Income Poverty

The income poverty estimation is based on the FGT indices methodology, which allow the incidence, disparity, and severity of both income poverty and extreme income poverty to be calculated (^{Foster et al., 1984}). The most widely-used measure of poverty is the percentage of the population living in situations of poverty and extreme poverty compared with the rest of the population. The estimation is based on aggregated monthly household incomes, calculated using wages, remittances, money transfers, and capital inflows. The aggregate income is divided by the number of household members, thus obtaining per capita income. Households and their members whose per capita income is below the poverty and extreme poverty line are considered poor and extremely poor, respectively. ²

Between 2009 and 2014, a significant reduction in the incidence of income poverty and extreme income poverty was recorded, falling from 36% to 22.5% and from 15.4% to 7.7% respectively (See Figure 1). The external shocks which took place between 2015 and 2016 effected economic conditions in Ecuador. The drop in oil prices which occurred during these two years, coupled with the appreciation of the dollar, made non-oil exports more competitive, resulting in a contraction in the economy. This can be demonstrated by analyzing the GBP growth rate, which peaked at 3.8% in 2014, 0.1% in 2015 and -1.6% in 2016 (ECB, 2017).

Source: Compiled by the author using data from the National Survey of Employment, Unemployment and Subemployment (^{INEC, 2018}).

Figure 1 Incidence of Income Poverty and Extreme Income Poverty (in percentages) 

As a consequence of the low economic cycle, labor indicators suffered a setback and the tendency towards falling rates of monetary poverty slowed down. By 2017, GBP growth had reached 3% (ECB, 2017). An improvement in poverty reduction was also observed, with the poverty rate at 21.5% and extreme poverty at 7.9%.

After applying the decomposition growth-redistribution methodology to income poverty, 64.5% (9.5 percentage points) of the poverty reduction between 2009 and 2017 can be explained as a result of economic growth, while 34.6% (5 percentage points) as a result of redistribution. Meanwhile, 67.7% (5 percentage points) of extreme poverty reduction is due to growth, with 32.3% (2.4 percentage points) being due to redistributive policies (see Table 1) (^{Gasparini et al., 2013}).

Despite the significant reduction in poverty indicators, the trajectories diverge significantly at the geographical region level. This is evidence of persistent differences that must be taken into account in order to apply effective public policy. In 2017, poverty in rural areas was at 39.3% compared with 13.2% in urban areas, while the extreme poverty rate in rural areas (17.9%) was more than four times higher than in urban areas (3.3%). Income poverty reduction was accompanied by inequality reduction. Between 2009 and 2017, the Gini co-efficient fell from 0.504 points to 0.459 points.

Based on the application of the proposed ^{World Bank methodology (2013)} for estimating poor, vulnerable, medium, and high social strata, a significant increase in the average stratum from 23% to 34.8%, along with a reduction of poverty, can be observed between 2009 and 2017, (see Annex 1). ³ It is worth noting that the significant section of the population located in the vulnerability stratum reached 42.2% in 2017, compared to 39.7% in 2009. Due to the characteristics of this section of the population, it is at high risk of falling into poverty. In respect to geographic area, in urban areas 42.7% of the population was in the vulnerable stratum and 42.2% in the middle stratum in 2017, while in rural areas vulnerability was at 41.2% and the middle stratum at 19.1% for the same period.

The performance of monetary poverty is mainly influenced by remunerations received by members of the household, which in turn mainly depend on their educational level and occupation category. In contrast and despite the fact that in 2017 unemployment at the national level reached 4.6%, one of the lowest rates in the region, the level of adequate employment fell by 7% to 42.3% from its peak in 2014 of 49.3%.⁴ This means that more than half of the EAP (53%) is in inadequate employment which is evidence of a deterioration in labor indicators (see Figure 2). ⁵

Source: compiled by the author based on data from the National Survey on Employment, Unemployment, and Subemployment (^{INEC, 2018}).

Figure 2 Adequate and Inadequate Employment (%) 

As a consequence of Ecuador’s economic downturn, the percentage of the population in inadequate employment increased remarkable. For example, unemployment was recorded at 5.8% in urban areas in 2017, adequate employment at 50.4% and inadequate employment at 43.6%. Meanwhile in rural areas, unemployment reached 2.1%, adequate employment 25.1%, and inadequate employment 72.8%, thus demonstrating the precariousness of employment in rural areas.

On the other hand, the percentage of EAP affiliated with or covered by social security increased from 29.9% in 2009 to 44.3% in 2014, later decreasing to 40.8% in 2017. In 2017, the rate of EAP affiliated with social security was at 44% in urban areas, compared with 34.1% in rural areas.

