Definitions and Measurements

Poverty is typically classified into absolute and relative forms:

• Absolute Poverty: Involves a lack of basic necessities such as food, shelter, and clothing, measured against a fixed threshold.
• Relative Poverty: Occurs when income falls below a certain percentage of the median income in a society, highlighting inequality.

Key measurements include:

• Poverty Line: A threshold income level below which individuals are considered poor. For instance, the international poverty line is often set at $2.15 per day (in purchasing power parity terms) for extreme poverty.
• Poverty Gap Index: Measures the intensity of poverty by calculating the average shortfall from the poverty line.
• Human Poverty Index (HPI): Incorporates deprivation in health, education, and living standards.
• Multidimensional Poverty Index (MPI): Assesses poverty across multiple dimensions, including health, education, and standard of living.

The following table summarizes common poverty measurement tools:

Measurement Tool	Description	Key Components	Advantages	Limitations
Poverty Line	Fixed income threshold for basic needs.	Income or consumption levels.	Simple and comparable across regions.	Ignores non-monetary factors like access to services.
Poverty Gap Index	Average percentage by which poor households fall below the poverty line.	Depth of poverty.	Quantifies severity beyond headcount.	Does not account for inequality among the poor.
Human Poverty Index (HPI)	Focuses on deprivations in longevity, knowledge, and living standards.	Life expectancy, literacy, access to water/sanitation.	Holistic view beyond income.	Data-intensive and less focused on economic aspects.
Multidimensional Poverty Index (MPI)	Weighted index of deprivations in health, education, and living standards.	Nutrition, schooling, assets, electricity.	Captures overlapping deprivations.	Complex to compute and interpret.

Unemployment

Unemployment occurs when individuals aged 15–64 who are capable and seeking work are unable to find it. Types include:

• Frictional Unemployment: Short-term, arising from job transitions.
• Structural Unemployment: Due to mismatches between skills and job requirements, often from technological changes.
• Cyclical Unemployment: Linked to economic downturns and reduced demand.
• Seasonal Unemployment: Fluctuates with seasons, common in agriculture or tourism.
• Disguised Unemployment: Exists when workers are employed but their marginal productivity is zero, prevalent in overstaffed sectors.

Measurements include:

• Unemployment Rate: Percentage of the labor force that is unemployed (Unemployed / Labor Force × 100).
• Labor Force Participation Rate: Proportion of the working-age population that is either employed or actively seeking work.
• Natural Rate of Unemployment: The sum of frictional and structural unemployment, representing a “full employment” equilibrium.
• Okun’s Law: Relates unemployment to GDP growth, stating that a 1% increase in unemployment reduces GDP by approximately 2%.

The table below outlines types of unemployment:

Type of Unemployment	Description	Causes	Examples	Policy Implications
Frictional	Temporary job search or transition periods.	Voluntary quits, new entrants to workforce.	Recent graduates seeking first jobs.	Improve job matching through information systems.
Structural	Mismatch between worker skills and job demands.	Technological advancements, globalization.	Coal miners displaced by renewable energy shifts.	Retraining programs and education reforms.
Cyclical	Result of economic recessions reducing aggregate demand.	Business cycles, reduced consumer spending.	Layoffs during financial crises.	Fiscal and monetary stimulus.
Seasonal	Tied to seasonal variations in demand.	Weather or holiday patterns.	Farm workers idle in off-seasons.	Diversification of employment opportunities.
Disguised	Overemployment where additional workers add no value.	Family-based enterprises in developing economies.	Excess labor in small farms.	Productivity-enhancing investments.

Causes

Causes of Poverty

Poverty arises from a combination of individual, structural, and systemic factors:

• Economic Factors: Low wages, unemployment, inflation eroding purchasing power, and unequal distribution of resources.
• Social Factors: Discrimination based on gender, ethnicity, or caste; limited access to education and healthcare.
• Demographic Factors: Rapid population growth straining resources, large family sizes, and aging populations without support.
• Environmental Factors: Natural disasters, climate change affecting agriculture, and resource depletion.
• Political Factors: Corruption, poor governance, and inadequate social safety nets.

Causes of Unemployment

Unemployment stems from demand-side and supply-side issues:

• Demand-Side Causes: Economic recessions, reduced investment, and austerity measures lowering aggregate demand.
• Supply-Side Causes: Skill gaps, high minimum wages deterring hiring, and labor market rigidities like strict firing laws.
• Technological Causes: Automation and artificial intelligence replacing routine jobs.
• Globalization: Offshoring of jobs to lower-cost regions.
• Institutional Causes: Inefficient job matching, union activities, or demographic shifts like youth bulges.

