Poverty levels drop in most developing countries

For years, poverty growth was seen as a problem exclusively of the developing world. Since the onset of the global crisis, the story has been very different. According to the ILO World of Work Report 2012, poverty levels have gone down in the majority of developing countries over the past years, but not as much in developed economies.

The report shows that national poverty rates declined in about three quarters of developing countries, particularly those that put in place significant social policies. On the other hand, poverty rates increased or remained unchanged in 25 of 36 developed economies as labour markets deteriorated and austerity measures took their toll.

Latin America and Asian countries have stood out. They have had great success in tackling poverty through social policies - both social transfers and direct poverty eradication.

In Brazil, for example, the extension of a conditional cash transfer programme, increases in non-contributory social benefits to the lower income earners and an increase in the minimum wage contributed to poverty reduction.

In India, the extension of the National Rural Employment Guarantee Scheme reduced poverty and underemployment, while boosting employment opportunities and wages in rural areas.

The situation in advanced economies is quite different. According to the report, poverty rates only dropped in 11 of 36 countries, rose in 17 and remained essentially unchanged in 8.

Uma Rani, one of the authors of the report, says performance in developed countries was tied to labour market developments, including increases of temporary, precarious and low-wage employment, as well as a rise in youth unemployment that further strained household finances.

Austerity measures, which led to a decline of social transfers, also had a strong impact, says Rani, of the ILO's International Institute for Labour Studies (IILS), citing the examples of Austria, Canada, Germany and Sweden. A pre-crisis housing bubble further affected poverty levels in some countries, as rising house prices increased household debts.

The risk of intergenerational poverty The report warns that increases in poverty could lead to transmission of poverty from parents to children, which in turn increases the long-term likelihood that the poor will remain poor.

"One of the reasons why certain groups are trapped in poverty is due to low pay", says Pelin Sekerler Richiardi, another IILS economist who contributed to the report. "Historically, this phenomenon was associated with joblessness. However, today an increasing number of those who are working are also poor".

Youth unemployment, which usually persists long after growth resumes, is another factor that could lead to intergenerational poverty. The report cites a 2011 study which showed that the probability of young graduates in Belgium finding a job after being unemployed for 21 months decreased from 60 per cent to 16 per cent for men and 47 per cent to 13 per cent for women.

Non-income inequalities such as those related to health have also worsened in many regions due to the crisis. "This affects developing countries where access to health care is quite restricted and health coverage is still limited but it also hits developed economies", says Sekerler Richiardi.

The report mentions Greece, where many people lost their access to health care as austerity measures led to 40 per cent cuts in public hospital budgets, and the United States, where the crisis left households unable to pay health costs.

Access to food remains the most alarming of all inequalities in developing countries, but major inequalities also exist in access to credit, especially for small and medium-sized enterprises which saw a sharp decrease in several European countries, the report said.

SMEs in Europe reported a 6 per cent increase in rejection of their bank loan applications. In Estonia and Latvia, firms in 2009 were 15 per cent more likely to be credit constrained than in 2005, while Greece also observed a decline in credit growth to the private sector in 2010, which turned negative at the beginning of 2011.

"This obviously also had consequences on the job market and impacted on poverty rates in many developed economies", concluded Rani.

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