Poverty and Unemployment

Poverty

Poverty is the state of being deprived of basic human rights such as food, shelter, clothing, education, health, and employment. It is characterized by a lack of access to resources and opportunities for economic, social, and political services. Poverty reflects deprivation and destitution, influenced by a society's development level and conditions. According to the 1998 United Nations Declaration, poverty is the denial of choices and opportunities necessary for human existence. Nelson Mandela stated that poverty is not natural but a product of human behavior, which can be eradicated through human effort. Amartya Sen defines poverty as the deprivation of human capability to meet basic needs.

Dimensions of Poverty and Deprivation

Food Deprivation
Water Deprivation
Sanitation Deprivation
Health Deprivation
Shelter Deprivation
Education Deprivation
Information Deprivation
Deprivation of other basic services and opportunities

Types of Poverty

Absolute Poverty
- Inability to meet minimum life necessities.
- Income below the poverty line.
- Can be eradicated.
Relative Poverty
- Comparative income disparity within a society.
- Income below the national average.
- Cannot be fully eradicated and exists in all societies.

Dimensions of Poverty

Poverty is multidimensional, dynamic, complex, and varies by gender and location. Beyond visible deprivation, it includes psychological aspects like powerlessness, voicelessness, dependency, and feelings of inferiority. Key characteristics include:

Lack of access to basic needs and capabilities.
Limited education and awareness, hindering capacity development and social capital formation.
Poor health due to lack of education and resources.
Inability to effectively utilize limited income and resources.
Reduced aspirations for the future, particularly in generational poverty, leading to "Aspiration Failure," a dangerous state for human development.

Poverty Measurement and Poverty Line

Poverty is measured using various indicators:

Poverty Line: Threshold below which individuals are considered poor.
Absolute vs. Relative Poverty
Cost of Basic Need Approach (CBN)
Human Development Index (HDI)
Human Poverty Index (HPI)
Multidimensional Poverty Index (MPI)
Proxy Mean Test (PMT)

Multidimensional Poverty Index (MPI)

Introduced in 2010 as a complement to the HDI, the MPI measures poverty beyond monetary metrics to support targeted policies and the Millennium Development Goals (MDGs). It includes 10 indicators across three dimensions:

Health
- Nutrition: Whether household members are malnourished.
- Child Mortality: Whether any child in the household has died.
Education
- Years of Schooling: Whether any household member has completed at least five years of formal education.
- School Attendance: Whether school-age children attend school.
Living Standards
- Cooking Fuel: Use of safe cooking fuel.
- Sanitation: Access to safe sanitation facilities.
- Drinking Water: Access to safe drinking water.
- Electricity: Availability of electricity in the household.
- Housing: Quality of floor, roof, and walls.
- Assets Ownership: Ownership of assets like radio, TV, bicycle, motorcycle, or mobile phone.

In Nepal, absolute poverty is 20.27%, and multidimensional poverty is 17.4%.

Human Poverty Index (HPI)

Developed by the UNDP, the HPI measures deprivation in basic human life aspects and is now integrated into the HDI. It has two versions:

HPI-1 (Developing Countries)
- Longevity: Percentage of people dying before age 40.
- Literacy: Percentage of illiterate adults.
- Standard of Living: Percentage without access to safe water, health services, or nutrition; malnutrition rate among children under 5.
HPI-2 (Developed Countries)
- Longevity: Percentage of people dying before age 60.
- Literacy: Percentage lacking functional literacy.
- Unemployment: Percentage unemployed for over 12 months.
- Exclusion: Proportion excluded from social participation and poverty.

Proxy Mean Test (PMT)

In Nepal, PMT uses 18 indicators to identify poor households for issuing poverty identification cards, covering demographics (4), housing conditions (4), household facilities (4), assets (3), geographical conditions (2), and caste-based poverty (1).

Poverty Survey Methods

Income and Expenditure/Budget Survey
Living Standard Survey
Demographic and Health Survey
Core and Model Design

Poverty in Nepal

Poverty trends in Nepal:

1976/77: 33% below the poverty line.
Sixth Plan: Increased to 42%.
Seventh Plan: Peaked at 49%.
Eighth Plan: Established poverty alleviation as an objective.
Ninth to Twelfth Plans: Targeted reducing poverty to 10%.
Tenth Plan: Adopted poverty reduction as a sole objective, defining three dimensions: income poverty, human poverty, and social exclusion.
Subsequent plans continued poverty alleviation goals.
Current absolute poverty: 20.27%.

