Employment and Poverty | Economics Optional Notes for UPSC PDF Download

Introduction

• Poverty is a social phenomenon, where in a section of society is unable to full fill even its basic necessities of life.
• The UN Human Rights Council has defined poverty as, “a human condition characterised by the sustained or chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic, political and social rights”.

Types of Poverty

1. Absolute poverty

•  It is a situation, in which the consumption or income level of people is less than some minimum level necessary to meet basic needs as per the national standards. It is expressed in term of a poverty line.
• Economists have given many definitions of poverty in this regard, but in a large number of countries poverty has been defined in the context of per – capital intake of calories and minimum level of per – capital consumption expenditure.
• − Calorie Criteria: The energy that an individual gets from the food that he eats everyday is measured in terms of calories. In India, planning commission is of the opinion that an individual in rural area must get 2400 Kilo calories and in urban area, 21,00 Calories per day.
• − Minimum Consumption Expenditure Criteria: An expert committee was appointed in 1962. By the planning commission to determine poverty line, by adopting Minimum consumption expenditure Criteria. As per this committee, those people will be treated as living below the poverty line, whose per – capital consumption expenditure at 2004, prices is below ` 368 per month in rural areas and below ` 559 per month in urban areas.

2. Relative Poverty

• Relative poverty refers to poverty on the basis of comparison of per capital income of different countries. The country, whose per – capita income is quite less in comparison to other countries is treated as relatively poor nation.
• In poor nations, that part of population, which is living at the bottom (whose income is less), is unable to full fill the basic requirements of life. In the following table, India’s per – capita income is compared with the per – capita income of some other countries.

3. Poverty Line

• Poverty line is the line, which indicated the level of purchasing power required to satisfy the minimum needs of a person.
• This line divides the population in two groups one of those, who have this purchasing power or more and the other group of those people, who do not have this much of purchasing power.
• The former group is regarded as living above the poverty line (APL) these people are not regarded as poor. The latter group is considered as living below the poverty Line (BPL). These people are called poor.
• Asian development Bank has defined a new poverty line taking base of expenditure of US $ 1.35 per day
• According to the Tendulkar Committee report, which gives state wise poverty estimates, Odessa with 57.2% of BPL people is the poorest state followed by Bihar, Madhya Pradesh and Chhattisgarh.

4. Measures of Poverty: The extent of poverty is depicted by the following measures.

• Head Count Ratio or Poverty Ratio: It is calculated by dividing the number of people below poverty line by the total population. It measures the proportion of poor in the total population.
• Poverty Gap Index (PGI): It is the difference between the poverty line and the average income of households living below poverty Line (BPL), expressed as a percentage of poverty line. It indicates the depth and severity of poverty.
  PGI=    Poverty line – Average income of BPL
  _____________________________________
  Poverty line
• Squared Poverty Gap Index: It is the mean of the squared individual poverty gaps relative to the poverty line. It indicates the severity of poverty as well as the inequality among the poor.
• Sen Index of Poverty: It was developed by Professor Amartya Sen. It is based on the head count ratio, poverty gap index and the Gini co- efficient. It takes into account the extent and severity of poverty as well as inequality. It is expressed as
  S = H [I +(1-1) G] Where,
  S = Sen index of poverty
  H = Head count index
  I = Poverty gap index and
  G = Gini co – efficient
• Multi – Dimensional poverty Index (MPI):  It was developed in 2010, by Oxford Poverty and Human Development initiative and the United Nations Development Programme. It uses different factors to determine poverty beyond income – based lists. It uses a range of deprivations that afflict an individual’s life. The measures assess the nature and intensity of poverty at the individual level in education, health outcomes and standard of living. The MPI is calculated as follows
  MPI = H x A
  Where, H = Percentage of people, who are MPI poor (incidence of poverty)
  A = Average intensity of MPI poverty across the poor (%)
• Human Poverty Index (HPI): Earlier UNDP set HPI as parameter to measure poverty in its Human Development Reports but 2010 onwards it switched over to a new parameter, namely – Multidimensional Poverty Index (MPI)
  The measures assesses the nature and intensity of poverty at the individual level in education. Health outcomes and standards of living.
  Fisher price index (FPI)
  It updates the poverty line on the basis of actual consumption data. This index gives just 60% weight age to food articles.
  The reason why Tendulkar’s method show higher poverty level is primarily that he has moved away from the traditional practice of bench marking poverty by certain consumption levels.

