Income Inequality

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Income Inequality: The Missing Middle Class 9. Income inequality in Honduras is among the highest in LAC, fluctuating significantly as periods of inclusive growth have been followed by contractions and regressive recoveries. During the 2003-2013 period inequality fell substantially across the LAC region (Figure 2.10). After spiking in 2005 inequality in Honduras declined rapidly through 2009 as income growth among the poorest households significantly outpaced growth among the richest (Figure 2.11). GDP contracted in 2009, yet inequality continued to fall as the initial effects of the crisis fell hardest on households in the top decile, which saw their aggregate income drop by 13.8 percent. Poor and middle-class households also suffered…show more content…
After expanding modestly during the mid-2000s, Honduras’ middle class contracted in the wake of the domestic and global crises. As poverty fell from 2005 to 2009 the middle class expanded from 10.9 percent to 15.7 percent of the population. However, by 2011 the middle class had shrunk to less than 13 percent and by 2013 it had returned to 10.9 percent, making it one of the smallest in LAC (Figure 2.12). In many countries a large and growing middle class has been associated with stronger economic growth, better governance quality and a more stable society. In Honduras, the share of low-income households—those that are above the poverty line but not yet in the middle class—rose in the years prior to 2009, reflecting the economy’s modest success enabling households to escape poverty. After 2009, however, the share declined again as many households fell back below the poverty line. Figure 2.12: Honduras has a very small middle class compared to other LAC countries. (Population distribution by income level, 2013) Figure 2.13: Honduras suffers from a missing middle class. (Kernel density of per capita household income,…show more content…
It is very difficult for poor household in Honduras to rise above the poverty line, and those that do remain highly vulnerable to shocks that can push them back into poverty. Only 6 percent of households that escaped from poverty between 2003 and 2007 and were still out of poverty in 2011. These households saw their incomes grow by almost 50 percent over the period. By contrast, chronically poor households—those that remained in poverty from 2003 to 2011—saw their incomes grow by 30 percent. Chronically poor households in rural areas experienced stronger income growth (around 40 percent) than those in urban areas (around 20 percent). At both individual and household levels rural residence is associated with much greater levels of chronic poverty. 65 percent of rural households were chronically poor, compared to 31 percent of urban households, and rates of extreme poverty were particularly high among agricultural workers. Credit constraints, low marginal productivity of land and labor, limited educational attainment, and the absence of effective risk-mitigation strategies prevent the poor from accessing new economic opportunities and increase their susceptibility to negative shocks. These factors reduce social mobility and increase the likelihood that households that escape poverty will be pushed back into

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