What economic gains would come from ending racial and ethnic exclusion in Latin America and Caribbean countries (LAC)? This working paper from the Inter-American Development Bank employs Brimmer’s methodology to analyse household survey data from Bolivia, Brazil, Guatemala and Peru. It presents some potential gains in terms of aggregate production and income. Ending long term social exclusion could expand the economies of LACs by up to 36 percent. This would bring gains to society as a whole, not just to the excluded groups.
The exclusion of Afro-decendent and indigenous groups from fully participating in their country’s investment in human capital and productive employment is both a cause and a consequence of low income, economic inequality and slow economic growth in Latin America.
Labour market discrimination and market segmentation along racial and ethnic lines has restricted afro-descendant access to high productivity jobs. This explains their persistent lower mean earnings relative to whites.
- Labour market discrimination may produce a disincentive for Afro-descendant and indigenous individuals to invest in their own human capital.
- The low wages of excluded groups helps less innovative, low productivity firms and industries to survive.
- An economy segmented along racial and ethnic lines detracts from aggregate production and income, and retards productivity, growth and economic development.
- Expanded access to more productive employment and human capital investment could reverse the current pattern of inequality. Improved productivity and reduced levels of unemployment among socially excluded groups could lead to increases in production, expenditure and income.
- Increases in the productivity of labour and capital and expanded national markets would encourage investment in new plants and equipment. The competitive strength of the economy as a whole would improve.
- Ending long-term social exclusion could potentially expand the economies of Bolivia, Brazil, Guatemala and Peru by respectively 36.7, 12.8, 13.6 and 4.2 per cent. The impact of the initial gains in production and earnings would increase with to the multiplier effect.
Allowing Afro-descendant and indigenous groups to fully utilise education and skills in their existing jobs and expand their education and skills to levels similar to those of the white population would eliminate the human capital and productivity gaps in the labour force. Implications for policy makers include:
- A common economic understanding and reasoning is required to overcome the political resistance to addressing the issue of racial and ethnic exclusion. Political resistance can be countered by demonstrating the economic gains for society as a whole.
- A clear understanding of the socio-economic status of excluded racial and ethnic groups is crucial for designing and implementing effective programs and policies. The availability and reliability of disaggregated data by race and ethnicity must be improved.
- More and better investment in the human capital of Afro-descendant and indigenous individuals is needed. Discrimination in labour markets must end, requiring government action to address institutional rigiities.
- Social transformation will demand profound changes in economic, social, political, institutional, and cultural aspects of society. Substantive changes in the productive and occupational structures of Latin American and Caribbean countries are called for.
- The elimination of racial and ethnic exclusion will involve mobilisation of a large amount of financial and human resources.