5. Conditional Cash Transfers (CCTs): It is an important mechanism to fight poverty around the world. Here, the government transfers cash to the beneficiaries conditional upon certain action by the receiver. These actions could include enrolling children into school, regular check – up with doctor, institutional delivery, receiving vaccination etc. It helps to reduce poverty not only by providing cash to the needy households, but also inducing positive behaviour in the people through the conditions.

6. Expert Groups for Estimating Poverty

Rangarajan Committee on Poverty

• Planning commission constituted an expert group headed by C Rangarajan to review the Tendulkar Committee methodology for estimating poverty in May, 2012 Perspective of people about poverty has changed, therefore commission needs to take a fresh look into the methodology for estimation of poverty in the country. The committee submitted its report on 6th July, 2014 to the planning commission.
• The report observed that the population, living below poverty line, has decreased from 38.2% in 2009 – 10 to 29.5 % in 2011-12. This report, thus, contested the facts given by Tendulkar Committee. The Rangarajan report also revised the poverty line by increasing it to ` 972 / month (or ` 32 / day), as against the ` 816 / month suggested by the Tendulkar committee. For the urban areas, the Rangarajan committee revised the poverty line to ` 1407 / month (` 47 / day), as against 1000 / month of the Tendulkar Committee.
• Un Report on Indian Poverty

In the Millennium Development report, 2010 it has been mentioned that poverty rate in India was 51% in 1990. However, it is expected to fall to a level of 24% by 2015. According to the UNDP, the 8 poorest India states – Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odessa, Rajasthan, Uttar Pradesh and West Bengal have more number of poor, than the 26 poorest African nations.

Measurement of poverty by UNDP

•  As per UNDP, poverty is a multi dimensional problem. Apart from income, it also includes factors like – health and nutrition. World Bank has established 2 parameters to measure poverty at the international level.
• Those earning less than 1.25 US $ of per day, such persons are referred to as poor.
• Those spending less than 2 US $ per day. These sections are referred to as poor.
• Besides these parameters, Lorenz Curve and Gini Co – efficient are also used to observed poverty in a state. The Asian Development Bank (ADB) has set the parameter of US $ 1.35; while Indian Government has set this parameter at US $ 1.02.

State of Poverty (World Bank Report)

 World Bank, on 18th April, 2013, in this report entitled, where are the poor and most poor, observed that

• One third of the global poor in India
• The poor in the India live on less than US $1.25 a day
• There are around 120 core extremely poor persons in the world today
• Between 1981 – 2010, the developing countries have witnessed a decline in poverty rate from 50% to 21%
• Despite development in Africa, poverty is still widespread.

Tendulkar Committee Report

•  Tendulkar committee headed by Prime Minister’s Economic Advisor, Mr. Suresh Tendulkar was set up in March 2009 to look into the methodology of estimating poverty in India. Tendulkar committee submitted its report in December 2009 to the planning commission.
• In this findings, this committee has moved away from just calorie criterion definition to a broader definition of poverty that also includes expenditure on health, education, clothing in addition to food.
• Using this approach, new poverty line for the years 2004 – 05, has been raised from `356 per capital per month to `447 per capita per month in rural areas and from `539 per capital per month `579 per capital per month in urban areas. In daily terms, poverty line has been raised from 12 to 15 per capital per day in rural areas and from 18 per capital per day to 19 per capital per day in urban areas.
• As per Tendulkar Committee report 37.2% of Indian population is living below poverty line using uniform recall period consumption in the year 2004-05, against the official estimate of 27.5 %. According to this report, 41.8 % population in rural areas and 25.7% population in urban areas is living below poverty line.
• The new, updated data released by the commission based on the price indices computed from the 66th Round NSS (2009-10) data on household consumer expenditure survey, say anyone who has `28 to spend daily is out of poverty.
• It has estimated that the poverty lines at all India level as MPCE (Monthly Per – capital Consumption Expenditure) of `673 for rural areas and ` 860 for urban areas in 2009-10
• Based on these cut offs, the percentage of people living below the poverty line in the country has declined from 37.2 % in 2004 -05 to 21.92 in 2011 -12.

Thus, poverty has declined on an average by 1.5 percentage points per year between 2004-05 and 2009-10. The annual average rate of decline during the period 2004-05 to 2009-10 is twice the rate of decline during the period 1993-94 to 2004-05.

Uniform Recall Period (URP)

Here, consumption data is asked for a 30 days recall period for all items. The updated poverty estimates of the Tendulkar Committee have lowered the poverty line from ` 32 a day to `28.

