A Global Dilemma: How Unemployment Creates Poverty


SEATTLE — While there are many variables in an economy that can create poverty, unemployment is one of the most common causes. Global unemployment is such a serious issue with the total number of jobless individuals reaching 1.1 billion only in top 10 most populous nations. How unemployment creates poverty can be seen through both direct and indirect effects experienced by many economies around the world.

1. The Loss of Income 

The obvious, straightforward answer of how unemployment creates poverty is through the loss of income. With joblessness comes a loss of income, and many families are left without sufficient incomes to meet living expenses. This can lead to indebtedness from borrowing money to support one’s needs, use of savings or even to homelessness and malnutrition if individuals are unable to find other sources of finance.

When individuals are forced to use savings to cover costs today, their future retirement funds are reduced. This creates negative long-term effects on the economy such as high levels of youth unemployment around the world. Youth unemployment today will decrease the incomes of future retirees and increase the burden on the government.

2. Perpetuating the Poverty Cycle

With current levels of youth unemployment increasing the chances of poverty in the future, the burden to work is more heavily placed on future generations. With unemployment shocks such as this, individuals remain in a poverty cycle.

In a Brazilian case study, unemployment of parents was shown to place significant stress on the children of the household. With unemployed adults, children are more likely to drop out of school to enter the work force. Without completing the necessary education, lower levels of human capital are obtained which leave these children in unstable working environments in the future. These outcomes will tend to create generational poverty.

3. Increased Criminal Activity

While the previous examples explain how unemployment creates poverty directly through affecting income, it also leads to increases in criminal activity. Areas with high levels of unemployment, especially youth unemployment, have been found to have higher levels of crime and vandalism.

When individuals are unable to earn incomes legally to supply for their families, they may turn to criminal and violent activity. Two-fifths of those individuals who take part in criminal activity stated that unemployment was the main reason for their illegal involvement while only a tenth believed in the cause.

When individuals turn to violence to escape poverty, their chances of them staying criminals grow; and with the spread of violence and crime, the political instability of a nation grows. With high levels of crime, educational attainment and the access to health care are also negatively affected. As education and health are two main factors affecting poverty, violence creates a further downward spiral after unemployment.

4. Long-term Unemployment

Once individuals are unemployed, the risk of falling into long-term unemployment rises. It’s been found that the characteristics of living in poor neighborhoods create a poverty trap as families don’t have the necessary tools to become employed.

When living in impoverished areas individuals experience low-quality housing, underfunded schools and restricted access to public transportation and services. These outcomes reduce an individual’s chances of finding employment again.

The Vicious Cycle

While unemployment can create poverty, poverty also reduces the chance of being employed. To ensure that those who are affected by unemployment do not fall into the negative cycle, researchers believe that governments should focus on improving quality education and training all young people so they remain in school.

More should be done to provide job protections which can help decrease the chance of violence and crime in the future. Poverty and unemployment go hand-in-hand, and this relationship is important to remember when trying to create solutions for the the two global issues of unemployment and poverty.

Tess Hinteregger
Photo: Flickr


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