Consequences

Consequences of Poverty

Poverty perpetuates cycles of deprivation with wide-ranging impacts:

• Economic: Reduced productivity, lower consumer spending, and hindered GDP growth.
• Social: Increased crime rates, family breakdowns, and social unrest.
• Health: Higher incidence of malnutrition, diseases, and shorter life expectancy.
• Educational: Limited access to schooling, leading to intergenerational poverty.
• Environmental: Overexploitation of resources due to desperation, contributing to degradation.

Consequences of Unemployment

Unemployment erodes economic and social fabric:

• Economic: Loss of output (per Okun’s Law), increased government spending on benefits, and reduced tax revenues.
• Individual: Skill atrophy, mental health issues like depression, and financial distress.
• Social: Rising inequality, family stress, and potential for social conflicts.
• Long-Term: Hysteresis effects, where prolonged unemployment raises the natural rate.
• Macroeconomic: Inflationary pressures if combined with supply shocks, or deflationary spirals in severe cases.

The interlinkages are evident: Unemployment often leads to poverty by cutting income, while poverty can exacerbate unemployment through poor health and education reducing employability.

Policies and Solutions

Policies to Alleviate Poverty

Effective interventions require targeted and inclusive approaches:

• Income Support: Direct cash transfers, subsidies for essentials, and progressive taxation to redistribute wealth.
• Education and Skills Development: Universal access to quality education and vocational training to enhance human capital.
• Healthcare Initiatives: Affordable medical services to prevent health-related poverty traps.
• Employment Generation: Public works programs and incentives for private sector job creation.
• Microfinance and Empowerment: Loans and support for small enterprises, particularly for women and marginalized groups.

Policies to Reduce Unemployment

Strategies focus on stimulating demand and improving labor markets:

• Monetary Policy: Lower interest rates to encourage borrowing and investment.
• Fiscal Policy: Government spending on infrastructure to create jobs and boost demand.
• Labor Market Reforms: Flexible regulations, apprenticeship programs, and unemployment insurance.
• Innovation and Technology: Subsidies for research and development to create new industries.
• International Cooperation: Trade policies that protect vulnerable sectors while promoting exports.

The table below compares policy approaches for poverty and unemployment:

Policy Area	For Poverty	For Unemployment	Overlaps
Income Redistribution	Cash transfers, minimum wage increases.	Unemployment benefits, wage subsidies.	Progressive taxes funding social programs.
Human Capital Investment	Education subsidies, skill training.	Retraining for displaced workers.	Vocational programs addressing both.
Economic Stimulus	Public investment in poor areas.	Infrastructure projects creating jobs.	Inclusive growth initiatives.
Social Safety Nets	Food security programs.	Job search assistance.	Universal basic income experiments.
Regulatory Reforms	Anti-discrimination laws.	Labor market flexibility.	Gender equality in employment.

Interlinkages Between Poverty and Unemployment

Poverty and unemployment form a vicious cycle: Unemployment deprives households of income, pushing them into poverty, while poverty limits access to education and networks needed for employment. In developing economies, this manifests in informal sectors with low productivity. In advanced economies, it contributes to underemployment and wage stagnation. Breaking the cycle requires integrated policies, such as conditional cash transfers tied to job training, to address both simultaneously.

Expanded Section: Poverty Indexes

Building upon the initial definitions, poverty indexes have evolved to incorporate updated benchmarks and multidimensional aspects. In June 2025, the World Bank revised the international extreme poverty line from $2.15 per day (2017 PPPs) to $3.00 per day (2021 PPPs) to reflect changes in global living standards and purchasing power. This adjustment ensures more accurate tracking of poverty amid economic shifts. Additionally, the lower-middle-income poverty line is set at $3.65 per day, and the upper-middle-income line at $6.85 per day.

Key global and national indexes include:

• International Poverty Line (IPL): Updated to $3.00 per day for extreme poverty, affecting global estimates.
• Poverty Gap Index: Remains a measure of poverty depth, now recalibrated with the new IPL.
• Human Poverty Index (HPI): Focuses on deprivations in health, education, and living standards; though less commonly used today, it informs broader human development assessments.
• Multidimensional Poverty Index (MPI): Developed by the Oxford Poverty and Human Development Initiative (OPHI) and adopted by bodies like the UN and India’s NITI Aayog. It assesses deprivations across health (nutrition, child mortality), education (years of schooling, attendance), and living standards (cooking fuel, sanitation, water, electricity, housing, assets). In India, the national MPI, based on the National Family Health Survey (NFHS), tracks 12 indicators aligned with Sustainable Development Goals (SDGs).

