For about a decade, researchers and policymakers have been saying that the key lesson from the world’s most unequal region in terms of income, Latin America, is that inequality can, and in fact did, decline, reports The Guardian.

This is supported by data from the Socio-Economic Database for Latin America and the Caribbean (SEDLAC) showing that between 2000 and 2010, income inequality declined in 16 out of 17 countries.

New data, however, shows that this trend has stagnated, and in some cases even reversed.

George Gray Molina, Chief Economist for the UN Development Programme (UNDP) for Latin America and the Caribbean, commented: “The key questions is, of course, why inequality is stagnating in some countries. Given what we know about changes in income distribution, the critical factors are the following: lower growth in labour income at the bottom of the income pyramid; less effective social assistance; and a diminished impact of pensions.”

“Assuming not much has moved either on social assistance or pensions in the period 2010-2012, the culprit would seem to be the labour market – particularly the low-skilled segment of the labour market in the service sector, which created most of the new jobs during the boom,” he added.

Mr Molina outlined three possible ways to tackle the stagnating income inequality:

“One way is to embark on structural reforms that improve the business environment – a relatively direct way of lowering unit labour costs is liberalising labour markets and de-regulating labour benefits. A number of fiscally-constrained countries, following Mexico’s recent reforms, will follow this path over the next few months and years.”

“From a human development perspective, we fear this might be a “race to the bottom” strategy. While pro-growth strategies can and have reduced inequality in the past – Peru is a good example of this – low wages should not be a measure of development success.”

“A second way is to strengthen social protection networks, focusing specifically on how to bolster returns to education for different segments of the labour market.”

“This is a “race between education and technology,” rather than a race to lower labour costs. It engages with the question of why some countries are able to sustain growth with increases in productivity, rather than through booming external prices. Some countries, following Brazil or Chile’s example, are likely to follow this route.”

“A third way is to do nothing. This is, in fact, the most likely scenario, as reforms that address inequality are intensive in political and institutional capital. In these cases, countries will attempt to sustain declines in poverty through higher economic growth. They are likely to find, by the year 2020, that “more of the same” does not often yield the same.”

“In any event, we will see a renewed appetite for structural reforms in the region,” Mr Molina concluded.