Mixed Recall Period (MRP)

• Here, consumption expenditure is asked for five frequently used items clothing, footwear durable goods, education and institutional expenses for a 365 days recall period and other items are asked for a 3 days recall period.
• NC Saxena Committee (for BPL families in Rural Areas)
• To review the Methodology for conducting BPL Census in Rural Areas. An expert group headed by Dr NC Saxena was constituted by the Ministry of Rural Development to recommend a suitable methodology for identification of BPL families in rural areas.
• The expert group submitted its report in August, 2009 and recommended doing away with score – based ranking of rural households followed for the BPL census, 2002.
• The committee has recommended automatic exclusion of some privileged sections and automatic inclusion of certain deprived and vulnerable sections of society and a survey for the remaining population to rank them on a scale of 10.
• Based on the above methodology, the committee estimated the population below the poverty line at 50 % of the total population.
• SR Hashim Committee (for BPL Families in Urban Areas)
• On the Methodology for identification of BPL families in Urban Areas According to the expert group headed by renowned economist.
• SR Hashim to suggest methodology for identifying urban poor, households having three of the four items lime poor, households having three of the four items like refrigerator, motorised two – wheelers, landline telephone or washing machines should not be treated as poor.
• The panel has suggested that the government should use three -stage approach – automatic exclusion, automatic inclusion and scoring index to identify urban poor. Planning commission had constituted the expert group to recommend the detailed methodology for the identification of families living below poverty line in the urban areas on 13th May, 2010.
•  Under the automatic inclusion step, homeless families facing social and occupation deprivations should be included in the BPL list, As per the report, a family be defined as poor if any of its member (including children) is a beggar or rag picker, domestic worker and sweeper or sanitation worker or mil. The family would also be poor if all its earning adult members are either daily wagers or workers with irregular wages.
• In third and final stage, the remaining households should be assigned scores from 0 to 12 based on various indicators of residential, social and occupational vulnerabilities. Those households with scores from 1 to 12 should be considered eligible for inclusion in the BPL list in the increasing order of the intensity of their deprivations meaning there by that those with higher scores are more deprived, the report suggested.

Inequality

• Inequality often refers to the income gap between the rich and poor of society. The greater the gap the greater the inequality. It essentially refers to disparities in the distribution of economic assets and income among individuals and group within a nation and nations.
• It may result from the operation of the economic system, access to assets, education and skills, social factors like caste and gender etc.

Adverse Impacts of Inequality

• Growing inequalities can dampen growth due to potential instability; weaken social cohesion.
• Urban – dominated growth in India has caused social friction as a result of the high levels of migration to cities and a shortage of foreign investment in more isolated areas.

In societies, where wealth is concentrated in the hands of a few, there is danger of policy levers being captured by the rich for their own benefit and a weakening of the institutional foundations of the growth process.

Gini Co – efficient

• The Gini Co efficient (also known as the Gini index or Gini ratio) is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini, it measures the inequality among values of a frequency distribution (e.g. levels of income)
• Gini Co – efficient is commonly used a measure of inequality of income or wealth. A Gini Co – efficient of zero expresses perfect equality, where all values are the same e.g. where everyone has an exactly equal income).
• A Gini Co – efficient of one (100 on the percentile scale) expresses maximal inequality among values (e.g where only one person has all the income)
•  The Gini Co – efficient is usually defined mathematically based on the Lorenz curve, which plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x% of the population (see diagram). The line at 45 degrees Gini, thus, represents perfect equality of incomes.

Inequality in India

• Both overall GDP and per – capital GDP have increased rapidly in the economic reform period. The number of poor as the percentage of population have also come down. However, inequality in the reform period has increased.
• Gini co – efficient increased from 0.27 to 0.28 in rural areas and from 0.35 to 0.39 in urban areas between 2004 -05 and 2009 -10. Top 10 % wage earners make 12 times more than the bottom 10% compared to 6 times 20 years ago.
• Trickle down theory says that let business flourish, since their profits ultimately trickle down to lower income individuals and the ease of the economy.
• Typically, India used the consumer Price Index for Agricultural labour, (CPIAL) and CPIIW for industrial labour

Unemployment

•  Unemployment refers to a situation, when a person is able and willing to work at the prevailing wage rate, but does not get the opportunity to work. The term unemployment is directly related with the concept of labour force, because the people, who are not included in labour force cannot be regarded as unemployment.
• Labour force includes all people in the working age group (15-59 years) who are able and willing to work, labour force equals the work force plus the number of unemployed people. So, unemployment refers to only involuntary unemployed.
• Unemployment rate is defined as the number of persons unemployed per 1000 persons in the labour force (which includes both the employed and the unemployed)

Types of Unemployment

1. Voluntary Unemployment

• It occurs when a person is not willing to work at the prevailing rate of wage or does not desire to work. It is not taken into consideration while measuring unemployment in an economy.
• Involuntary UnemploymentIt is situation, in which the worker is willing and able to work, but the does not get work, it is also called open unemployment.

