Economic Development – Poverty and Unemployment (Cambridge IGCSE 0455)
Learning Objectives (AO1‑AO3)
- Define key concepts: living standards, absolute & relative poverty, unemployment.
- Explain how unemployment contributes to poverty and identify the other major causes of poverty.
- Analyse the impact of the four types of unemployment on poverty levels.
- Evaluate short‑term relief and long‑term development policies that can reduce poverty.
- Link poverty and unemployment to population trends, economic growth and other macro‑economic factors.
1. Living Standards
1.1 Indicators required by the syllabus
| Indicator |
What it measures |
Advantages |
Disadvantages |
| GDP per head (GDP ÷ population) |
Average economic output per person |
Simple to calculate; comparable across countries |
Ignores income distribution, non‑market activity and environmental quality |
| Human Development Index (HDI) |
Composite of life expectancy, education and GNI per head |
Shows a broader picture of well‑being; includes health & education |
Data‑intensive; still an average – can hide inequality |
1.2 How HDI is calculated (syllabus AO1)
HDI = (Life‑expectancy Index × Education Index × Income Index)1/3
- Life‑expectancy Index = (LE – 20) / (85 – 20)
- Education Index = (MYS / 15 + EYS / 18) / 2
(MYS = mean years of schooling, EYS = expected years of schooling)
- Income Index = (ln GNI – ln 100) / (ln 75 000 – ln 100)
1.3 Quick visual comparison (revision aid)
Insert a simple bar‑chart showing GDP per head and HDI for a developed country (e.g., UK) versus a developing country (e.g., Nigeria).
2. Poverty
2.1 Definitions (AO1)
- Absolute poverty – living on less than a fixed international threshold (World Bank $1.90 a day). The same level of deprivation everywhere.
- Relative poverty – living significantly below the average standard of income or consumption in a particular society (e.g., < 60 % of median household income).
2.2 Main causes of poverty (syllabus 5.2)
| Cause | Brief explanation |
|---|
| Unemployment | No regular income; links directly to poverty. |
| Low wages / under‑employment | Even when employed, earnings may be insufficient. |
| Ill health & lack of health services | Reduces ability to work and creates extra expenses. |
| Age‑related factors | Children and the elderly depend on others for support. |
| Environmental problems | Droughts, floods or poor housing increase costs and cut income. |
| Limited access to education & training | Restricts skill development and job opportunities. |
2.3 Reducing poverty through economic growth (syllabus point often missed)
- Higher economic growth → more jobs, higher wages, larger tax base → greater funding for health, education and welfare.
- Growth is therefore a key “demand‑side” route for poverty reduction.
2.4 Case‑study (AO2/AO3)
Cash‑transfer programme in Kenya (2008‑2014)
- Targeted “poor‑household” cash transfers of US$20 per month.
- Poverty head‑count fell from 45 % to 38 % (7 % absolute reduction).
- Beneficiary children showed a 12 % increase in school attendance.
- Evaluation: immediate relief (AO2) and long‑term human‑capital gains (AO3).
3. Unemployment – The Link to Poverty
3.1 Definition and measurement (syllabus 4.6)
Unemployment rate (U) = (Number of unemployed ÷ Labour force) × 100
Labour force = Employed + Unemployed (people actively seeking work).
3.2 How unemployment leads to poverty (AO2)
- Loss of income – no regular wage → inability to meet basic needs.
- Erosion of human capital – long‑term joblessness reduces skills, making future employment harder.
- Spill‑over effects – high unemployment depresses local wages and demand for goods.
- Social consequences – higher crime, poorer health, lower school attendance – all reinforce the poverty cycle.
3.3 Types of unemployment (labelled exactly as in the syllabus)
| Type | Definition (syllabus wording) | Typical impact on poverty |
|---|
| Structural |
Mismatch between workers’ skills and the skills demanded by employers. |
Long‑term poverty – workers must retrain or relocate. |
| Cyclical |
Result of a downturn in the business cycle; overall demand for goods falls. |
Temporary rise in poverty; can become chronic if recession persists. |
| Frictional |
Short‑term unemployment while people search for new jobs. |
Limited impact for most, but severe for vulnerable groups (e.g., recent graduates, single parents). |
| Seasonal |
Jobs only available at certain times of the year (e.g., agriculture, tourism). |
Periodic spikes in poverty during off‑season periods. |
3.4 Feedback diagram (revision aid)
Insert a flow‑chart: Unemployment → loss of income → reduced human capital → increased poverty → lower demand → more unemployment (circular loop).
4. Policies to Reduce Poverty (including unemployment)
4.1 Short‑term relief – social safety nets (AO2)
- Unemployment benefits & cash transfers – protect households while they look for work.
- Food‑voucher schemes, subsidised health care, free primary education.
4.2 Medium‑ to long‑term development policies (AO2/AO3)
- Promote economic growth – attract investment, improve infrastructure, maintain macro‑economic stability.
- Education & training programmes – align curricula with the skills demanded by growing sectors (e.g., ICT, renewable energy).
- Health services – reduce disease‑related absenteeism and improve productivity.
- Micro‑enterprise support – grants, low‑interest loans and business‑advice to stimulate self‑employment.
- Labour‑market reforms – reduce hiring barriers, improve job‑matching services, encourage flexible working arrangements.
- Progressive taxation & redistribution – higher rates on high incomes fund welfare programmes and reduce inequality.
- National Minimum Wage (NMW) – guarantees a basic income floor for low‑paid workers.
