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Poverty and Inequality in Uruguay

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Poverty and Inequality in Uruguay

Poverty and inequality have wreaked havoc across the global social fabric, with developing nations bearing the brunt of these phenomena. Pervasive globalization has been hailed as one of the best ways to address the problem. However, globalization itself has also brought with it unique challenges with a bearing on both poverty and inequality. In fact, research has found a link between financial globalization, especially by way of foreign direct investment, and rising inequality across the world. (Jaumotte, Lall, & Papageorgiou, 2013). Policy makers and economists across the globe still continue to seek ways of addressing the problem with the view of bettering the human condition. This paper presents Uruguay’s position on poverty and inequality in the country.

Uruguay continues to be a model for economic management within Latin America (The World Bank, 2017). This status arises due to its progressive social reforms, low rates of corruption, and sustainable democratization, all of which have improved living conditions for all its citizens. Further, poverty levels and income inequality have substantially declined to historical lows. According to data collected by the World Bank, moderate poverty went down drastically, from 32.5% to 9.4% in the decade between 2006 and 2016 (The World Bank, 2017). The portion of the population that fell within the extreme poverty category also went down. This particular category went from 2.5% to 0.2% during the same decade, with the average annual economic growth rate pegged at 4.54% (The World Bank, 2017). These statistics are indicative of solid macro fundamentals and efficient allocation of public resources.

However, in spite of the tremendous gains made in terms of economic development, Uruguay still continues to deal with the challenges of poverty and inequality. This is why the country’s Foreign Minister, Rodolfo Nin Novoa, acknowledged this problem and urged member states of the United Nations to increase efforts towards ending inequality in order to achieve sustainable development (The United Nations, 2017). Uruguay’s inequality and poverty problem is primarily driven by wage discrepancy and high youth unemployment (Thamman, 2017). Wage discrepancy is the result of employers placing a premium on skilled labor over unskilled labor. Technology driven growth is the reason for this direction, with many industries requiring highly trained professionals. Naturally, the income earned in form of wages by the skilled labor far outpaces that earned by unskilled labor. Research indicates that 60% of household income in Uruguay comes from labor earnings (Singh, Ture, & Ustyugova, 2015). Discrepancy in these earnings is, therefore, guaranteed to increase inequality.

Youth unemployment in Uruguay is another factor driving inequality in the country. Research estimates place the rate of youth unemployment at 23% for females and 14% for males, compared to the regional averages of 17% and 12% respectively (Singh, Ture, & Ustyugova, 2015). It is Uruguay’s position that this problem is occasioned by a skill gap between what is taught in schools and what is demanded by the market. Young people who are not in an income-earning position place an extra burden on poor families already struggling to make ends meet. This problem is exacerbated by rapid modernization of the rural economy where people depending on produce agriculture for employment have been forced to work in other sectors. A lack of skills required by the new sectors spells doom for the affected.

The consequences of poverty and inequality in Uruguay are starkly clear. Poverty, especially in the rural areas, has led to poor nourishment for the afflicted. Malnutrition reduces productivity while rendering individuals too weak to constructively engage in development activities. Moreover, given the fact that children are most affected by malnutrition, their education achievement is adversely impacted. In fact, research indicates that early malnutrition can negatively impact cognitive development in children during their middle school years (Schoenmaker, Juffer, Van Jzerndoon, Van Den Dries, & Lintig, 2015). Poor education outcomes can lead to fewer opportunities for social mobility, thus resulting in an intergenerational vicious cycle of poverty. Other consequences of poverty and inequality include poor healthcare and inadequate infrastructure.

Against this backdrop, it is Uruguay’s position that both the government and businesses can work together to maximize welfare. Businesses can engage tertiary educational institutions to develop market oriented skills programs to minimize youth unemployment (King, 2015). Additionally, they can design skills upgrading programs for their unskilled labor force to minimize the wage discrepancy (Stone, 2012). Finally, businesses can also provide scholarship grants for children in low income areas. This initiative is supported by research which indicates that differences in early education and school quality clearly perpetuate cross-generational inequality (Powell, n.d). On its part, the government’s social reforms and prudent fiscal management have proven to be useful in minimizing poverty (Amabile, Bucheli, & Rossi, 2014). To achieve even more progress, it can shore up the agricultural sector to minimize rural unemployment. It can also undertake educational reforms for the benefit of its younger generations.

 

 

 

 

References

Amabile, F., Bucheli, M., & Rossi, M. (2014, February). Inequality And Poverty In Uruguay By Race: The Impact Of Fiscal Policies. Retrieved October 20, 2017, from Tulane University: http://cipr.tulane.edu/articles/detail/1598/CEQ-Working-Paper-No-19-Inequality-And-Poverty-In-Uruguay-By-Race-The-Impact-Of-Fiscal-Policies

Jaumotte, F., Lall, S., & Papageorgiou, C. (2013). Rising Income Inequality: Technology, or Trade and Financial Globalization? IMF Economic Review, 61(2), 271–309.

King, M. D. (2015, July 12). Why Higher Ed and Business Need to Work Together. Retrieved November 1, 2017, from Harvard Business Review: https://hbr.org/2015/07/why-higher-ed-and-business-need-to-work-together

Powell, J. A. (n.d.). Six policies to reduce economic inequality. Retrieved November 1, 2017, from Haas Institute at University of California, Berkely: http://haasinstitute.berkeley.edu/six-policies-reduce-economic-inequality

Schoenmaker, C., Juffer, F., Van Jzerndoon, M. H., Van Den Dries, L., & Lintig, M. (2015). Cognitive and health-related outcomes after exposure to early malnutrition: The Leiden longitudinal study of international adoptees. Children and Youth Services Review, 48, 80-86.

Singh, D., Ture, E., & Ustyugova, Y. (2015). Uruguay: Selected Issues. Washington D.C.: International Monetary Fund.

Stone, I. (2012). Upgrading Workforce Skills in Small Businesses: Reviewing International Policy and Experience . Copenhagen: Organization for Economic Cooperation and Development.

Thamman, B. (2017, September 28). Causes of Poverty in Uruguay. Retrieved October 20, 2017, from The Borgen Project: https://borgenproject.org/causes-of-poverty-in-uruguay/

The United Nations. (2017, September 25). Uruguay joins other nations addressing General Assembly in calling for stronger, more flexible UN. Retrieved October 20, 2017, from UN News Centre: http://www.un.org/apps/news/story.asp?NewsID=57737#.WekR09xRW1s

The World Bank. (2017, October 6). The World Bank in Uruguay: Overview. Retrieved October 20, 2017, from The World Bank: http://www.worldbank.org/en/country/uruguay/overview