Frictional Unemployment

• It is temporary unemployment which is associated with the changing of jobs in an economy. It can occur due to immobility it of labour, shortage of raw materials. Lack of knowledge of job opportunities, breakage of machine etc.

Structural Unemployment

It is concerned with the structural pattern of the economy. It arises in situation s such as − Shortage of factors of production like land, capital etc.

• Workers don’t have skills for new industries.
• Compared to supply of labour availability of employment is less.
• When certain industries close down.
• When there is a change in production technology and natural of produced product.

Mainly, it is caused due to a mismatch between the skills of a person and the requirement of the job.

Cyclical Unemployment

• It is associated with a general depression in the overall economy. It occurs due to economic cycles of boom and depression. During depression, demand falls and production goes down which lead to fall in level of employment.

Seasonal Unemployment

• It arises because some occupations require worker only during certain parts of the year such in agriculture, sugar industry etc.

Technical Unemployment

• It is associated with technical changes. Modern industries are capital intensive and workers are being replaced by machines. Adoption of labour saving technologies renders some workers unemployed.

Educated Unemployment

• It refers to unemployment of those who are normally educated. It is both of opern unemployment and under – employment type. i.e. those who can’t find work and those who work in a job that is not in keeping with their skills education of capacity.

Disguised Unemployment

It is a situation, in which more persons are employed to do a job which can be done with equal efficiency by a less number of workers.

The following features of disguised unemployment are

• Marginal productivity of labour is zero. However, professor sen does not agree with this view.
• It is not possible to identify the persons who are actually unemployed.
• Excess of population and lack of capital is the principal cause
• Generally associated with agricultural families.

2. Under Employment

•  It is a situation, in which a person is employed in a job, which is not commensurate with his/ her qualification, skill and experience. Under this condition, capabilities of the workers are not utilised to the optimum level.
• Under employment is another problem in developing countries along with unemployment. It measures how well the labour force is being utilised in term of skills experience and availability of work.

Types of Under Employment

There are two types of underemployment

• Visible under employment it is when people get work for less than the normal hours of work e.g 2 hours a day.
• Invisible under employment it is the situation, in which people work full time, but their income is very low or the work in jobs, in which they cannot make full use of the ability e.g. an MA degree holder working as a driver.

Under employment is found when person engaged in part time work are prepared to do more work than they are doing or the productivity and income of a person rises after shifting another type of occupation.

3. Nature and Estimates of Unemployment in India

•  Like all the under developed countries, India presently suffers mainly from structural unemployment, which exists in open and disguised forms.
• Apart from structural unemployment, there is Keynesian involuntary unemployment, which can be eliminated by increasing effective demand as is done in developed countries.

4. Causes of Unemployment in India

•  Rapid population growth
•  Limited land holding
•  Seasonal agriculture
•  Decline of manufacturing industries
•  Inadequate employment planning and its execution
•  Impact of global slowdown.

Key Indicators for the estimation of Under Employment in India
Labour Force Participation Rate (LFPR)
= +

• Worker Population Ratio (WPR) = x 1000
• Population Unemployed (PU) = x 1000
• Unemployed Rate (UR) = + x 1000

5. Measures of Unemployment in India

 Usual Principal Status (UPS) A person is considered working or employed, if the person was engaged for a relatively larger period (over 182 days) in any one or more work related (economic) activities during the reference period of 365 days preceding the date of survey. The UPS based unemployment is regarded as a measure of chronic unemployment and open unemployment.

• Current Weekly Status (CWS): A person is considered working or employed, if the person was engaged for at least 1 hour on any 1 day any work related (economic) activity during the reference period. It also measures chronic unemployed.
•  Current Daily Status (CDS): it is the time rate and measured in man days. A person is considered unemployed, if he does not find work even on a day or some days during the survey week. This measure is considered  to be the most comprehensive measures of unemployment, including chronic unemployment as well as under employment.

