Most analysts of the nature and causes of poverty agree that growth in per capita income is essential to reducing poverty and that persistent growth failures are accompanied by a persistent failure to reduce poverty. However, they have not found a stable relationship between the rate of average per capita growth and the rate of poverty reduction.
Rapid economic growth is more effective than slow growth in reducing poverty. Yet what matters most is the character of economic growth, which is determined in part by the structure of the economy and in part by government policy. When increases in output are concentrated in economic sectors in which most of the poor work and this generates more income for people living in poverty, growth is pro-poor. Put another way, pro-poor growth leads to an improvement in the conditions of the poor proportionately greater than that for the population as a whole. Understanding the channels which link growth to improving the lives of people living in poverty is therefore essential to the design of sustainable pro-poor growth strategies.
A faster pace of sustainable growth is likely to increase the demand for labour across the economy, including that supplied by poor workers. However, a 1 per cent rise in production does not necessarily yield a 1 per cent increase in jobs. This relationship, termed the elasticity of employment, varies considerably between countries and at different periods in the same country. Although more research is needed to understand why the elasticity of employment varies, we do know that a high ratio of job growth to output growth produces conditions that increase the rate of poverty reduction. 34 Analysing work and life cycles of family poverty helps identify how an upward spiral of increasing economic and social security can replace the vicious circle of accumulated deprivations and generate pro-poor growth.
Improving the availability of opportunities to work and raising the incomes that the poor are able to generate from the work they can find poses three policy challenges:
● increasing the demand for labour and raising the productivity and incomes of people living and working in poverty; ● integrating socially excluded communities into the labour market and overcoming discrimination, particularly against women and girls; ● improving the terms on which developing countries trade with richer countries and obtain investment finance.
One of the main problems in boosting the pace of employment growth is that, although developing countries face a shortage of capital and an abundance of labour, past development strategies have often favoured capital- rather than labour-intensive investment. Investments in communications, energy and water infrastructure often use capital-intensive techniques even if equally effective labour-intensive methods are available. Although micro and small entrepreneurs have the largest potential impact on job creation, they encounter many difficulties in obtaining finance to get started and survive.
Rural industries and services are frequently disadvantaged by comparison to urban sectors, despite the need to expand work opportunities for the rural poor and avoid increasing the pressure of migration to already stressed urban environments. Agricultural policies have often favoured production by capital- and land-intensive larger farmers and trading companies rather than targeting the needs of small farmers and landless labourers. Redressing these imbalances are key elements of pro-poor growth and must be combined with an intelligent use of capital-intensive technologies specific to the resources and needs of particular countries.
Raising educational and skill levels is vital to overcoming many of the barriers that exclude and disadvantage poorer workers on the labour market.
This must start with a renewed drive to increase access to primary education, but must also include a much stronger emphasis on vocational training so that school leavers and adults are able to acquire competencies that the market demands. Combating preventable diseases, stopping the spread of the HIV/AIDS pandemic, and increasing the availability of primary health care have a direct impact on the capacity of poor people to earn a regular income. Access to credit for investment in small-scale production and to meet occasional family needs, such as the purchase of school clothes or funeral expenses, promotes both job creation and the ability of the poor to overcome shocks to the family budget.
Perhaps most vital of all is the struggle against discrimination in all its forms. Race, religion and caste barriers condemn many communities to the margins of society and the economy. Pervasive gender discrimination makes it even more difficult for women to escape poverty than men. 36 The relationship between poverty reduction and sustainable growth is circular. Integrating measures to stimulate the demand for labour and improve the responsiveness of the supply side of the jobs market, with a particular focus on boosting the earning power of the poor, enhances the growth potential of the economy. Increasing the productivity of the working people living in poverty removes a restraint on the overall capacity of the economy and stimulates demand by raising the purchasing power of a large group of consumers.
Furthermore, the poverty-reducing quality of growth is enhanced if it is stable. Recessions can push millions of families into a state of poverty in which they can become trapped even in a subsequent recovery. 37 Alongside macroeconomic policies to promote a stable pattern of growth, mitigating the vulnerability of the poor in episodes of slow growth is an important part of strategies for poverty reduction. However, many of the causes of instability originate in the international economy. National policies are unlikely to succeed fully unless the architecture of global markets for trade and finance is reformed. The international dimensions of strategies to reduce poverty and promote employment-generating sustainable growth are discussed in Chapter 5.
To learn more about this author, visit International Labour Organization's Website.
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