The table below provides an updated comparison, incorporating 2025 revisions:

Index	Description	Key Updates (2025)	Global/India Application	Advantages	Limitations
International Poverty Line (IPL)	Monetary threshold for extreme poverty.	Revised to $3.00/day (2021 PPPs) from $2.15.	Globally: Tracks 808 million in extreme poverty. India: Extreme poverty at 2.3% (2022-23).	Comparable across countries.	Overlooks non-income deprivations.
Poverty Gap Index	Measures average shortfall from poverty line.	Recalibrated with new IPL.	Used in World Bank reports for poverty intensity.	Quantifies depth, aiding targeted aid.	Ignores distribution among the poor.
Human Poverty Index (HPI)	Deprivation in longevity, knowledge, and standards.	Integrated into broader SDG monitoring.	Less emphasized; informs UN Human Development Reports.	Holistic beyond income.	Data availability challenges in real-time.
Multidimensional Poverty Index (MPI)	Weighted deprivations in health, education, living standards.	India’s national MPI updated via NFHS-5 (2022-23 data).	Globally: 1.1 billion multidimensionally poor (2023 baseline). India: Headcount ratio at 11.28% (2022-23).	Captures overlapping issues.	Requires robust survey data; subjective weighting.

These indexes facilitate nuanced policy-making by highlighting not just income shortfalls but also intersecting deprivations.

Major Plans to Alleviate Poverty

Poverty alleviation requires coordinated global and national strategies, emphasizing sustainable development, inclusion, and resilience. Globally, efforts align with the UN’s 2030 Agenda, while national plans in countries like India focus on targeted interventions.

Global Major Plans

Key international initiatives as of 2025 include:

• UN Sustainable Development Goals (SDGs) – Goal 1: No Poverty: Aims to end extreme poverty by 2030 through social protection, equal rights to resources, and resilience-building. Progress is monitored via the IPL and MPI.
• Global Alliance Against Hunger and Poverty: Launched to accelerate SDG implementation, focusing on hunger-poverty linkages via innovative financing and partnerships across 100+ countries.
• Poverty Alleviation Coalition (PAC): Led by UNHCR and partners, targets refugee and host communities in 35 countries by 2025, providing graduation programs with cash transfers, skills training, and market access.
• IMF Poverty Reduction and Growth Trust (PRGT): Offers concessional financing to low-income countries for poverty-focused reforms, supporting debt relief and economic stability.
• CARE International Programs: Focuses on gender-equitable poverty reduction through health, education, and emergency response in crisis-hit regions.

These plans emphasize multi-stakeholder collaboration, with funding from grants like those from the World Food Programme and UNDP.

Major Plans in India

India’s poverty alleviation framework integrates rural-urban divides, leveraging schemes under ministries like Rural Development and Housing. As of 2025, key programs include:

• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Guarantees 100 days of wage employment annually to rural households, reducing seasonal unemployment and building assets like water conservation structures.
• Pradhan Mantri Awas Yojana (PMAY): Provides affordable housing to urban (PMAY-U) and rural (PMAY-G) poor, aiming for “Housing for All” with subsidies and construction support.
• Pradhan Mantri Ujjwala Yojana: Distributes free LPG connections to below-poverty-line households, improving health by reducing indoor pollution from traditional fuels.
• Deen Dayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM): Empowers self-help groups (SHGs) for women, covering 7,145 blocks and promoting financial inclusion and entrepreneurship.
• Zero Poverty Campaigns: State-led initiatives, such as Uttar Pradesh’s 2025 target for poverty eradication, integrating benefits like free education, health insurance under Ayushman Bharat, and cash transfers via PM Kisan Samman Nidhi.

The table below compares global and Indian plans:

Plan	Scope	Key Features	Target Beneficiaries	Outcomes (as of 2025)
UN SDGs Goal 1	Global	Social protection, resource access.	All vulnerable populations.	Projected global extreme poverty at 9.9%.
Global Alliance Against Hunger and Poverty	International	Financing for SDGs 1 and 2.	Low-income countries.	Expanded to 100+ nations.
MGNREGA	India (Rural)	Wage employment guarantee.	Rural poor households.	Benefited 24.82 crore escaping MPI (2013-2023).
PMAY	India (Urban/Rural)	Housing subsidies.	Homeless/poor families.	Contributed to MPI decline to 11.28%.
DAY-NRLM	India	SHG empowerment.	Women in poverty.	Reached 745 districts.

Current World Position on Poverty

As of 2025, global extreme poverty (below $3.00/day) is estimated at 9.9%, down from 10.5% in 2022, affecting approximately 808 million people. However, progress is uneven: In fragile and conflict-affected states, 421 million live in extreme poverty, representing over half of the global total. Sub-Saharan Africa hosts the highest rates, while East Asia shows rapid declines. At current trends, eradicating extreme poverty by 2030 remains challenging.