6. Poverty Eradication and Employment Related Programme MGNREGS

• The National Rural Employment Guarantee act (NREGA) was enacted in 2005. It was implemented in three phases, starting with 200 district in 2006 to cover the whole country by 2008. On 2nd October, 2009 it was renamed as Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

Features of MGNREGS

•  It seeks to provide at least 100 days (150 days for tribal’s) of guarantee wage employment in one financial year to a less one adult member of every rural household who volunteer to do unskilled manual work.
• At least 33 % of the beneficiaries are to be women.
• Originally, it promised a wage rate ` 100 per day from January 2011 wages have been linked to increased with consumer price index for Agricultural Labour (CPI -AL) for each state.
•  Focuses on works related to water conservation, drought proofing, land development, flood control, rural connecting through all weather roads etc.
• Provides time bound employment guarantee and wage. Payment within 15 days.
• A 60 -40 wage to material ratio has to be maintained to ensure greater employment generation. No contractor or machinery is allowed for any work.
• Panchayats have been given an important role through preparation of perspective plan, approval of shelf of projects and execution of works at least to the extent of 50 % in terms of cost.
•  Rights based framework.
•  Transparency accountability
• Recent Changes in MGNREGS
• 30 new activities such as rural sanitation, live stock, fishery etc have been added to the permissible list. Electronic Fund Management System in all states has been initiated in a phased manner. Convergence of MGNREGS with total sanitation campaign has been undertaken. Provision has been made for seeding in Aadhar into the MGNREGS workers records to prevent leakage.

7. National Rural Livelihood Mission (NRLM)

• The Swarnajayanti Grameen Swarojgar Yojana (SGSY) has been restructured and launched as the national rural livelihood mission (NRLM). NRLM was recently renamed as Ajeevika. Aajeevika is being implemented in mission mode. This enables it to “To reduce poverty by enabling the poor households to access gainful self – employment and skilled wage employment opportunities resulting in appreciable improvement in their livelihood on a sustainable basis, through building strong and sustainable grassroots institutions of the poor”

Key Features of NRLM

•  It will ensure that at least one member (preferably a women) from each identified poor rural household is brought under a self help group (SHG)
•  NRLM focuses on setting up and strengthening of institution of the poor in partnership mode.
• Poor will be provided with adequate skills to manage their institutions.
• NRLM would work towards Universal Financial Inclusion.
• It provides revolving fund, interest subsidy and capital subsidy to the SHGS.
• It will provide infrastructure support for key livelihoods and support for marketing.
• In encouraged public sector banks to set – up Rural self employment training institutes in all districts of the country.
• 5% of central allocation is earmarked for innovation, while 15% for skill up gradation and placement projects.
• It will proactively seek partnership with NGOS and civil society organisation.
• Formal linkages between institution of the poor and Panchayati Raj institutions will be set – up
• Dedicated official support structures will be set – up at the national, state, district and sub – district levels.
• It will monitor its results, processes and activities through web – enabled comprehensive MIs.
• Funding would be in the ratio of 75.25 between centre and states (9.10 for North – East and special category states)
• It will be implemented in phases to reach all district of the country by the end of 12th Plan.
• All states have to transition to NRLM from SGSY within 1 years of launch.
• National Urban Livelihood Mission (NULM)
• The centrally sponsored scheme of Swarna Jayanthi Shahari Rozgar Yojana has been restructured as the National Urban Livelihood Mission (NULM) to be implemented in the 12th plan.
• The new scheme expands the beneficiaries among the urban poor to include homeless and street vendors
• A special provision for funding of 24/7 shelters with all essential facilities for the urban homeless has been made.
• Up to 5% of NULM budget has been earmarked to provide support to urban poor, which will include skill up gradation and development of vendor market.
• Urban poor, especially women, will be organised into self help groups (SHGs). This will be the main emphasis of NULM. A provision of 1000 has been made for initial 2 years.
• Skills training is a critical component of the mission and 50% of the budget is to be spent on training of 2.8 million urban poor in the 12th plan.
• Training institutions will be created for this purpose and the training providers will also place them in remunerative jobs.
• It will be implemented in two phases – phase I (2013 -2017) and phase II (2017- 2022) it will target all cities with a population of 1 lakh or more and district headquarters with population of 1 lakh or more and district headquarters with a population of less than 1 lakh as per census 2011.