Poor benefit most from economic growth, study from ILR School shows

By Linda Myers

"Ain't nothing surer. The rich get richer and the poor get poorer," sang the Tin Pan Alley lyricists who wrote "Ain't We Got Fun" in 1921. Some economists think that's still true, but Cornell researchers Gary Fields and Maria Laura Sanchez Puerta aren't among them.

Maria Laura Sanchez Puerta, left, a Cornell doctoral student in economics from Argentina, with Gary Fields, professor of labor economics, in Fields' office. Their new study compares how income in different sectors of Argentina's workforce changed over time and shows the poorest benefited the most from growth. Kevin Stearns/University Photography

Their just-released study compared how the incomes of all sectors of Argentina's workforce changed over time. Their finding: The poor did better than the rich in both good and bad times.

Argentina's poorest workers enjoyed the largest changes in actual pesos -- not just in percentages -- compared with the wealthiest workers, their study showed. And the poor not only did better than the rich during the country's boom years from the mid-1990s to 1998, but also did better during the recession that lasted until 2002 and the recovery that followed. The findings will be useful to other developing countries in Latin America and around the world.

Fields is a professor of labor economics at Cornell's School of Industrial and Labor Relations and chair of the ILR School's Department of International and Comparative Labor. Sanchez Puerta is a Cornell doctoral student in economics from Argentina who will join the professional staff of the World Bank after she gains her degree.

Economists argue among themselves about whether economic booms benefit, bypass or harm the poor, said Fields. "In our study, 'Earnings Mobility in Argentina,' we looked at the changes for the same people from one year to the next from 1996 through 2003. The people whose income rose the most in pesos were the lower-income people, who benefited through better job opportunities and high self-employment earnings. It wasn't only certain poor people who benefited. It was widespread. The pattern found in our earnings mobility study was much more progressive than earlier inequality studies suggested."

The study also showed that the type of economic growth matters as much as the rate of growth, in terms of raising the incomes of the poor. "The faster growth takes place, the more the poor benefit," said Fields.

Sanchez Puerta, who had collected data on household workers door to door as an undergraduate in Argentina before coming to Cornell, said, "I knew how rich the data on labor markets was and also how important it is to address poverty in Argentina." Government policy can determine who benefits most during boom times, directing more economic gains to the poor, for example, by targeting efforts toward improved labor market opportunities and social services on the poorest groups in society, she said. "In our view the Argentine poor are more deserving of scarce public resources than other groups are because the needs of the poor are the greatest."

Argentina, which today has 37.8 million people and is 90 percent urban, has an economic history of ups and downs going back decades, leading to an enormous increase in income inequality and higher poverty now than 10 years ago -- developments that the government is seeking to reverse. This past December, the study's findings were embraced by Oscar Tangelson, assistant secretary of the treasury in Argentina's Ministry of Economy. "We cannot continue the process of income concentration. It impedes economic progress, which is fundamental to reducing inequality," he said. He is hopeful that the study's findings will help Argentina change directions. "It was very gratifying to see the immediate policy payoff of the research," said Sanchez Puerta.

This February in Washington, D.C., the researchers presented their findings to representatives of the World Bank, which is trying to help Argentina resume growth and improve standards of living. The agency is incorporating some of their lessons in its own report to Argentina. Its opening statement notes the importance of "rebuilding the economy with a view to delivering sustained growth within a framework of social equity."

"The World Bank reviewed our work and found it useful. They said, 'What other Latin American countries can we do this in?'" said Fields. He and Sanchez Puerta anticipate working with colleagues on similar studies in Mexico and Venezuela.

The researchers used data collected by Argentina's national statistical agency on workers age 25 to 60 in the labor force from 1996 to 2003, with a sample of about 8,000 people representative of 71 percent of the country's urban population. Households were followed for four consecutive periods, to see how the income of individuals changed over time.

Such research demonstrates the ILR School's renewed commitment to workplace issues around the globe, as summed up in its mission, "advancing the world of work," Fields noted. He next will work on a study of pro-poor growth and labor market changes in 14 developing countries around the world.