Improving lives and livelihoods: a Poverty and Equity Assessment for El Salvador

This background note documents trends and the current situation regarding poverty and inequality in El Salvador. It compares these trends with those of other countries in the region, identifies primary drivers, and provides a demographic and geographic profile of the poor based on the latest available data. The analysis covers three periods, 2000–2009, 2009–2019, and 2019–2023, focusing on the latest period to assess the pre- and post-pandemic conditions.

This background note analyzes the dynamics of poverty and labor transitions in El Salvador. Through the calculation of transition matrices, it is possible to examine how households move between poverty statuses over time. Key factors associated with these transitions are also identified. Labor transitions, particularly the incorporation of new household members into the labor market, are crucial determinants of poverty dynamics. In a typical year, approximately one-third of poor households escape poverty, and about half of extremely poor households move out of extreme poverty. Initial income status plays a critical role in defining these transitions, as the probability of moving into or out of poverty increases as household income approaches the poverty line.

This background note analyzes housing deprivation in El Salvador. The results indicate that in 2023, 72 percent of households in El Salvador experienced housing deprivation, with higher rates in metropolitan and rural areas, especially among single-parent households, and where the head of household lacks formal education. This note highlights the need for specific housing policies to address the growing inequality and precarious housing in the country as it affects both poor and non-poor population, especially in metropolitan areas. 

This background note examines motherhood earnings penalties. Having children has important implications for various individual-level outcomes, especially for women. Evidence suggests that the birth of the first child leads to a decline in women's labor earnings, which is defined as the motherhood earnings penalty. Applying a non-parametric pseudo-event study approach, it is found that the motherhood penalty in El Salvador is around 20 percent during the first years of a child's life but increases over time. In addition, there is a differential self-selection of women into part-time jobs, as women with children are more likely to take on part-time jobs compared to their peers regardless of gender. 

This background note presents an overview of the situation of young people in El Salvador. The country benefits from a significant demographic bonus, with one in five Salvadorans aged 15 to 24. However, this group faces higher rates of extreme poverty and vulnerability than the general population. Education and employment are critical areas for improving their human capital. Challenges include low school attendance, high learning poverty, and a large proportion of youth who neither study nor work. In the labor market, most young people hold informal jobs, and their average income is lower than that of adults. Gender disparities persist, with men earning higher salaries than women.

Fiscal policy in El Salvador has the capacity to consolidate economic growth, providing greater resilience to the population in the face of possible risks or boosting income generation. This note analyzes the impact that the elimination of energy, water and LPG subsidies would have on poverty and household welfare. If subsidies were eliminated, poverty would increase, negatively affecting household welfare. However, if this elimination of subsidies is accompanied by an increase in other social transfers, if they are transformed into targeted subsidies, or if the above scenarios are combined, the impact on poverty could be mitigated.

This background note measures vulnerability to poverty in El Salvador. Around one third of households are vulnerable to poverty, that is, they are not poor, but they are exposed to hazard events that could affect human beings, their livelihoods and assets, and lead them to fall into poverty. The results provide a comprehensive and new perspective on the challenges faced by households in El Salvador, especially those that are more likely to be poor either because of their expected level of income or because of the risks to which they are exposed.