Aid, poverty, and the working poor.

 
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29 October 2012

How can aid help lift the working poor out of poverty?

One of the most pressing goals of development aid is the alleviation of poverty. In the WIDER working paper 'Aid, Growth, and Jobs' Gary Fields suggests that one key way in which poverty reduction can be achieved is by helping the working poor to earn more in the labour market. He argues that this method of poverty reduction is underemphasized and outlines a number of policy options that should be considered by those wishing to adopt it.

One of the most pressing goals of development aid is the alleviation of poverty. In the WIDER Working Paper 'Aid, Growth, and Jobs' Gary Fields suggests that one key way in which poverty reduction can be achieved is by helping the poor to earn more in the labour market. He argues that this method of poverty reduction is underemphasized and outlines a number of policy options that should be considered by those wishing to adopt it.

Poverty and the labour market

It is an oft-repeated truism that the only asset of poor people is their capacity to labour. They have as much of this capacity as anyone else, but are poor because they are compensated very little for their labour, or because they are unemployed and earn nothing. For Fields, the next step is to focus on helping the poor earn the money necessary to move up and out of poverty.

Fields highlights the fact that the International Labour Organization's estimate that there are around 200 million unemployed people in the world, but over 900 million people are earning too little to achieve a standard of living of US$2 a day. This, alongside the fact that unemployed people are found disproportionately in high-income countries, leads Fields to suggest that while promoting employment is important, the greater development challenge is to generate higher earnings for those who are already working.

Policy options

Having established the importance of helping the poor earn more in the labour market, Fields turns to look at the mechanisms through which this can be achieved. He outlines five mechanisms:

  1. Economic growth: stimulating growth is a common aim of development aid, and often leads to a reduction in poverty. However, this is not always the case and a development policy focussed on reducing poverty needs to recognise this and put in place mechanisms to ensure that all growth helps the poor.

  2. International trade: a growth in exports has long been associated with an increase in wage levels...

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