Poverty in India: Current Position

India has achieved significant reductions, with extreme poverty falling from 16.2% in 2011-12 to 2.3% in 2022-23 under the previous IPL. The national MPI headcount ratio declined from 29.17% in 2013-14 to 11.28% in 2022-23, lifting 24.82 crore people out of multidimensional poverty. Rural areas saw faster progress (from 32.59% to 19.28%) than urban, but regional disparities persist, with states like Bihar and Uttar Pradesh having higher rates. Under the new IPL, India’s poverty rate at $3.65/day fell to 28.1% in 2022-23, reflecting 378 million lifted since 2011-12.

Other Relevant Topics

• Urban vs. Rural Poverty: Urban poverty often involves informal work and housing slums, while rural focuses on agriculture dependency. India’s schemes like PMAY-U address urban gaps.
• Gender Dimensions of Poverty: Women face higher vulnerability due to wage gaps and unpaid care work; programs like NRLM prioritize women’s SHGs for empowerment.
• Poverty-Unemployment Nexus: High unemployment exacerbates poverty; in India, youth unemployment (15-29 age group) links to skill mismatches, addressed via retraining under SDGs.
• Climate Change and Poverty: Environmental shocks disproportionately affect the poor; global plans like the PAC integrate resilience for refugees displaced by climate events.
• Measurement Challenges: Post-2025 IPL updates highlight the need for dynamic indexes to account for inflation and pandemics, ensuring policies remain effective.

Multiple-Choice Questions on Economics:
Poverty and Unemployment (UPSC Pattern)

