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What can policymakers do to reduce poverty?

In 2015, 25% of the world’s population lived on less than US$3.10 per day. Called the “global” poor, no matter where they live they have the same purchasing power based on the minimum nutritional requirements for good health. But, how is poverty defined in absolute and relative terms? And how does being poor and feeling poor compared with your peers affect your well-being, happiness, and mental health? How are factors such as unemployment, retirement, and single parenthood associated with persistent poverty and how can vulnerable people like children, women, and the elderly be protected from it?

What can policymakers do to reduce poverty?
Increasing the minimum wage is expected to help fight poverty as part of a wider poverty reduction package, but other tools such as earned income tax credits might be better suited. But, what role do means-tested, pro-work cash assistance programs, and negative income tax schemes play in delivering income to the working poor? How can higher education protect against persistent poverty? And can the integration of productive inclusion programs into existing social assistance systems lead to substantial and long-term poverty reduction?

articles

  • Should the earned income tax credit rise for childless adults? Updated

    The earned income tax credit boosts income and work effort among low-income parents, especially single mothers, and has contributed to the steep rise in employment among single mothers in the 1990s.

    Harry J. Holzer, September 2023
    The earned income tax credit provides important benefits to low-income families with children. At substantial costs (over $70 billion to the US federal government), it increases the incomes of such families while encouraging parents to work more by subsidizing their incomes. But low-income adults without children and non-custodial parents receive very low payments under the program in most years. Many of these adults are less-educated men, whose labor force participation rates and relative wages have been declining for years. They might benefit significantly from a more generous earned income tax credit for childless adults.
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  • Female poverty and intrahousehold inequality in transition economies Updated

    An unequal distribution of resources within the family is a special concern for female poverty

    Luca Piccoli, February 2023
    Transition to a market economy is accompanied by a period of greater economic uncertainty. Women are likely to suffer substantial disadvantages from this uncertainty compared to men as they are, for example, more likely to lose their job. This not only implies a monetary loss for the entire family, but also degrades female bargaining power within the household, possibly further aggravating their well-being. When intrahousehold inequality—an unequal distribution of resources among family members—exists, female poverty might be significantly larger than what can be deduced using standard household-based poverty measures.
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  • Measuring poverty within the household

    Standard poverty measures may drastically understate the problem; the collective household model can help

    Caitlin BrownRossella CalviJacob PenglaseDenni Tommasi, May 2022
    A key element of anti-poverty policy is the accurate identification of poor individuals. However, measuring poverty at the individual level is difficult since consumption data are typically collected at the household level. Per capita measures based on household-level data ignore both inequality within the household and economies of scale in consumption. The collective household model offers an alternative and promising framework to estimate poverty at the individual level while accounting for both inequality within the household and economies of scale in consumption.
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  • Can cash transfers reduce child labor? Updated

    Cash transfers can reduce child labor if structured well and if they account for the reasons children work

    Furio C. Rosati, February 2022
    Cash transfers are a popular and successful means of tackling household vulnerability and promoting human capital investment. They can also reduce child labor, especially when it is a response to household vulnerability, but their efficacy is very variable. If not properly designed, cash transfers that promote children's education can increase their economic activities in order to pay the additional costs of schooling. The efficacy of cash transfers may also be reduced if the transfers enable investment in productive assets that boost the returns to child labor. The impact of cash transfers must thus be assessed as part of the whole incentive system faced by the household.
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  • The minimum wage versus the earned income tax credit for reducing poverty Updated

    Enhancing the earned income tax credit would do more to reduce poverty, at less cost, than increasing the minimum wage

    Richard V. BurkhauserKevin Corinth, September 2021
    Minimum wage increases are not an effective mechanism for reducing poverty. And there is little causal evidence that they do so. Most workers who gain from minimum wage increases do not live in poor (or near-poor) families, while some who do live in poor families lose their job as a result of such increases. The earned income tax credit is an effective way to reduce poverty. It raises only the after-tax wage rates of workers in low- and moderate-income families, the tax credit increases with the number of dependent children, and evidence shows that it increases labor force participation and employment in these families.
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  • Men without work: A global well-being and ill-being comparison

    The number of prime-age males outside the labor force is increasing worldwide, with worrying results

    Carol GrahamSergio Pinto, October 2019
    The global economy is full of progress paradoxes. Improvements in technology, reducing poverty, and increasing life expectancy coexist with persistent poverty in the poorest countries and increasing inequality and unhappiness in many wealthy ones. A key driver of the latter is the decline in the status and wages of low-skilled labor, with an increasing percentage of prime-aged men (and to a lesser extent women) simply dropping out of the labor force. The trend is starkest in the US, though frustration in this same cohort is also prevalent in Europe, and it is reflected in voting patterns in both contexts.
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