Growth, Employment, Poverty

In 1990's World Bank research established "Growth is good for poor", but experience in recent past with countries pressing for growth has shown that growth did not necessarily result into poverty alleviation.

It seems pretty clear with the researches within ILO and UNDP that Growth may or may not result into Poverty Reduction. The poverty reducing impact of Growth depends on

• a) Employment -- in Intensity and Quality; related to which is Productivity Growth.
• b) Sectoral Composition
• c) Inequality

Employment 

Often it is expected that growth that is employment intensive leads to poverty reduction, i.e. Employment Elasticity of Growth is a good measure of growth leading to Poverty reduction. Here, we can describe limits of Employment elastcity in terms of following
- It does not talk of Quantity of jobs created,
- It does not talk of Quality of jobs created -- "working poor"
- It does not consider demographic changes,
and thus cannot provide a clear picture.

Employment growth with increase in productivity can lead to a better impact on poverty reduction.

Improvement in Sectoral Composition:


Necessarily means that with growth, higher proportion of population must engage in high productivity sectors, that is to say an Employment Shift from Primary to Secondary to Tertiary etc.

Also important is to consider that this must happen in area where Growth is required, which is Rural / Countryside, thus improvement in Agriculture (Intensive Farming) to Agro-based industries, processing industries shall create greater positive correlation between Growth and Poverty.

Inequality

If growth results in concentration of wealth or unequal distribution of resources even though in a Pareto efficient system, necessarily increases Inequality and thus increases poverty. Whereas, equitable distribution of resources can alleviate poverty even if growth is weak or narrowly based.

Thus comes concept of "Poverty Reduction elasticity of Growth" (which means 'x' % reduction in poverty due to 1% increase in growth rate) that reflects the slope of Growth - Poverty Line. This elasticity is dependent on the prevailing inequity levels.

Pivot effect: Growth is simultaneously accompanied by reduction in inequity resulting into steeper slope in Growth - poverty Line.
Shift effect: Growth is simultaneously accompanied by reduction in inequity resulting into parallel / downward shift of Growth - Poverty Line.

Conclusion

Growth is considered as necessary for poverty alleviation but high growth alone is rarely sufficient. Employment, productivity and structural transformations are crucial in determining the poverty reduction impact of growth.

Growth in one sector of economy must be Employment - and Productivity - intensive and growth of employment with rising productivity involving shift in employment towards occupations and sectors with higher productivity.

Another key element in Growth - Poverty nexus is inequality, i.e. A growth process that benefits the lowest quintile of population more than the top quintile will have greater impact on poverty alleviation than a Growth process accompanied by rising inequality .



Reference: Yojana Article October 2013 "GROWTH, EMPLOYMENT, POVERTY" 

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