This study attempts to explain the evolution of poverty and income concentration in Chile and Mexico. It focuses on the impact that changes in the rates and pattern of economic growth have had on poverty. These changes have brought about the following: i) a reduction in the GDP elasticity of demand for labour; ii) the decline of the labour intensity of GDP and an increase in its capital intensity; iii) the decline or stagnation of tradable sectors as a source of total GDP and total employment; iv) the contraction of total demand for labour. Since the rise in labour productivity was not accompanied by an increase in total production, there was a sustained reduction of the GDP elasticity of employment, which resulted in poverty. The growth path of the economy does not, therefore, seem to have been the main factor that contributed to the reduction in poverty observed in the years leading up to the financial crisis of 2008-09. In the final sections, we explore the relation between social policies and poverty alleviation.

The economic crisis severely affected Chile and Mexico in 2008 and 2009. It brought increased unemployment and inflation in its wake, reducing incomes and partially wiping out the feeble gains in poverty alleviation and income distribution obtained during the 2002-07 period. We have updated, to the best extent possible, the statistical content of the study to capture the impact of the crisis on job creation and poverty.

* This ILO Employment Working Paper No-78, 2011 has been hosted with due permission from the ILO. Original article is hosted at:http://www.ilo.org/employment/Whatwe
do/Publications/WCMS_156115/lang--en/index.htm

October 19, 2011.