Macroeconomic adjustment and poverty in selected industrial countries

Abstract

The business cycle affects the incidence of poverty, as shown by evidence from Australia, Sweden, the United Kingdom, and the United States. Many of the poor in these countries are outside the labor market, and transfers are a major source of income for many others, but the unemployment and wage reductions that occur in recession increase the incidence of poverty. Major causes of poverty are unemployment in Australia and the United Kingdom and low wages in the United States. Similar cyclical effects are observed in Sweden, but a vast transfer program virtually eliminates poverty. There are several policy options for combating poverty caused by recession. A combination of unemployment insurance for a limited period followed by a job guarantee is the most effective policy toward unemployment, whereas poverty caused by low earnings can be remedied by redistribution through the tax system. © 1991 The International Bank for Reconstruction and Development / THE WORLD BANK.