When Job Earnings are Behind Poverty Reduction
Improvement in labor market conditions has been the main explanation behind many of the poverty success stories observed in the last decade – that is the primary conclusion of an analysis of changes in poverty by income source. Changes in labor earnings were the largest contributor to poverty reduction for a sample of 16 countries where poverty increased substantially. In 10 of these countries, labor income explained more than half of the change in poverty, and in another four countries, it accounted for more than 40 percent of the reduction in poverty. A declining dependency rate accounts for over a fifth of the reduction in poverty in 10 out of 16 countries, while transfers and other nonearned incomes account for more than a quarter of the reduction in poverty in 9 of these countries. A further decomposition of the contribution of labor income to poverty reduction in Bangladesh, Peru, and Thailand found that changes in individual characteristics (education, work experience, and region of residence) were important, but that overall, increases in real earnings among the poor matter the most.
The Economic Premise notes are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank. The views expressed here are those of the authors and do not necessarily reflect those of the institution.
The World Bank is a vital source of financial and technical assistance to developing countries around the world. Established in 1944, the World Bank is headquartered in Washington, D.C. We have more than 9,000 employees in more than 100 offices worldwide. Six strategic themes drive the Bank’s work, focusing on the poorest countries, fragile and conflict-affected states, the Arab world, middle-income countries, global public goods issues, and delivery of knowledge and learning services.
There are also strategies for the key areas in which we work:
- Thematic and sector strategies, which guide our work to reduce poverty in a specific sector or aspect of development. Each derives from a broad consultation with a wide array of stakeholders.
- Country assistance strategies, which identify the key areas in which we can best support a country in reducing poverty and achieving sustainable development.