Latin America's middle class grows, but with a tenuous grasp on status
Although 56 million households have joined Latin America's middle class, many lack the benefits and job security to ensure stability.
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According to the OECD’s Latin America Economic Outlook 2011, which looked at the heterogeneity of the middle class, more than half of 72 million “middle sector” workers in Bolivia, Brazil, Chile, and Mexico – those with household income per capital between 50 percent and 150 percent of the national median – work informally, which means they have no safety net in the case of illnesses, retirement, or job loss. Coverage of social-protection schemes in Latin America remains at well below 50 percent of workers, the group says.Skip to next paragraph
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In Colombia, according to official government figures, only half of the economically active population works in the formal sector, enjoying access to benefits, consumer credit, and eventually, a pension. Economist Alejandro Gaviria says rigid labor laws contribute to the situation. The high cost for employers of mandatory nonsalary benefits, such as severance pay, health insurance, and pension payments, has led many companies to find ways to circumvent the costs.
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So despite a healthy economic growth rate of 4.3 percent last year – it is expected to expand by 5 percent in 2011 – the size of Colombia’s middle class has remained stagnant, according to the ECLAC study. In fact it remains one of the most unequal countries in the world, behind Haiti, according to the 2010 UN Human Development Report.
New status minus the benefits
While states have successfully reduced poverty, they have failed to create meaningful, broad-based social programs like unemployment benefits or social security to protect those at the bottom of the middle class, says Mr. Sabatini. Mexico has seen more robust growth of its middle sector, with households in the middle class more than doubling to 14 million over the past decade and a half, according to ECLAC.
But the numbers often paint a rosier picture than reality, says Juan Carlos Moreno-Brid, the associate director for the Mexican office of ECLAC and author of “Development and Growth in the Mexican Economy: A Historical Perspective."
“The middle class in this country, in contrast to US, does not have unemployment benefits, and our pension system is extremely poor,” he says. “Many are in a very vulnerable situation.”
Javier Malagón reckons he’s on the low end of what’s considered middle class is Colombia, but he’s proud to distinguish himself from the poor.
“I don’t go hungry,” he says. He and his brother jointly own a food cart where they sell hot dogs, hamburgers, chorizo, and arepas, a Colombian cornmeal patty. They borrowed the $1,000 it cost from informal lenders three years ago, and are still making payments. “Banks would never even look at us,” he says. When he’s not manning the stand, Mr. Malagón tries to find shift work at restaurants and grills.
But with his current set-up, Malagón can barely think ahead. “At any point the police can come and haul away the cart and then where will we be?” he asks. “It’s all very unstable.”