Income Distribution

Income Distribution

The distribution of income in Peru has been exceptionally unequal for a long time, but by some measures the degree of inequality apparently decreased between 1970 and 1985. The main causes of inequality have changed as well, in some ways for the better and in some for the worse.

In the pre-World War II years, the dominant causes of inequality were a very high concentration of ownership of land and access to capital and to education, along with a sociopolitical structure that condemned the indigenous rural population to bare subsistence with little chance of mobility. In the post-World War II period, especially since the 1960s, access to education gradually has spread to rural areas, and increased migration to the cities has opened up new opportunities for people previously blocked in poverty-stricken rural occupations. The Agrarian Reform Law of 1969 wiped out large private land holdings and led in the 1980s to a vastly less unequal distribution of individual ownership. The rise of production and export of coca probably also played a role in raising rural incomes in the 1980s.

More positively, if only for a brief period from 1985 to 1987, the agrarian policies of the García government helped stimulate agricultural markets and production, and controls on prices in the industrial sector served to raise greatly the ratio of agricultural to industrial prices. As has been noted, the proportion of the rural population below the poverty line fell from 68 percent in 1970 to 64 percent by 1986, while that for urban families was rising from 28 percent to 45 percent. The positive change for rural families was small, and the negative change for urban families was large, but because urban poverty was initially less the degree of inequality between the rural and urban sectors decreased.

Other changes in the post-World War II years worked in the opposite direction, toward greater inequality. The turn to industrial protection raised profits of industrialists relative to other forms of income and also raised the prices of their products relative to those of the agricultural sector. Wages for organized workers in manufacturing rose relative to wages of lower-income rural and unorganized labor, as well. The pressure of a rapidly growing labor force against the society's limited openings for productive employment acted in general to keep downward pressure on labor income relative to property income. That imbalance worsened in the 1980s when the chaotic conditions of the economy as a whole made employment conditions more difficult.

During the period of exceptional economic growth from 1961 to 1972, the incomes of the poorest 60 percent of Peruvian families increased at a rate of 2.3 percent a year, just matching the rate of growth of national income. As growth weakened from the mid1970s , both average real wages and minimum real wages began a prolonged decline, and total wages fell relative to incomes of property owners. But earnings of the lowest income groups in agriculture went up, slightly reducing the percentage of rural families falling below the poverty line. A World Bank study concludes that these changes reduced the degree of inequality between 1972 and 1985: the share of the poorest 60 percent increased from 18 to 27 percent of total income.

An alternative measure of inequality, the Gini index, shows a similar improvement. The higher the coefficient, the higher the degree of inequality. In the early 1960s and again in the early 1970s, Peru had either the highest or the second highest Gini coefficient for all the Latin American countries measured, at 0.61 for 1961 and 0.59 for 1972. By 1985 it had come down to 0.47, far below Brazil and only slightly higher than Colombia. These countries all have high inequality by world standards, but in 1985 Peru no longer stood out as the worst.

The latest estimate available, for 1988, suggests that inequality had increased slightly compared with 1985, with the Gini coefficient rising from 0.47 to 0.50. Although not a drastic change in itself, its connotations are worsened by the simultaneous rise in poverty. The latter may well be considered to be the more important matter: it would not mean much to reduce inequality if that just meant more equal sharing of greater poverty. The one clearly positive combination of indicators is that for the period 1980-85 the incidence of poverty fell, if only slightly, for the rural households who have always constituted the majority of Peru's poor.

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