Latin America's Poverty Falls, Yet Structural Barriers Slow Long-Term Progress

A World Bank and CEDLAS report highlights that poverty in Latin America and the Caribbean dropped to its lowest level in 2023, driven by labor market improvements and modest economic growth. However, structural challenges like inequality, job quality, and limited digital access persist, threatening sustained progress.

Latin America and the Caribbean (LAC) achieved a milestone in 2023, reducing poverty to the lowest levels of this century, according to a report by the Poverty and Equity Global Practice at the World Bank and the Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS). The share of people living on less than $6.85 per day (2017 PPP) declined to 25%, representing a 4.7 percentage point drop since 2021. This achievement reflects positive labor market trends, which accounted for two-thirds of the decline. However, despite this progress, the pace of poverty alleviation has remained sluggish, hindered by stagnant economic growth, inequality, and structural barriers that continue to challenge sustainable development.

Uneven Economic Recovery Across the Region

The region’s economic performance in 2023 painted a mixed picture. While LAC’s GDP grew by 2.1%, it fell below the global average, with most countries experiencing moderate expansion. Tourism recovery, remittance flows, and public investments supported growth, but fiscal pressures and external risks, including inflation and potential slowdowns in key trading partners like the United States and China, added constraints. Inflation has started to moderate across much of the region, allowing some central banks to ease monetary policies, potentially boosting investment and consumption. Argentina, however, remained an exception, grappling with persistently high inflation that exacerbated its economic difficulties. These macroeconomic challenges underline the fragile foundation of LAC’s poverty reduction efforts, as progress remains closely tied to economic conditions.

Poverty and Inequality: Contrasts Within the Region

Poverty trends varied widely across countries. Brazil and Colombia recorded notable successes, with poverty rates falling by over three percentage points between 2021 and 2023. This decline was attributed to stronger labor markets and effective public transfers. Conversely, Argentina and Chile experienced increases in poverty, driven by factors such as declining labor earnings and economic volatility. At the same time, the middle class expanded to 41.1% of the population, the highest this century, marking a steady shift in the region’s socioeconomic landscape. Yet, the share of vulnerable individuals earning between $6.85 and $14 per day remained stagnant at 31.5%, emphasizing the precarious position of many households in the face of economic shocks.

Income inequality also showed modest improvement, with the regional Gini coefficient falling by 0.7 points between 2021 and 2023. Countries such as Brazil and Mexico were at the forefront of this trend, with faster income growth among lower-income households driving reductions in inequality. Despite these gains, LAC remains one of the most unequal regions globally, underscoring the need for sustained efforts to bridge economic disparities.

Job Quality and Digital Connectivity Lag

Labor income has been the primary driver of poverty reduction in recent years, particularly benefiting the poorest deciles of the population. Yet, the quality of jobs remains a significant concern. The Job Quality Index (JQI), which assesses employment based on income, benefits, satisfaction, and security, revealed a largely stagnant picture across most countries since 2016. Costa Rica, Brazil, and Chile scored relatively high, but nations like Peru, Mexico, and Bolivia lagged behind. Gender disparities in job quality persist, with women consistently facing worse conditions than men. The largest gaps were observed in Peru and Ecuador, reflecting broader systemic inequalities.

Access to digital infrastructure is another critical issue. Internet connectivity, essential for accessing education, jobs, and services, remains highly unequal. While high-income countries like Chile and Costa Rica report connectivity rates exceeding 90% even among the poor, countries such as the Dominican Republic and El Salvador see less than 20% of poor households connected. This digital divide perpetuates socioeconomic disparities, limiting opportunities for low-income households to break free from poverty.

Challenges and the Road Ahead

Public transfers, a key driver of poverty reduction during the pandemic, have been gradually reduced across many countries, straining lower-income households. While nations like Brazil and Colombia have continued to leverage social assistance effectively, others have seen rising poverty levels as a result of cutbacks. This trend raises concerns about the sustainability of poverty alleviation mechanisms, especially in light of constrained fiscal space and limited resources.

Looking ahead, the economic outlook for 2024 remains modest, with regional GDP growth projected at 1.9%, below the global average. Poverty is expected to decline slightly, while the middle class is projected to grow further. However, structural barriers—such as low job quality, persistent inequality, and limited digital access—threaten to undermine these gains. Addressing these challenges requires bold policy action to strengthen labor markets, improve access to education and technology, and promote inclusive growth.

The report underscores the urgency of adopting comprehensive strategies to address LAC’s deep-rooted inequalities and vulnerabilities. Without targeted efforts to tackle these systemic issues, the region risks entrenching poverty and inequality, undermining its ability to sustain progress. This moment of reflection offers policymakers an opportunity to prioritize long-term investments in human capital and social protection, ensuring a more inclusive and resilient future for all.