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Poverty and unemployment: The major challenges
Dhriti | 02 Feb 2011

Poverty can be of different types like absolute poverty and relative poverty. There may be many other classifications like urban poverty, rural poverty, primary poverty, secondary poverty and many more.

Unemployment and poverty are the two major challenges that are facing the world economy at present. Unemployment leads to financial crisis and reduces the overall purchasing capacity of a nation. This in turn results in poverty followed by increasing burden of debt. Now, poverty can be described in several ways. As per the World Bank definition, poverty implies a financial condition where people are unable to maintain the minimum standard of living.
 
Poverty can be of different types like absolute poverty and relative poverty. There may be many other classifications like urban poverty, rural poverty, primary poverty, secondary poverty and many more. Whatever be the type of poverty, the basic reason has always been lack of adequate income. Here comes the role of unemployment behind poverty. Lack of employment opportunities and the consequential income disparity bring about mass poverty in most of the developing and under developed economies of the world.

Lack of effective aggregate demand of labor is one of the principal reasons for unemployment. In the less developed economies a substantial portion of the total workforce works as surplus labor. This problem is particularly prevalent in the agricultural sector. Due to excess labor, the marginal productivity of the workforce may be zero or even negative. This excess pool of labor is the first to become unemployed during the period of economic or social crisis.

When a capitalist economy undergoes some dynamic changes in its organizational structure, it results in structural unemployment. This type of unemployment may also emerge if the lack of aggregate demand continues for a substantially long period of time. In case of frictional unemployment, workers are temporarily unemployed. There may be cases of hidden unemployment where workers restrain themselves from working due to absence of appropriate facilities.

It is true that unemployment and poverty are mostly common in the less developed economies. However, due to the global economic recessions, the developed economies are also facing these challenges in the recent times. The US subprime crisis and its wide spread impacts have played a major role in worsening the situation.

In India, the problems of unemployment and poverty have always been major obstacles to economic development. Underemployment and unemployment have crippled the Indian economy from time to time. Even during the period of good harvest, the Indian farmers are not employed for the entire year. Excessive population is another major problem as far as Indian economy is concerned.
 
Regional disparity is also crucial in this context. A part of the urban workforce in India is subjected to sub-employment. Mass migration from rural to urban regions is adding to the problems of unemployment and poverty in India.
 
Economic reforms, changes in the industrial policy and better utilization of available resources are expected to reduce the problem of unemployment and poverty that results from it. The economic reform measures need to have major impacts on the employment generating potential of the economy.
 
The governmental bodies are also required to initiate long term measures for poverty alleviation. Generation of employment opportunities and equality in income distribution are the two key factors that are of utmost importance to deal with the dual problem of unemployment and poverty.