Poverty and Unemployment Status in Nepal

Based on Economic Survey 2081/82, Nepal Living Standards Survey 2079/80, and Human Development Report 2025:

Indicator	Value	Source
Per Capita GNI	US$1,517	Economic Survey
GDP Contribution - Agriculture	25.16%	Economic Survey
GDP Contribution - Industry	12.83%	Economic Survey
GDP Contribution - Services	62.01%	Economic Survey
Absolute Poverty (Below Poverty Line)	20.27%	Living Standards Survey
Absolute Poverty (Urban)	18.14%	Living Standards Survey
Absolute Poverty (Rural)	24.66%	Living Standards Survey
Absolute Poverty by Province	Highest: Sudurpashchim, Karnali, Lumbini, Madhesh, Koshi, Bagmati, Gandaki	Living Standards Survey
Multidimensional Poverty	17.4%	Living Standards Survey
Multidimensional Poverty (Urban)	12.3%	Living Standards Survey
Multidimensional Poverty (Rural)	28%	Living Standards Survey
Multidimensional Poverty Index	0.074	Living Standards Survey
Multidimensional Poverty Intensity	42.5%	Living Standards Survey
Human Development Index	0.622	Human Development Report
Gender Development Index	0.942	Human Development Report
Gini Coefficient	0.330	Economic Survey
Unemployment Rate	11.4%	Living Standards Survey
Multidimensional Poverty by Province	Highest: Karnali, Madhesh, Sudurpashchim, Lumbini, Koshi, Gandaki, Bagmati	Living Standards Survey

Concepts for Poverty Alleviation in Nepal

Poverty alleviation has been a focus alongside development efforts:

1960s: Trickle-Down Approach
1970s: Basic Needs Fulfillment Programs
1980s: Structural Adjustment Programs
1990s: Human Development and Sustainable Development Concepts
2000s: Good Governance Concept
Current: Inclusive Growth and Mainstreaming Poverty Reduction

Poverty Alleviation Efforts in Nepal

1960s: New Education and Integrated Development Projects
Decentralization and District Development Plans
Seventh Plan: Basic Needs Fulfillment Programs
Eighth Plan: Poverty alleviation through liberalization
Ninth Plan: Long-term Agricultural Plan
Tenth Plan: Adopted Poverty Reduction Strategy Paper (PRSP), defining poverty as income poverty, human poverty, and social exclusion
Prioritization of poverty alleviation projects/programs
Establishment of Poverty Monitoring and Analysis System (PMAS, DPMAS)
Medium-Term Expenditure Framework for strategic projects

Poverty Alleviation Programs in Nepal

Targeted Programs: Women’s Skill Development, Small Farmers Development, Remote Area Development, Karnali Development, Karnali Employment, Western Terai Poverty Alleviation, Reservation in Services, Youth Self-Employment, MEDEP, MEDPA
Subsidy Programs: Subsidies for services, goods, and food supply in poverty-stricken areas
Social Security Programs: Allowances for single women, disabled, and elderly; treatment subsidies; reservations; health insurance
Social Mobilization Programs: Programs run by NGOs, cooperatives, civil society, and volunteer groups under government policies
Human Resource Development Programs: Health, education, technical education, vocational training, ANNEX school programs, sanitation, population control

Institutional Arrangements for Poverty Alleviation

National Planning Commission (policy, programs, monitoring)
Poverty Alleviation Fund (targeted programs)
Poverty Monitoring System (monitoring)
Thematic Ministries (program implementation)
Ministry of Women, Children, and Senior Citizens (targeted programs)
Social Welfare Council (NGO mobilization)
National Reconstruction Authority (disaster relief and reconstruction)

Why Poverty Reduction Has Not Met Expectations

Failure to address the multidimensional nature of poverty
Low economic growth and structural economic barriers
Implementing programs without identifying root causes
Challenges in identifying the poor
Lack of coherence between programs, policies, and budgets
Focus on short-term distribution rather than sustainable capacity building
Emphasis on program inputs rather than mobilizing the poor
Implementation of populist programs
Poor prioritization

Measures for Poverty Reduction

Identifying the poor
Identifying causes of poverty
Prioritizing government expenditure
Prioritizing economic investments
Mobilizing the poor (skill development and empowerment)
Skill-based education
Targeted programs
Utilizing local resources and potential
Coordination between policies and programs
Effective monitoring

Amartya Sen’s Five Dimensions of Human Capability Development

Economic Capability: Related to consumption capacity
Human Capital Development: Achieved through education, skills, health, and sanitation
Political Capability: Ability to influence policies through human rights and voice
Social-Cultural Capability: Fostering a sense of value and community participation
Protective Capability: State assurance of support in times of crisis

