market and generate income. However, the increase in earnings of workers was relatively more important in reducing poverty than the increase in the number of workers or in the number of jobs. Moreover, we are not able to disentangle whether the increase in earnings was due to improvements in the quality of jobs, changes in productivity, or simply due to longer hours.

While public and private transfers were important, they played a relatively smaller role in explaining declines in moderate poverty for most countries in the sample. The exceptions were Romania and Moldova, where transfers contributed relatively more to changes in poverty. In the case of Romania, this was related to changes in transfers and capital income, while in the case of Moldova it was mostly related to the increase in international remittances.

Finally, in cases where poverty is measured by consumption, these decompositions suggest that changes in the consumption-to-income ratio generally helped to reduce poverty in Ghana and Romania, where the consumption-income ratio increased at the bottom of the distribution. However, in all other instances, the reduction in the consumption-to-income ratio during the last decade implied that poverty did not fall as much as it would have had consumption remained a constant share of income.<sup>11</sup> When looking at changes in extreme poverty (measured either by a US$2.50-a-day poverty line in middle-income countries or by US$1.25-a-day poverty line in low income countries) nonlabor incomes are relatively more important in accounting for changes in poverty (Tables 8 and 9), as transfers play a larger role in poverty reduction.<sup>12</sup> Moreover, note that regardless of which poverty line is used, transfers play a more important role for those farthest from the poverty line, the extreme poor. Transfers account for a greater share of the decline in the poverty gap, the distance of the incomes of the poor to the poverty line (FGT1), as well as in the decline of the severity of poverty, a measure that gives higher weight to those farthest away from the poverty line (FGT2) (tables 8, 9, and 10).<sup>13</sup> In particular, in Argentina, Brazil, Chile, Costa Rica, Colombia, Ecuador, Panama, Romania, and Thailand, increases in cash transfers and pensions jointly account for a larger share of the decline in extreme poverty than changes in labor income. This finding is consistent with improvements those countries have made in the social protection systems, which are typically targeted to the bottom of the distribution, and which have increased in performance over the last decade.<sup>14</sup>

> 11 Note that this ratio is the ratio of measured consumption to measured income. To the extent that there is measurement error in both of these, interpretations about changes in this ratio must be treated with caution.

> 12 We do not report decompositions for Chile and Thailand, because in those countries only 1 percent or less of the population experiences poverty rates at the US$1.25-a-day poverty line

> 13 FGT0 and FGT1 refer to the Foster, Greer, and Thorbecke (1984) measures of the headcount and poverty gap.

> 14 See World Bank, 2013 <u>.</u> Also, see Fiszbein et al. 2009 for a review of conditional cash transfer programs.

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