The ^{ILO (1999)} puts forth the concept of decent work, which claims that worker’s rights must be guaranteed. This belief is manifest in the notion that decent work: “Is productive work in which rights are protected, which generates an adequate income, with adequate social protection.” This concept of decent work also claims that: “Decent work is the converging focus of all its four strategic objectives: the promotion of rights at work; employment; social protection; and social dialogue.”

Based on the information available, the EAP with adequate employment, affiliated with contributory social security, was used as the definition with which to estimate decent work in Ecuador. Using adequate employment, the population with income equal to or above the unified basic salary is determined. Using social security affiliation, it was also possible to determine rate of the population with coverage against potential labor risks, retirement pension, and access to health services in the Ecuadorian Institute of Social Security (IESS).

Social security affiliation is defined as receiving the benefits established according to Ecuadorian law. ⁶ Accordingly, in 2009 the population with decent employment rose to 20.5% nationwide, and reached 8.5% at the rural level, as well as 26.4% at the urban level. Meanwhile, in 2017 the population with decent employment was 30% nationally, 16.1% at the rural level, and 35.9% at the urban level. These figures are alarming when factoring in the fact that less than half of the EAP registers adequate employment and only one of every three workers has decent employment, thus demonstrating the precariousness of employment.

Multidimensional poverty

The concept of Buen Vivir as established in the Ecuadorian Constitution sets out a framework for understanding notions of social justice and development. It also guarantees that the State will play a fundamental role in protecting the rights on which various dimensions of wellbeing are founded. In 2016, Ecuador adopted multidimensional poverty as the official measure of poverty (^{INEC, 2016}), based on the contributions made by ^{Alkire and Foster (2007}, ²⁰¹¹⁾. The methodology consisted of deliberating on the selected dimensions and indicators of poverty. In this case, the rights which make up Buen Vivir constitute the four dimensions that will be used to categorize the indicators which make up official multidimensional poverty:

1) education, 2) work and social security, 3) health, water, and nutrition, and 4) home, housing and healthy environment (Constitution of the Republic of Ecuador, 2008, art. 12-34).

Table 2 presents the 12 indicators which comprise official multidimensional poverty, grouped according to the four dimensions previously mentioned. According to the methodology applied in the Health, water and food dimension, extreme income poverty is measured as proxy of the household's capacity to cover the minimum nutritional needs of its members. In relation to health, however, insufficient information was available.

In the words of the INEC, given the characteristics of the data source, “one of the advantages of working with the ENEMDU (Employment, Underemployment and Unemployment Survey) is that, starting from 2009, it allows the indices to be reconstructed. One of the limitations of the data source, however, is the lack of health rights (access to health services) indicators, as well as of certain vulnerable groups (children, people with disabilities, the elderly)” (^{INEC, 2016, p.5}).

As all rights are equally important, each dimension is weighted equally and, within each dimension, all indicators used to assess deprivation are weighted equally. It is also assumed that if one member of a household is deprived according to an indicator, then all members are deprived according to that same indicator.

Next, the multidimensional poverty threshold was determined, which defines the extent of deprivation a household must experience in order to be considered poor. Having done so, it was established that, in Ecuador, a household must score as deprived according to at least one third (33.3%) of the measures described to qualify as poor.

National multidimensional poverty fell from 51.5% to 35% in 2015, and was at 34.6% in 2017. At the urban level, poverty fell from 34.9% in 2009 to 21.5%, and from 83.8% to 61.4% at the rural level during the same period. In 2017, urban multidimensional poverty reached 21.3%, while rural multidimensional poverty reached 63.3% (see Figure 3). The reduction in multidimensional poverty between 2009 and 2017 is predominantly due to the expansion of basic water and sanitation services, as well as the increase in basic education and high school attendance. However, its stability between 2015 and 2017 can be explained by the fact that this metric incorporates indicators that have been affected by economic downturn: extreme income poverty, unemployment and inadequate employment, non-contribution to the pensions system, and child and adolescent labor (see Annex 2).

Source: compiled by the author based on data from the National Survey of Employment, Unemployment, and Underemployment (^{INEC, 2018}).

