A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Baten, Jörg; Llorca-Jaña, Manuel Working Paper Inequality, Low-Intensity Immigration and Human Capital Formation in the Regions of Chile, 1820-1939 CESifo Working Paper, No. 8177 Provided in Cooperation with: Ifo Institute – Leibniz Institute for Economic Research at the University of Munich Suggested Citation: Baten, Jörg; Llorca-Jaña, Manuel (2020) : Inequality, Low-Intensity Immigration and Human Capital Formation in the Regions of Chile, 1820-1939, CESifo Working Paper, No. 8177, Center for Economic Studies and ifo Institute (CESifo), Munich This Version is available at: http://hdl.handle.net/10419/216573 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu 8177 2020 March 2020 Inequality, Low-Intensity Immigration and Human Capital Formation in the Regions of Chile, 1820-1939 Joerg Baten, Manuel Llorca-Jaña Impressum: CESifo Working Papers ISSN 2364-1428 (electronic version) Publisher and distributor: Munich Society for the Promotion of Economic Research - CESifo GmbH The international platform of Ludwigs-Maximilians University’s Center for Economic Studies and the ifo Institute Poschingerstr. 5, 81679 Munich, Germany Telephone +49 (0)89 2180-2740, Telefax +49 (0)89 2180-17845, email [email protected] Editor: Clemens Fuest https://www.cesifo.org/en/wp An electronic version of the paper may be downloaded · from the SSRN website: www.SSRN.com · from the RePEc website: www.RePEc.org · from the CESifo website: https://www.cesifo.org/en/wp CESifo Working Paper No. 8177 Inequality, Low-Intensity Immigration and Human Capital Formation in the Regions of Chile, 1820-1939 Abstract This article traces inequality and numeracy development in the regions of Chile during the 19th and early 20th century. Inequality, measured with anthropometric methods, was associated with a lower speed of human capital formation. Not all talents received the necessary education to make full use of their talent for the regional economy, especially in the south. However, in its northern regions we find that Chile was relatively equal and numerate during the 19th century, and the south converged somewhat during this period. In addition, we study the correlates of low-intensity immigration in Chile. Regions with a relatively high share of North European migrants developed faster in terms of numeracy. JEL-Codes: N360, N960, O150. Keywords: inequality, immigration, human capital, numeracy, regions, Chile. Joerg Baten Manuel Llorca-Jaña University of Tübingen Facultad de Administración y Economía Department of Economics Universidad Santiago de Chile Melanchthonstr. 30 Santiago de Chile / Chile Germany – 72074 Tübingen [email protected] [email protected] We thank for financial support Anillos CONICYT PIA SOC180001; Fondecyt Regular 1180005; and the German Science Foundation, grant SFB 1070 “ResourceCultures”, project B06. 3 Introduction In recent decades, Chile has enjoyed one of the highest levels of average income in Latin America, together with macroeconomic and political stability. However, Chile is also a very unequal country, with a Gini coefficient (of household disposable income) as high as 0.46. The richest 10% of the population accounts for nearly 40% of the nation's income.1 Until October 18th 2019, the Chilean elite seemed to be either unaware of this situation (which is doubtful),2 or they did not realize the dangers of high inequality.3 That day, though, the most violent unrest in Chilean history erupted: many tube stations were set on fire, as well as buses, restaurants, churches, state buildings, and other iconic buildings (e.g. universities, the headquarters of the main electricity company, banks, supermarkets). Looting was widespread, and the president called the military to the street: a curfew was ordered for several days, the longest curfew during a period of democracy in the country's entire history. The Chilean oasis was quickly transformed into one of the driest deserts on earth, and the country was almost in a state of civil war. What was at the root of this unrest? Most newspapers reports and interviews with actors agree that extreme inequality, including low pensions, poor quality health care and the lack of education for the bulk of the population played the largest role in driving the conflict.4 Chilean inequality is not new; it has a long and dramatic history, although its long- term evolution has attracted little attention until recently (Rodríguez 2017; Llorca-Jaña et. al. 2018a; for the global comparison of Chile’s land inequality see Federico 2005, p. 155). This is 1 https://www.oecd.org/social/income-distribution-database.htm. 2 On 5 October 2019, a few days before the worst social unrest in Chilean recent history started (18 October 2019), a proud President Sebastián Piñera told journalists that within Latin America Chile was an oasis of political stability, with GDP, employment and wages all growing, further adding that Chile was a wonderful country to live in, which turned out to be a provocative statement for many. https://www.latercera.com/politica/noticia/pinera- asegura-medio-esta-america-latina-convulsionada-chile-verdadero-oasis-una-democracia-estable/851913/ 3 Polo Ramírez, one of the most famous and respected Chilean journalists, a few days after the October 2019 riots started, declared live on television on one of the most prestigious TV channels of the country that "we knew that there was inequality, but we [the elite] did not know that they [the poor] bothered so much". https://www.radioagricultura.cl/entretencion/2019/10/23/polo-ramirez-es-duramente-criticado-por-polemica- frase-sobre-las-manifestaciones.html 4 See notes 2 and 3 above. 4 significant because today's inequality is mostly the result of past developments. To understand what is happening today we need to know what has happened during the 19th and 20th centuries. While Chile is one of the countries with the highest income inequalities today, over the past two centuries and across regions it was markedly heterogeneous. We find that some of the northern regions were relatively equal around 1900, after several decades of declining inequality. The southern areas were more unequal especially around 1850 when numeracy was also very low. In fact, regional differences of inequality were extremely large, hence regional approach provides important value – added to understand Chilean inequality history. We measure variance in inequality using anthropometric inequality (i.e. the variation of height, see Appendix C). We assess whether this implied also heterogeneity in numeracy development in the regions of Chile, which we trace using age-heaping methods (see Appendix B). We measured basic numerical abilities using the age heaping method, which is by now a widely accepted indicator of numeracy (A'Hearn et al 2009; Crayen and Baten 2010a; Crayen and Baten 2010b; Manzel et al 2012; Tollnek and Baten 2017). Age-heaping based numeracy estimates rely on the phenomenon that people often are rounding their ages if they do not have basic numerical skills. For example, in censuses people often report the age of 40 when they are really age 39 or 41. Earlier studies have found consistently a very high correlation between the share of people who are rounding their ages in this way and other education indicators of low education such as illiteracy. The correlation with low numeracy is particularly strong (A’Hearn et al. 2009). For the purposes of this study, we estimated inequality and numeracy for a panel of 17 regions, covering the decades of births from the 1820s to the 1930s. The core question is whether high inequality correlated with a slower development of numeracy? Or did high inequality imply a positive income development, as Gerschenkron 5 (1962) famously argued for the late 19th century?5 We find that inequality was associated with slower development of numeracy in the nineteenth century and early 20th century, suggesting that incomes could have been even higher in the following period without inequality. Although the relationship between inequality and average income for developing countries in the 20th century is not finally settled yet, most recent studies have shown a negative relationship. This can be illustrated by the example of relatively low levels of inequality and high growth rates in Asian ‘tiger’ economies (Lindert and Williamson 2001). Many Latin American countries in contrast had