Objective: Understand the link between unemployment and poverty
Poverty is a multifaceted problem. One of the principal causes of poverty in developing economies is unemployment. When people lack work, they have little or no income, which restricts their ability to meet basic needs such as food, shelter, health care and education.
How Unemployment Leads to Poverty
Loss of income: Without a regular wage, households cannot afford essential goods and services.
Reduced human capital: Long‑term unemployment erodes skills, making it harder for individuals to find future work.
Spill‑over effects: High unemployment can depress local markets, lowering wages for those who are employed.
Social consequences: Unemployment can increase crime, poor health, and lower school attendance, perpetuating the poverty cycle.
Measuring Unemployment
The standard measure used by most statistical agencies is the unemployment rate, calculated as:
\$U = \frac{U_n}{L} \times 100\$
where U = unemployment rate (%), Uₙ = number of unemployed persons, and L = labour force (employed + unemployed).
Types of Unemployment Relevant to Poverty
Type of Unemployment
Definition
Typical Impact on Poverty
Structural
Mismatch between workers’ skills and the skills demanded by employers.
Long‑term poverty as workers struggle to retrain.
Cyclical
Result of a downturn in the business cycle; demand for goods falls.
Temporary increase in poverty; can become chronic if recession persists.
Frictional
Short‑term unemployment while people search for new jobs.
Usually limited impact on poverty, but can be severe for vulnerable groups.
Seasonal
Jobs that are only available at certain times of the year (e.g., agriculture).
Periods of income loss lead to seasonal poverty spikes.
Policy Responses to Reduce Unemployment‑Related Poverty
Education and training programmes: Equip workers with skills demanded by growing sectors.
Public works schemes: Provide short‑term employment on infrastructure projects.
Micro‑enterprise support: Grants, low‑interest loans and business advice to encourage self‑employment.
Labour market reforms: Reduce barriers to hiring, improve matching services.
Social safety nets: Unemployment benefits and cash transfers to protect households during joblessness.
Suggested Diagram
Suggested diagram: A flowchart showing the relationship between unemployment, loss of income, reduced human capital, and increased poverty, with arrows indicating feedback loops.