Figure 3 Multidimensional Poverty Rates (%) 

From a social investment perspective, the reduction of the multidimensional poverty rate during the period studied can be seen as an effect of the increase in social spending as a percentage of GDP, which rose from 7.8% to 10.2%. In per capita terms, this constitutes a growth in social investment from $330 USD per inhabitant to $626 USD. At a sectorial level, the largest variations in social spending per capita were in the health sector, increasing from $63 USD to $199 USD, while in education spending rose from $191 USD to $296 USD. On the other hand, per capita investment in social wellbeing, urban development and housing, and employment remained at around $60 USD, $12 USD, and $3 USD, respectively (^{SICES, 2017}).

Social Protection Floor in Ecuador

It is already known that inequality and exclusion have negative implications for societies at both the social and economic level in the short, medium, and long term. It is therefore pertinent to discuss the options available to states when seeking to implement policies oriented towards reducing inequality and closing social gaps. Among these options are social protection floors, understood here as a set of basic provisions to guarantee the minimum income necessary to avoid poverty and vulnerability, which give equal importance to both contributory and non-contributory social security, as well as ensuring access to social services and employment regulation (^{Cecchini and Martínez, 2011}; ^{ILO, 2012}).

The Constitution of the Republic of Ecuador defines the National System of Social Equity and Inclusion as “an articulated and coordinated set of systems, institutions, policies, norms, programs and services that ensure the exercise, guarantee, and enforceability of the rights enshrined in the Constitution and the achievement of the objectives of the development plan” (art. 340). In view of this, there exists a economic inclusion and social mobility policy composed of two elements: “Universal, non-contributory healthcare against various risks, such as falling into poverty; and secondly, guaranteed access to a basic set of needs and capacities satisfiers to ensure autonomy” (^{MIES, 2018}).

Within the non-contributory system, there are four targeted programs across the Registro Social (Social Register), which is a socioeconomic registry of households and their members which allows social programs to identify their target populations (^{SICES, 2017}). The Human Development Voucher (BDH) transfers $50 USD every month to households in extreme poverty, conditional on the fulfilment of health and education requirements. The Assistance Pension for Seniors provides $50 USD every month to people over the age of 65 who live in poverty. The Assistance Pension for People with Disabilities provides $50 USD every month to people who qualify as 40% disabled and live in poverty. Additionally, the Joaquín Gallegos Lara Voucher provides $240 USD every month to carers of people living in poverty who qualify as 80% disabled.

At the contributory level, the constitutional framework defines social security as a universal right, including for those persons who perform unpaid work in the home, those who are self-sufficient, and the unemployed (Constitution of the Republic of Ecuador, 2008, art. 34). The Ecuadorian Social Security Institute (IESS) administers four insurance plans: individual and family health, general work risks, infirmity, old age and death, and agricultural work (social security law art. 345 and 362). These mechanisms, therefore, can be seen as universal in nature, and include early education services, basic general education and high school, and the public national health system.

The national economic inclusion and social mobility policy contains similarities with various programs implemented in the region, which are also testament to the introduction of the social protection floor. Examples include such as the conditional money transfer programs (Red Unidos in Colombia and Chile Solidario), the minimum income in old age and disability programs (Pensión para Adultos Mayores in Mexico, Programa Especial de Transferencia Económica a los Adultos Mayores in Panama,), as well as programs for low income and unemployed workers (employment insurance in various countries, Seguro de Capacitación y Empleo in Argentina, among others) (^{CELAC, 2018}). This is evidence of the existence of mechanisms at the regional level which engage in poverty reduction and provide support to children, seniors, and to people with disabilities via contributory and non-contributory social security. Therefore, the biggest challenge facing these countries is financing the coordination of public policy, institutions and interventions in order to achieve prompt, efficient, and sustainable service provision, while minimizing the impact of economic contractions.

Methodological proposal

In accordance with the ^{Martinez and Sanchez’s (2012}) conceptual proposal of double inclusion and following Angulo and Gomez’s operative proposal for measuring social and productive inclusion in Columbia, the methodology for its operationalization in Ecuador will now be presented.

Analysis of results

The estimates for social and productive inclusion in Ecuador for the period 2009-2017 will now be presented (for further details on the estimates at the national level and by area, see Annexes 3 and 4).

Social inclusion

After applying the methodology described above, it was found that in 2017, 67.2% of the population was in social inclusion as opposed to 50.2% in 2009 (see Figure 4). In the same period, the rate of social inclusion in urban areas rose to 79.7% from 67.2%, while rising to 40.4% from 17.4% in rural areas. This demonstrates that significant advances were made in access to public services and reflects improvement in the population’s structural conditions.

Source: compiled by the author based on data from the National Survey of Employment, Unemployment, and Underemployment (^{INEC, 2018}).

Figure 4 National Double Inclusion Typology (%)