Are the Vulnerable Non-Poor Different? Heterogeneous Responses to Macroeconomic Fluctuations in Latin America

This paper studies the dynamics of vulnerable non-poor households in Latin America, focusing on how they compare with the poor and how both groups respond to macroeconomic fluctuations. Using harmonized household survey microdata from 15 countries over more than three decades (1992-2024), complemented with longitudinal data for four of the regions largest economies, we examine how the size of socioeconomic groups evolves with long-run economic growth and cyclical fluctuations and whether labor market responses to macroeconomic conditions differ systematically between poor and vulnerable individuals. We find that the share of vulnerable non-poor individuals has risen modestly, reflecting higher inflows from poverty than outflows to richer groups. While labor market outcomes are strongly procyclical for both poor and vulnerable individuals, a striking pattern emerges across countries: In less developed economies, vulnerable individuals experience significantly stronger cyclical changes in labor market outcomes than the poor, whereas the opposite pattern arises in more developed economies, particularly along employment margins. Exploiting longitudinal data, we further show that transitions into and out of vulnerability are driven primarily by changes in labor income, especially through employment and hourly earnings adjustments. Overall, the results highlight that the relationship between vulnerability and macroeconomic fluctuations depends critically on labor market structure, which shapes the adjustment margins available to different groups of workers.