Poverty Reduction Concepts

Macro-Economic Approach: Improving all economic indicators
Social Sector Investment: E.g., Compact 20:20 (20% state resources to social sectors matched by 20% international support)
Investment in IT
Employment-Centric Programs
Investment-Friendly Environment
Economic Growth Approach: Higher growth reduces poverty; reduced poverty boosts growth
Equity Approach: Redistribution for equitable distribution
Targeted Program Approach

Absolute vs. Relative Poverty

Absolute Poverty	Relative Poverty
Inability to meet basic needs	Disparity between high and low income
Can be eradicated through strategic plans	Cannot be fully eradicated
Measured as below the poverty line	Measured by comparing income groups
Objective concept	Subjective concept
Addressed through distribution, income growth, empowerment, and access programs	Addressed through distributive programs
Subsistence-oriented	Emotionally driven
Focuses on minimum basic needs	Focuses on self-esteem
Prevalent in least developed and developing countries	Exists even in developed countries

Poverty Measurement Methods

While methods vary by country, common global approaches include:

Poverty Headcount Index
Human Poverty Index (HPI)
Squared Poverty Gap Index
Gini Coefficient
Sen Index
Palma Ratio (ratio of top 10% to bottom 40% income)
Proxy Mean Test (PMT): Log formula based on household and asset data
Multidimensional Poverty Index (MPI)

Characteristics of Poverty

Multidimensional with multifaceted causes and effects
Low income and consumption levels
Low social participation and status
Low Human Development Index
Rural and backwardness prevalence
Lack of health, education, and nutrition
Deprivation of social facilities
Generational transfer
Insecure and risky conditions
Voicelessness and powerlessness
Need for external intervention to break the cycle
Varies by age, gender, time, place, and socioeconomic conditions
Feelings of shame and inferiority
Exclusion from social prestige and opportunities

Causes of Poverty

Poverty is multidimensional, with causes varying by time, place, and context. Despite efforts since the Ninth Plan, Nepal’s absolute poverty is 20.27%, and multidimensional poverty is 17.4% (Nepal Living Standards Survey 2079/80). Causes include:

Political: Political transitions, lack of prioritization, unnecessary political interference
Policy-Related: Lack of long-term policies, weak implementation, outdated laws, donor-driven policies
Economic: Weak economy, low growth rate, high unemployment, ineffective budget implementation, unequal resource distribution
Social-Cultural: Low education and awareness, impractical education systems, resistance to change, outdated social norms, ethnic/gender/linguistic diversity
Other: High population growth, lack of agricultural modernization, low health service prioritization, unequal land distribution, land fragmentation, low investment in human development, unhealthy labor market, energy crises, strikes, natural disasters, resource scarcity, weak monitoring, corruption, lack of accountability

Reasons for Poverty Reduction

Absolute poverty dropped from 42% in the Ninth Plan to 20.27% by 2079/80. Contributing factors include:

Rapid urbanization
Remittances from foreign employment and their use in employment-oriented sectors
Increased wages in agricultural and non-agricultural sectors
Significant reduction in fertility rates
Gradual improvements in education and health
Increased citizen participation and empowerment
Rapid development in IT
Poverty-focused government policies and programs
Increased public participation with federalism

Why Poverty Has Not Reduced as Expected

From 49% in the Eighth Plan (2049 BS) to 20.27% in 2079/80, poverty reduction has been slow despite ambitious targets. The Sixteenth Plan aims to reduce it to 12%. Reasons include:

Lack of integrated program implementation
Distribution-focused investments without addressing root causes
Failure to change social structures and mindsets
Inadequate funding for programs
Inability to address populations far below the poverty line
Inequitable resource access and socioeconomic disparities
Economic shocks from earthquakes, blockades, and COVID-19
Lack of priority in political and administrative agendas
Weak resource allocation capacity
Failure to utilize local resources
Discontinuation of effective programs
Lack of community involvement in resource management
Focus on rights without responsibilities
Inequitable and inefficient use of public funds
Inability to address geographical challenges
Low investment in physical infrastructure and capital expenditure
Weak monitoring and evaluation systems
Lack of coordination among three tiers of government

Poverty Trap

Poverty → Low Income → Low Savings and Investment → Limited Employment Opportunities → Increased Unemployment → Low Income → Poverty

Unemployment

Unemployment is the state where individuals with knowledge, skills, and willingness to work cannot find suitable employment or income. The Right to Employment Act, 2074 BS, defines an unemployed person as a citizen aged 18–59 who has not been employed for at least 100 days in a fiscal year or earned a minimum income through self-employment. Factors influencing unemployment include labor market fluctuations, industrial production changes, economic growth, natural disasters, pandemics, and sociocultural conditions. Prerequisites for reducing unemployment include adequate investment, peace and security, stable governance, good governance, and skilled human resources.

