Mary Gregory

Poverty and unemployment: some estimates for India of the employment implications of income redistribution

The sustained, even rising, levels of poverty and unemployment which have characterised much of the developing world over the past two decades have prompted studies in a variety of countries of the relationship between employment and the distribution of income. These studies have typically followed the pioneering work of the ILO missions led by Dudley Seers to Colombia and Sri Lanka in centring on the potential increases in aggregate employment which might accompany a redistribution of income in favour of the poor. Three separate influences are frequently distinguished. Because of the lower marginal propensity to import of the poor a redistribution of income in their favour brings a net switch of demand towards domestically produced output, with the familiar multiplier effects; in addition the reduced demand for imports for consumption may promote growth indirectly, by easing any balance of payments restriction on development programmes. Similarly, the lower marginal propensity to save of the poor raises income and employment through higher values of the multiplier, although in this case the dynamic effects may be adverse if growth is constrained by an inadequate volume of domestic saving. Thirdly, the dominance in the consumption patterns of the poor of food and ‘simple’ manufactured goods, produced by relatively labour-intensive techniques, results in the creation of more employment per marginal unit of expenditure. On this approach, therefore, the key elements linking employment to the distribution of income are the pattern of consumers’ demand at different income levels and the employment-intensity of the consumption baskets. The balance of evidence from such studies for a number of countries tends to confirm that a redistribution of income in favour of the poor will be associated with an increase in aggregate employment, although the estimated magnitude of the increase is typically small.1

Urban Poverty and Some Policy Options: an Analysis for India:

This paper analyses the problem of the urban poor in India from a primarily macro-economic perspective, tracing the origins of their economic status to their low share in the factor earnings generated in individual industries. A macro-economic model then simulates the implications for them of a range of alternative policies, including growth on the current pattern of development priorities, income transfers from rich to poor and growth-with-redistribution via the creation of new income sources specifically for the target groups. The major conclusions are that on current development strategies the outlook for the urban poor is bleak, but through growth-with-redistribution moderate sacrifices of income growth by the richer classes can secure very substantial improvements for the poor.