4.3 Evaluation – what works best? (AO3)
Effective anti‑poverty strategies usually combine supply‑side measures (education, health, skills training) with demand‑side measures (growth‑oriented policies, public‑works). Safety nets prevent immediate hardship, but without improving the labour market they cannot eradicate chronic poverty.
5. Population and Poverty (syllabus 5.3)
5.1 Key demographic variables
- Birth & death rates – high birth rates increase dependency ratios, limiting resources per capita.
- Net migration – remittances can lift households out of poverty; brain‑drain can reduce skilled labour.
- Optimum population – the size at which a country can provide a satisfactory standard of living with its resources.
5.2 Effects of population size & structure
- Young, rapidly growing populations need more schools and jobs.
- Ageing populations raise health‑care costs and can shrink the labour force.
5.3 Interpreting population‑pyramid diagrams (AO2)
Insert two simple pyramids:
- Developing country pyramid – wide base, narrow top → high birth rate, low life expectancy.
- Developed country pyramid – narrow base, wide top → low birth rate, high life expectancy, ageing population.
Students should be able to comment on dependency ratios, likely economic pressures and implications for poverty.
5.4 Example table – Birth vs. Death rates (per 1 000)
| Country | Birth rate | Death rate | Natural increase |
|---|
| Germany (developed) | 9 | 11 | -2 |
| Nigeria (developing) | 38 | 12 | +26 |
6. Economic Growth (syllabus 4.5)
6.1 Definition and measurement (AO1)
- Economic growth – an increase in the real output of an economy over time.
- Measured by real GDP (GDP adjusted for inflation) or GDP per head for per‑capita growth.
6.2 Causes of growth (AO2)
- Higher capital formation (savings & investment).
- Technological progress and innovation.
- Improved human capital – better education and health.
- Efficient institutions and stable macro‑economic environment.
6.3 Consequences for poverty (AO2)
- More jobs → lower unemployment.
- Higher wages → increased household income.
- Greater tax revenue → funding for health, education and welfare.
6.4 Policies to promote growth (AO3)
- Fiscal stimulus – increased government spending on infrastructure.
- Monetary policy – low interest rates to encourage investment.
- Trade liberalisation – access to larger export markets.
- Regulatory reforms – protect property rights and reduce red‑tape.
7. Differences in Economic Development Between Countries (syllabus 5.4)
7.1 Key explanatory factors (AO2)
| Factor | Why it matters |
|---|
| Income & productivity | Higher GDP per head and labour productivity → higher wages. |
| Sector composition | Service‑led economies (finance, ICT) usually generate higher incomes than agriculture‑led economies. |
| Savings & investment | Domestic saving provides capital for factories, infrastructure and R&D. |
| Natural resources | Can boost income but may lead to the “resource‑curse” if governance is weak. |
| Education & health | Better‑educated, healthier workforces are more productive. |
7.2 The “resource‑curse” (AO3)
- Countries rich in oil, minerals or gas sometimes experience slower growth, weaker institutions and higher inequality.
- Revenue may be mis‑managed, leading to corruption and limited investment in human capital.
- Example: Nigeria’s oil wealth has not translated into broad‑based development, whereas Singapore (resource‑poor) has achieved high development through education and trade.
7.3 Comparative table – three countries (revision shortcut)
| Country | GDP per head (USD) | HDI | Sector composition (% of GDP) | Savings rate | Key resource |
|---|
| United Kingdom | 42 000 | 0.93 | Services 80 % / Industry 15 % / Agriculture 5 % | 24 % | Very limited natural resources |
| India | 2 300 | 0.64 | Services 55 % / Industry 23 % / Agriculture 22 % | 19 % | Coal, iron ore |
| Nigeria | 2 200 | 0.55 | Services 45 % / Industry 30 % / Agriculture 25 % | 13 % | Oil & gas |
7.4 Suggested diagram
Scatter‑plot of GDP per head (vertical) versus life expectancy (horizontal) showing a positive correlation – developed countries cluster in the top‑right, developing countries in the bottom‑left.
8. Linkages to Other Macro‑economic Topics
- Inflation – erodes real wages, pushing low‑income households into poverty.
- Fiscal policy – government spending on health, education and infrastructure can stimulate growth and reduce poverty; progressive taxation redistributes income.
- Monetary policy – low interest rates encourage investment and job creation, but excessive looseness can fuel inflation.
- International trade – export‑oriented growth raises incomes, yet trade liberalisation can increase structural unemployment if workers lack required skills.
9. Suggested Revision Diagrams
- Feedback flow‑chart: Unemployment → loss of income → reduced human capital → increased poverty → lower demand → more unemployment.
- Bar‑chart comparing GDP per head and HDI for a developed vs. a developing country.
- Scatter‑plot of GDP per head vs. life expectancy (development gradient).
- Pie chart showing the proportion of different causes of poverty (unemployment, low wages, ill health, etc.).
- Population pyramids – one typical of a developing country, one of an ageing developed country.
Key Points to Remember (AO1‑AO3)
- Living standards are measured by GDP per head and HDI; know the formula for HDI.
- Poverty can be absolute or relative; unemployment is one cause among several.
- Structural, cyclical, frictional and seasonal unemployment affect poverty in different ways.
- Economic growth is a central route to poverty reduction – it creates jobs, raises wages and expands fiscal capacity.
- Effective anti‑poverty policies combine short‑term safety nets with long‑term investment in health, education, skills and growth‑oriented macro‑economic measures.
- Population dynamics, macro‑economic policies and international trade interact with both poverty and unemployment.