Types of Unemployment

Open Unemployment: Willing to work but unable to find a job
Disguised Unemployment: More people employed than needed, leading to low marginal productivity
Cyclical Unemployment: Fluctuates with economic conditions
Technological Unemployment: Job loss due to technological advancements
Seasonal Unemployment: Related to seasonal work like agriculture
Voluntary Unemployment: Choosing not to work
Structural Unemployment: Arising from changes in administrative, political, or policy structures
Educated Unemployment: Unemployment among graduates

Current Unemployment Status in Nepal

Unemployment rate: 11.4%, forced labor participation rate: 1.2 per thousand, daily youth migration: ~1,900. The Sixteenth Plan aims to increase annual labor productivity from NPR 245,000 to NPR 275,000, reduce forced labor to zero, and limit unemployment to 5%. The Long-Term Vision (2100) targets raising labor participation (age 15+) from 38.5% to 72% and formal sector employment share from 36.5% to 70%.

Causes of Unemployment

Like poverty, unemployment has multidimensional causes influenced by economic, political, social, policy, and technical factors:

Impact of COVID-19 on key sectors like industry, tourism, and commerce
Subsistence and traditional agriculture
Low youth interest in agriculture
Underdeveloped industry, trade, tourism, education, and health sectors
Lack of skilled labor matching market demands
Poor labor relations
Lack of alignment between labor, skills, and production
High poverty levels
Failure to promote employment-friendly investments
Political transitions deterring investment
Weak labor market information systems and labor administration
Limited technical education institutions
Lack of practical, employment-oriented education
High population growth increasing job demand
Inability to ensure safe, dignified, and reliable foreign employment
Failure to utilize capital, skills, and experience from foreign employment
Lack of domestic employment promotion
Weak labor inspection and regulation systems

Impacts of Unemployment

Personal: Increased stress, reduced income and expenditure, rising debt, declining living standards, loss of self-esteem, distrust in society and nation
Economic: Reduced production, increased trade deficits, rising poverty, economic inequality, reduced savings and investment, lower demand for goods/services
Social: Increased crime, challenges to peace and security, negative impact on education and health infrastructure, increased social disputes
Political: Distrust in government, political instability, potential for protests and conflicts
Environmental: Overexploitation of forests and natural resources, increased illegal wildlife trade
Other: Brain and capital drain, unplanned migration, increased suicide rates

Interrelationship Between Poverty and Unemployment

Poverty and unemployment are key challenges in developing countries, with a bidirectional relationship:

Poverty’s Impact on Unemployment:
- Increased poverty leads to low income, low savings, limited investment, and fewer job opportunities, increasing unemployment.
- Reduced poverty increases income, savings, investment, and access to skill development, leading to more job opportunities and reduced unemployment.
Unemployment’s Impact on Poverty:
- Increased unemployment reduces income, hinders basic needs fulfillment, and increases poverty.
- Reduced unemployment provides job opportunities, ensures income, and facilitates basic needs, reducing poverty.

Measures to Reduce Poverty and Increase Employment

Agricultural Transformation: Modernization, commercialization, diversification, infrastructure development, improved seeds, climate-adaptive farming
Industrial Development: Expand small and cottage industries to rural areas, revive sick industries, create industry-friendly environments, attract investments
Tourism Development: Promote eco and village tourism, develop infrastructure, protect and promote tourist sites globally, ensure reliable aviation
Education Development: Make education income-oriented, skill-based, and market-driven; ensure access for the poor; expand quality education to rural areas; involve private sector
Governance Reforms: Strengthen local governance, enforce corporate social responsibility, prioritize investments in high-potential sectors, control corruption and irregularities
Other Measures: End internal conflicts, strikes, and extortion; transform social structures; ensure rule of law and good governance

Efforts by Nepal

Prime Minister Employment Program
Foreign employment opened in 111 countries (178 individually), labor agreements with 12 countries
Youth and Small Entrepreneur Self-Employment Fund for entrepreneurial loans
Issuance of poverty identification cards
Micro-enterprise programs for poverty alleviation
Targeted skill development programs through training centers
Establishment of Employment Information Centers
Social Security Fund
Poor with Bishweshwar Program (since 2056/57)
Rural Community Infrastructure Development Program
Other targeted programs (women’s development, Prajatantra development, Karnali development, skill development, subsidies)

2.9 Poverty and Unemployment