| Abstract: | The business cycle affects the incidence of poverty, as shownby evidence from Australia, Sweden, the United Kingdom, andthe United States. Many of the poor in these countries are outsidethe labor market, and transfers are a major source of incomefor many others, but the unemployment and wage reductions thatoccur in recession increase the incidence of poverty. Majorcauses of poverty are unemployment in Australia and the UnitedKingdom and low wages in the United States. Similar cyclicaleffects are observed in Sweden, but a vast transfer programvirtually eliminates poverty. There are several policy optionsfor combating poverty caused by recession. A combination ofunemployment insurance for a limited period followed by a jobguarantee is the most effective policy toward unemployment,whereas poverty caused by low earnings can be remedied by redistributionthrough the tax system. |
