Bolivia faces high levels of persistent poverty and inequality. In 2002, 65 percent of the population was living in poverty and, of that, nearly 40 percent in extreme poverty. There was a decline in poverty in the mid-1990s, however, the rate today remains close to the level of the early 1990s. In addition, income distribution in Bolivia is among the most unequal in Latin America. This report suggests three main reasons for the continuing high levels of poverty and inequality: First, growth during the 1990s was concentrated in natural resource-based exports, which have a relatively low demand for labor services while labor-intensive sectors and poorer regions grew at a lower rate. Second, the low productivity of firms, particularly in the informal labor-intensive sector, has held back the growth of both employment and wages. Third, the poor have inadequate opportunities to improve their human capital (e.g., through quality education, especially secondary and above), despite recent progress in access to basic education. This results in low labor productivity and restricted access to better-paying jobs. The main overall policy lesson is that broad-based economic growth, sustained over the long term, is a fundamental and necessary condition to reduce poverty and inequality. However, this needs to be supported by policies to improve labor productivity and job creation. This can be accomplished through (1) removing obstacles to firm modernization and growth, and integrating them further into the formal sector; (2) modernizing business and labor regulations in line with international best-practice to allow integration and competition in the world economy; and (3) strengthening human capital and social protection for the poor to enhance their productivity and ability to market their labor.
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