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By Tigani Feb 18, 2014 898 Words
Poverty, Unemployment and Underemployment

Linkage between employment and poverty in this regard will be approached by looking at the relation between poverty and unemployment and between poverty and underemployment. The chosen of indicator unemployment and underemployment is based on reality that both indicators is directly related with income level. Someone who is unemployed certainly not have income from a job, while underemployment closely related with the low of working hours and income. Study about the relation between poverty and unemployment has been done by researchers. BPS (2007b), as example, has studied the relation through the consistence study of poverty and unemployment data.

Theoretically, poverty rate will move following unemployment rate. In this case, unemployment rate increases so automatically poverty rate will increase. Positive relation between poverty and unemployment is found in some countries. In Koreas, as example, Park (2002) found a really strong relation between poverty rate and unemployment rate. When unemployment rate rises, poverty rate will also rise and when unemployment rate decline so will poverty rate.

However, changes between unemployment rate and poverty rate are not always consistent as those found in other countries’ studies. For example, Bob DeFine as quoted by Robert DeFina (2002) based on study in United State found that poverty do not have strong correlation with unemployment. DeFine further states that relation between unemployment and poverty is strongly affected by how the poverty is measured.

On the other hand, no strong relation between poverty and unemployment may also caused by a lack of unemployment measurement. This is proofed by Son and Kakwani (2006) based on their study using Brazil data. By modifying the conventional measurement of unemployment rate, they found that correlation between unemployment and poverty rate becomes significant, while based on conventional1 unemployment measure relation between unemployment and poverty seems not significant. How is the pattern of relation between poverty and unemployment in Indonesia. Based on BPS publication data, relation between unemployment rate and poverty rate do not follow patter as found in Korea. The fact happen is in national level when unemployment rate increases, poverty rate is decrease or vice versa (see Figure 4.8). The relation is strengthened by relation between poverty rate and unemployment rate in regency/city level (see Figure 4.9) that show a tendency that regency/city who have higher unemployment rate have lower poverty rate. So in the case of Indonesia, the relation between unemployment and poverty do not always in same direction according to the assumption of existing economic theory, but it has an inverse relation.

This phenomenon may be explained as follows. People who are able to unemployed in a household can indicate that the household have enough income to support the unemployed. In the link with poverty, unemployed in the household do not automatically become poor because there’s other family member whose income is enough to maintain their family living above the poverty line. An illustration is described in study conducted by BPS (2007b) presumably attractive to serve. In the study illustrated as follows: “Ucok household in Medan has total 4 members and average expenditure per month is 600 thousands rupiah, so expenditure per capita is 150 thousands rupiah. If using GK (Poverty Line) North Sumatra Province for urban areas 2004 was 142.966 rupiah, so the household is categorized non-poor. As consequent all families member also become non-poor population. If in Ucok household there are two people who look for job so number of unemployment adds two people but those two are still part of non-poor household. In contrary, if Ucok household is poor household, so number of unemployed in the household didn’t increase the number of poor population” (BPS 2007b, page 35-36).

Based in the illustration is clear that unemployment and poverty aren’t directly related because they aren’t complement variables. In addition, fact shows that in urban area there are some people who are voluntarily unemployed because they are waiting for getting appropriate job based on their skills/education, and they are not necessarily poor because they are maybe part of household group with middle-up income. Conceptually or methodology, there is no direct relation between unemployment and poverty is also due to number of unemployment is counted individually based on Sakernas data, while expenditure is counted based on household (BPS 2007b).

Figure Relation between Poverty and Unemployment, Indonesia, 2000-2006

Source: BPS (2007b)

Figure Relation between Poverty and Unemployment Regency/City Level, Java-Bali, 2007










0,00 5,00 10,00 15,00 20,00 25,00

Unemployment Rate

Another explanation is that poor households almost impossible become unemployed (Oshima 1990). Oshima’s statement can be understood remember in developing countries such Indonesia there’s no social guarantee for unemployed, so in order to survive poor people must work although just for some hours a week. It’s in line with Todaro’s statement (1977) which states that those who are in poor condition are those who do not work regularly or continuously, or just part-timer. Frances and Streeten (1981) more pointedly said that unemployment is not a satisfactory measurement for poverty, because generally unemployed people have better condition, while generally people who are really poor isn’t unemployed. Referring to Todaro’s statement above, it appears underemployment (which measured by working hours)2 have positive relation with poverty. High underemployment rate indicates also high poverty rate. Positive relation between underemployment rate and poverty rate can be seen on Figure 5.10.So, in the case of Indonesia, underemployment is more sensitive to measure poverty than unemployment.

Graphic Relation between Poverty and Underemployment Regency/City Level, Java-Bali, 2007











0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0

Undemployment Rate

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