principle as the Family Purse: cash payments to poor families are issued under the condition that their children attend schools regularly and make vaccinations. At school, children receive regular meals during the break between classes, which reduces the costs of parents. BA benefit is paid for each child and maximum for three children per family. Thus, the additional effects of the program can be considered as a decline in fertility, nutrition, and children’s health, as well as reducing parents’ costs to the child’s diet. In 2006, the program spent about 2.5 percent of the government’s budget, which was about 0.5 percent of the country’s GDP (Soares, Ribas, & Osório, 2010).
The program Fome Zero has been designed to improve the quality of life of the poor families. Its purpose is to ensure normal access to food and water. Under this program, waterless regions in Brazil are created in the depth of the reservoir, as well as low-budget dining rooms, vitamins are distributed and even the harm to the pregnancy of young people is promoted for reducing the growth of peasant families and preventing overpopulation.
The Family Purse has achieved tangible results. The program has increased the level of enrollment. To the surprise of many experts, the program has not reduced, but increased the level of employment. Apparently, education assistance recipients have reduced structural unemployment, which is the main type of unemployment in the region of Latin America, as it has been mentioned before.
Probably, the reason for the effectiveness of the Lula’s programs is the application of aid mechanism and Cardoso’s government has gained experience in conducting the program School Purse. It is also necessary to notice that the success of Lula’s social policies would be impossible without the Cardoso’s merit in fighting against hyperinflation. It is also possible that the errors of the government’s apparatus in determining aid recipients have prevented obtaining a major success in these programs (Soares, Ribas, & Osório, 2010).
The given research study has showed the scale of socio-economic problems, which take place in the region of Latin America and the Caribbean. In the region of South America and Mexico, the smallest number of people is suffering from poverty. However, there is a significant social inequality in the area. The poorest sub-region with the unequal distribution of income is Central America. Besides the income inequality, there is a markedly unequal distribution to basic benefits across Latin America, which is lack of water and food. Mountain areas are particularly affected in this regard, which are villagers, when considering the situation in a broader scale. It has been described that the structure of employment in the region varies greatly from country to country. Therefore, it has been possible to identify common trends of employment for the entire region. Considering all the facts presented in the research paper, it is possible to state that the main type of unemployment is structural throughout Latin America and the Caribbean. A common feature of all sub-regions of Latin America is the development of education and health, although insecurity of specialists can be traced in these areas, particularly in Central America.
Possible programs for institution to ease poverty in countries of Latin America and the Caribbean have also been discussed in the research paper, as well as programs implemented in Brazil, which have been taken as an example for other possible implementations in other countries of the region. Particularly, it has been paid attention to discovering some methods for solving economic and social problems with the run of the programs Family Purse and Destruction of Hunger along with School Purse, which have been carried out within the program. In addition to this, it has been discussed that Lula da Silva’s ways of solving the problem occur through the mechanism of targeted transfers.