Microenterprise and Poverty: Evidence from Latin America

There are many unanswered questions regarding poverty in the microenterprise sector: Are microentrepreneurs and their workers poor?

Who are the poor within the sector?

Are households with a high dependency upon microenterprise-generated income poorer than other households?

This paper analyzes both household income per capita and individual earnings. Previous studies report that the sector is very heterogeneous and that there are radical differences in earnings: between owners and employees, by gender, and according to economic activity. The study is based on tabulations from household surveys prepared by the Inter-American Development Bank (IDB) for fourteen countries during 1998. It also uses tabulations prepared by the Economic Commission for Latin America (ECLA) in 1997 which expand on some variables of interest. The analysis resulted in the following stylized facts:

• The MIC sector represents 54% of total employment in Latin America in the mid 1990's. Most MIC workers are self-employed microentrepreneurs;
• An average of 26% of all MIC workers in the region are poor. Poverty rates in the MIC sector have remained essentially unchanged in the last decade. The incidence of poverty is about twice as high for MIC workers as for NON-MIC workers during the 1990s. On average, the poverty gap between the MIC and the NON-MIC sector has increased in the last decade;
• MIC employees have the highest poverty incidence. Self-employed MIC workers also have a large share of poor earners;
• One of the vulnerable groups within the MIC sector is female earners, with an average poverty rate of 55%. Single female heads of household and young earners experience similar poverty rates as female earners;
• More than one-third of households (in a subset of Latin American countries) have at least 50% of their income generated in the MIC sector;
• Households with significant MIC income dependency tend to have higher poverty rates than other households;
• Employers in the NON-MIC sector register the highest earnings, which are 4.5 times the average earnings of all employees and more than twice the earnings of MIC employers. MIC employers earn more than NON-MIC employees. MIC employees are at the bottom of scale, earning half the wage of NON-MIC employees;
• In the MIC sector, the percentage of poor earners is greatest in the industrial sector and smallest in the commerce sector;
• Low earnings firms have a higher frequency of firms with less than 2 employees than high earnings firms;
• MIC workers have lower levels of education than NON-MIC workers, which may explain MIC workers' lower levels of earnings and higher rates of poverty;
• MIC workers are older on average. The MIC sector employs more workers with more than 30 years of experience than the NON-MIC sector;
• Although women earn less than men overall, gender earnings disparities tend to be smaller in the MIC sector.

[Author's abstract]