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The Director and Indirect Effects of Unemployment on Poverty and Inequality


  • Peter Saunders

    () (University of New South Wales)


High and persistent unemployment has presented a major challenge for the welfare state from two directions. First, it has eroded the funding base and second, it has increased the demands on welfare programs because of the consequences for poverty and inequality resulting from high unemployment. This paper explores these latter effects using a range of national and international evidence. It is argued that the effects, while generally presumed to exist, are complicated by the ways in which poverty and inequality are measured (on the basis of the economic status of families) and the growth in dual-earner families that has weakened the link between the economic status of families and individual family members. Despite this, there is strong evidence that unemployment increases the risk of poverty and contributes to inequality, and that it also gives rise to a series of debilitating social effects on unemployed people themselves, their families and the communities in which they live. This suggests a need for welfare reform to give emphasis to employment generation, but this should not be the only outcome by which the welfare system should be judged. The provision of an adequate and secure safety net that does not unduly distort incentive structures is also an important welfare objective.

Suggested Citation

  • Peter Saunders, 2002. "The Director and Indirect Effects of Unemployment on Poverty and Inequality," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(4), pages 507-530, December.
  • Handle: RePEc:ozl:journl:v:5:y:2002:i:4:p:507-530

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    References listed on IDEAS

    1. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 1063-1114.
    2. Stacy Dickert & Scott Houser & John Karl Scholz, 1995. "The Earned Income Tax Credit and Transfer Programs: A Study of Labor Market and Program Participation," NBER Chapters,in: Tax Policy and the Economy, Volume 9, pages 1-50 National Bureau of Economic Research, Inc.
    3. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    4. Carrington, William J & Zaman, Asad, 1994. "Interindustry Variation in the Costs of Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 243-275, April.
    5. Timothy J. Bartik & Randall W. Eberts, 199. "Examining the Effect of Industry Trends and Structure on Welfare Caseloads," Book chapters authored by Upjohn Institute researchers,in: Sheldon H. Danziger (ed.), Economic Conditions and Welfare Reform, chapter 5, pages 119-157 W.E. Upjohn Institute for Employment Research.
    6. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
    7. Rebecca M. Blank, 2001. "What Causes Public Assistance Caseloads to Grow?," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 85-118.
    8. Rebecca M. Blank, 1999. "What Goes Up Must Come Down? Explaining Recent Changes in Public Assistance Caseloads," JCPR Working Papers 78, Northwestern University/University of Chicago Joint Center for Poverty Research.
    9. John M. Fitzgerald, 1995. "Local labor markets and local area effects on welfare duration," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 14(1), pages 43-67.
    10. David N. Figlio & James P. Ziliak, 1999. "Welfare Reform, the Business Cycle, and the Decline in AFDC Caseloads," JCPR Working Papers 77, Northwestern University/University of Chicago Joint Center for Poverty Research.
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    More about this item


    Welfare and Poverty: General Measurement and Analysis of Poverty Government Programs; Provision and Effects of Welfare Programs;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs


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