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## Section 4 CONCLUSIONS

# What do our seven stylized facts suggest for the future?

High elasticity of poverty with respect to income was responsible for fast increase in the number of the poor. Can we expect a symmetrical movement which, accordion-like, after having pushed people below the poverty line, rises them above as incomes pick up? This depends on the shape of future growth. If income growth occurs first at the top and in the middle of income distribution, inequality will continue to rise and poverty will remain stable. This seems to have been the case in Poland, the only transition economy whose real GDP has been growing for three consecutive years. While GDP in 1994 is 10 percent higher than in 1991 (and real personal incomes 7 percent higher), the poverty rate in 1994 is about the same as in 1992, and inequality has risen.

But, then, when growth "trickles down", there could be sharp declines in poverty as relatively large segments of the population now bunched around the poverty line are pulled up. How likely is such a scenario? Several elements lend support to this optimistic view. Unlike in Latin America, the poor do not represent a distinct "underclass". Their poverty is "shallow": the income of an average poor in the transition economies is some 20 percent below the poverty line; in Latin America, it is 40 percent below the same poverty line. The educational achievements of the poor seem reasonable and not too different from the rest of the population.’ Their access to social services, ownership of consumer durables and apartments is also close to the average.** The declines in their incomes are recent and have not yet been reflected in a marked deterioration of their asset position. Up to now, it looks more like a transitory income shock. The key infrastructure for the resumption of normal life (e.g. reasonable dwellings, school attendance, health care) is still there. If the "trickle down" does not take too much time to come around, large numbers of the current poor could be pulled up relatively quickly. But, if the "trickle down" takes a long time, these favorable elements will gradually be lost. In terms of durable goods ownership and human capital, the poor may gradually acquire characteristics different (inferior) from the rest of the population. Growth may then come too late for them.

One conclusion, and a possible concern, emerging from the results of the labor market studies on Poland, Hungary, Czech Republic, Slovakia and eastern Germany, is that what "In Poland, the household heads of the poor households have, on average, 9.4 years of education, the non-poor, 10.6 years (the difference of 12 percent). In Argentina, the bottom quintile household heads’ average years of education are 6.6 vs. 8.8 for the rest of the population (the difference of 25 percent); in Chile, 6.1 vs. 8.6 (the difference of 30 percent). (For Argentina, Chile and other Latin American countries, see Psacharopoulos et al, 1992, Annex tables).

"Trying to “guess" who is poor based on asset-ownership or access to social services fails (see Dupre 1994 on Russia). If income of the very poor is written as 100, incomes of the "middle poor" and the non-poor in Poland are respectively 109 and 133; letting ownership of consumer durables, measured by a synthetic indicator, be 100 for the poor, the values for the "middle poor" and non-poor are only 106 and 114.