The Strugglers: The New Poor in Latin America?-Working Paper 337

In this paper we identify a group of people in Latin America and other developing countries that are not poor but not middle class either. We define them as the vulnerable “strugglers”, people living in households with daily income per capita between $4 and $10 (at constant 2005 PPP dollar). They are well above the international poverty line, but still vulnerable to falling back into poverty and hence not part of the secure middle class. In a first step, we use long-term growth projections to show that in Latin America about 250 million people will likely be in the struggler group in 2030, accounting for about a third of the total population. We argue that in many upper-middle income countries of the region, the strugglers will likely risk marginalization and become the new poor. In a second step, we use harmonized household survey data and fiscal incidence analysis to show that the cash transfers that the strugglers receive are largely offset by the indirect taxes they pay. We argue that the true benefit of in-kind transfers in education and health is questionable after adjusting for quality. We discuss implications for the social contract in Latin America and call for greater attention to the needs and interests of the strugglers in the design and implementation of social and economic policies.