1. Which of the following best defines absolute poverty?
   A) Income below a certain percentage of the median income in society.
   B) Lack of basic necessities such as food, shelter, and clothing, measured against a fixed threshold.
   C) Deprivation in health and education relative to societal norms.
   D) Unemployment leading to temporary income shortfalls.
2. The Poverty Gap Index primarily measures:
   A) The headcount ratio of individuals below the poverty line.
   B) The average shortfall from the poverty line among poor households.
   C) Multidimensional deprivations in health and education.
   D) Inequality in income distribution across the entire population.
3. Frictional unemployment is characterized by:
   A) Mismatches between worker skills and job requirements due to technological changes.
   B) Short-term transitions during job searches or voluntary quits.
   C) Economic recessions reducing aggregate demand.
   D) Seasonal fluctuations in industries like agriculture.
4. According to Okun’s Law, a 1% increase in the unemployment rate typically leads to:
   A) A 2% reduction in GDP growth.
   B) A 1% increase in inflation.
   C) No significant change in productivity.
   D) A rise in the natural rate of unemployment.
5. Which factor is primarily associated with structural unemployment?
   A) Business cycle downturns.
   B) Globalization and offshoring of jobs.
   C) Rapid population growth.
   D) Seasonal demand variations.
6. One major consequence of prolonged unemployment is hysteresis, which refers to:
   A) Temporary skill enhancement through job training.
   B) An increase in the natural rate of unemployment due to long-term effects.
   C) Reduced government spending on social benefits.
   D) Immediate recovery in GDP upon economic upturn.
7. The Multidimensional Poverty Index (MPI) includes dimensions such as:
   A) Income only, with adjustments for inflation.
   B) Health, education, and living standards, with weighted deprivations.
   C) Unemployment rates and labor force participation.
   D) Environmental factors like resource depletion exclusively.
8. In 2025, the World Bank revised the international extreme poverty line to:
   A) $1.90 per day (2011 PPPs).
   B) $2.15 per day (2017 PPPs).
   C) $3.00 per day (2021 PPPs).
   D) $6.85 per day (upper-middle-income benchmark).
9. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantees:
   A) 50 days of wage employment annually to urban households.
   B) 100 days of wage employment annually to rural households.
   C) Free housing subsidies for below-poverty-line families.
   D) LPG connections to reduce indoor pollution.
10. As of 2025, the global extreme poverty rate (below $3.00/day) is estimated at:
    A) 5.2%.
    B) 9.9%.
    C) 15.6%.
    D) 20.1%.
11. Relative poverty emphasizes:
    A) Fixed thresholds for basic needs.
    B) Income inequality compared to the societal median.
    C) Skill mismatches in the labor market.
    D) Cyclical economic fluctuations.
12. Disguised unemployment is most prevalent in:
    A) High-tech industries with automation.
    B) Overstaffed family-based enterprises in developing economies.
    C) Seasonal tourism sectors.
    D) Advanced economies during recessions.
13. A key environmental cause of poverty includes:
    A) Progressive taxation policies.
    B) Climate change affecting agricultural productivity.
    C) High labor force participation rates.
    D) Flexible labor market regulations.
14. The Human Poverty Index (HPI) focuses on deprivations in:
    A) Longevity, knowledge, and living standards.
    B) Monetary income and consumption levels only.
    C) Unemployment types and rates.
    D) Technological advancements and globalization.
15. Fiscal policy to reduce unemployment typically involves:
    A) Raising interest rates to control inflation.
    B) Government spending on infrastructure to boost demand.
    C) Strict firing laws to protect workers.
    D) Offshoring jobs to lower-cost regions.
16. In India, the national MPI headcount ratio in 2022-23 stands at:
    A) 5.6%.
    B) 11.28%.
    C) 29.17%.
    D) 32.59%.
17. The Pradhan Mantri Awas Yojana (PMAY) aims to provide:
    A) Wage employment in rural areas.
    B) Affordable housing to urban and rural poor.
    C) Skills training for women entrepreneurs.
    D) Debt relief for low-income countries.
18. Cyclical unemployment is best addressed through:
    A) Retraining programs for skill mismatches.
    B) Fiscal and monetary stimulus during recessions.
    C) Diversification of seasonal industries.
    D) Microfinance loans for small enterprises.
19. The interlinkage between poverty and unemployment often forms a vicious cycle because:
    A) Poverty enhances employability through better education.
    B) Unemployment reduces income, leading to poverty, which limits access to education and jobs.
    C) High productivity in informal sectors breaks the cycle.
    D) Advanced economies experience no such interlinkages.
20. The UN Sustainable Development Goals (SDGs) Goal 1 targets:
    A) Ending extreme poverty by 2030 through social protection and resilience-building.
    B) Achieving full employment without addressing poverty.
    C) Focusing solely on urban housing subsidies.
    D) Promoting automation to replace routine jobs.
21. In fragile and conflict-affected states, extreme poverty affects approximately:
    A) 100 million people.
    B) 421 million people.
    C) 808 million people globally, but not specified for these states.
    D) Less than 50 million people.
22. Gender dimensions of poverty highlight higher vulnerability for women due to:
    A) Equal wage opportunities worldwide.
    B) Wage gaps and unpaid care work.
    C) Exclusive access to vocational training.
    D) Lower dependency on agriculture.
23. The Poverty Alleviation Coalition (PAC) targets:
    A) Refugee and host communities with cash transfers and skills training.
    B) Only high-income countries for debt relief.
    C) Seasonal unemployment in tourism.
    D) Technological causes of structural shifts.
24. India’s extreme poverty rate under the new IPL ($3.65/day) in 2022-23 is:
    A) 2.3%.
    B) 11.28%.
    C) 28.1%.
    D) 32.59%.
25. Measurement challenges in poverty indexes post-2025 include the need to account for:
    A) Static thresholds ignoring inflation and pandemics.
    B) Dynamic indexes for inflation and pandemics.
    C) Unemployment rates exclusively.
    D) Globalization effects only.
26. The Deen Dayal Antyodaya Yojana – National Rural Livelihoods Mission (DAY-NRLM) promotes:
    A) Urban housing for the poor.
    B) Self-help groups for women’s financial inclusion and entrepreneurship.
    C) International debt relief.
    D) Monetary policy adjustments.
27. Natural rate of unemployment comprises:
    A) Cyclical and seasonal components.
    B) Frictional and structural unemployment.
    C) Disguised and voluntary types.
    D) Only demand-side factors.
28. Climate change exacerbates poverty by:
    A) Proportionately affecting all income groups equally.
    B) Disproportionately impacting the poor through environmental shocks.
    C) Enhancing resource access in rural areas.
    D) Reducing the need for resilience-building programs.
29. The IMF Poverty Reduction and Growth Trust (PRGT) provides:
    A) Concessional financing for low-income countries’ poverty reforms.
    B) Wage guarantees in rural India.
    C) Free LPG connections globally.
    D) Apprenticeship programs for youth.
30. Urban vs. rural poverty in India differs in that urban poverty often involves:
    A) Agriculture dependency and seasonal work.
    B) Informal work and housing slums.
    C) Equal access to education and healthcare.
    D) Lower regional disparities.

Answers

1. B
2. B
3. B
4. A
5. B
6. B
7. B
8. C
9. B
10. B
11. B
12. B
13. B
14. A
15. B
16. B
17. B
18. B
19. B
20. A
21. B
22. B
23. A
24. C
25. B
26. B
27. B
28. B
29. A
30. B