SSE 108 Module 3

FM-AA-CIA-15 Rev.
0 10-July-2020
Study Guide in SSE 108 Comparative Economic Planning Module No. 3
STUDY GUIDE FOR MODULE NO. 3

Domestic Problems and Policies
MODULE OVERVIEW
Module 3 deals with the current economic problems such as poverty, education, unemployment, and
agriculture and environment degradation. Every country should formulate sound policies to address these
issues to attain economic growth and development.
MODULE LEARNING OBJECTIVES
At the end of the semester the students will be able to:
a. define poverty and absolute poverty;

b. demonstrate how the Lorenz Curve can be used to illustrate the distribution of income;
c. compare and contrast the rate of population growth in LDCs and that of modern Developed nations;
d. discuss the various manifestations of the underutilization of labor.
e. identify government policies which will promote a better balance between urban and rural
economic and social opportunities;
f. explain what is meant by “integrated” rural development; and
g. explain what is meant by “economics of education.
GEOGRAPHY AS DISCIPLINE
What is Poverty?
Poverty is a state or condition in which a person or community lacks the financial resources and
essentials for a minimum standard of living. Poverty means that the income level from employment is so low
that basic human needs can't be met. Poverty-stricken people and families might go without proper housing,
clean water, healthy food, and medical attention. Each nation may have its own threshold that determines
how many of its people are living in poverty.
In simple terms, poverty is not having enough money or access to resources to enjoy a decent
standard of living; be that the lack of access to healthcare, education or water and sanitation facilities etc.
Historically, poverty in the UK was defined as either primary or secondary in studies by Seebhom
Rowntree in the 20th century.
Primary poverty means not having enough money to meet basic needs, it can also be considered as
‘living below the poverty line.’
Secondary poverty is when people earn just enough money to afford the necessities, but spend part
of it on “coping mechanisms” to deal with financial and work-related stress (high risk and/or difficult working
conditions due to abuse and long hours) and therefore end up struggling to make ends meet.
In the end, Rowntree identified low wages as the main cause of poverty in the UK, rather than the
poorest being responsible for their own condition – which was the most common criticism back then (and still
is today to some extent).
 Understanding the Cycle of Poverty
Statistics worldwide back this conclusion today; people born into poverty are much more likely to
remain poor. Some people might escape it, but for the majority, hard work isn’t the solution when the
economic system works against them. This is what constitutes the cycle of poverty.
Not having access to healthy food, decent housing, electricity, water means you effectively live in
severe, absolute poverty. And the cost of these things is too high for you to afford them, or at least you can’t
PANGASINAN STATE UNIVERSITY 1

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afford them all. So, which one do you prioritize?
That’s why finding a definition of relative or absolute poverty isn’t simple since it doesn’t just involve
economics, but it is also affected by society and politics. For this reason is poverty a measurable concept?
And if yes, should we measure it using a relative approach or an absolute one?
 Relative versus Absolute Poverty
Absolute poverty is when household income is below a certain level, which makes it impossible for the
person or family to meet basic needs of life including food, shelter, safe drinking water, education, healthcare,
etc.
In this state of poverty, even if the country is growing economically it has no effect on people living
below the poverty line. Absolute poverty compares households based on a set income level and this level
varies from country to country depending on its overall economic conditions.
Relative poverty is when households receive 50% less than average household incomes, so they do
have some money but still not enough money to afford anything above the basics. This type of poverty is, on
the other hand, changeable depending on the economic growth of the country.
Relative poverty is sometimes described as “relative deprivation” because the people falling under
this category are not living in total poverty, but they are not enjoying the same standard of life as everyone
else in the country. It can be TV, internet, clean clothes, a safe home (a healthy environment, free from abuse
or neglect), or even education.
Relative poverty can also be permanent, meaning that certain families have absolutely no chance of
enjoying the same standards of living as other people in the same society currently have access to. They are
basically “trapped” in a low relative income box.
When the relative approach is used to measure poverty, there is another concept that needs to be
explored – persistent poverty. This is when households receive 50 or 60% less income than average incomes
every 2 out of 3 years. Since long-term poverty has more impactful consequences on economic and social
conditions, persistent poverty is an important concept to bear in mind.
 Relative Poverty is a Form of Social Exclusion
On the whole, poverty is about exclusion. In its most extreme form, it’s the inability to access what you need
for a decent life. Relatively speaking, in more developed countries, it’s being excluded from what constitutes
normal daily life:
o Internet to access jobs or public services

o The proper clothes to find that job
o Paying for education
o Access to decent housing (respiratory diseases is one of the most common symptoms of poor
housing)
Relative poverty depends on the level of development of the country. It’s about giving everyone the
chance to enjoy the same living standards so that everyone has an equal opportunity to live their life to their
full potential. In that sense, fighting poverty is about unlocking huge, untapped economic potential within each
country.
 Measurement of Poverty
To measure whether poverty is absolute or relative you first have to construct thresholds and collate
data to calculate the overall number of people who could be considered poor.
Then when a relative approach is used, a (changeable) level of what households should be able to
rely on in order to meet their basic needs is set, and anyone who falls below that is counted in this category.
The absolute method is set at a fixed level that does not change over time. There might be a huge

gap between the current level of poverty and the historical standard when this approach is used. Absolute
poverty is, therefore, losing its status in the world of economics especially in countries where the economy is
growing and living standards are rising.
Since the relative approach to measuring poverty uses current data and statistics, it is considered a
better and more useful approach. Relative poverty is the main measurement used today because in practice it
indicates the number of households that have been “relatively” left behind from the households that are
currently enjoying a good standard of living.
However, unlike the relative method, the absolute approach helps us to determine whether incomes
have increased over time or not. This being said, it does not link the condition with inequality or unfair
distribution of resources.
It is for this reason that many economic experts throughout the world suggest that a hybrid approach
should be used for the measurement of poverty in order to pinpoint areas where improvement is possible.
As stated at the beginning, you many think that poverty is simply not having enough money or access
to resources to enjoy a decent standard of living, but when further exploring the types, reasons and solutions
to do with poverty, you can see it all becomes much more complex.
This post was produced with the financial support of the European Union. Its contents are the sole
responsibility of Habitat for Humanity GB and do not necessarily reflect the views of the European Union.
Lorenz Curve Definition
Lorenz Curve, named after American Economist Max O. Lorenz, is a graphical representation of an
economic inequality model. The curve is a while taking the population percentile on the X-axis and
Cumulative wealth on the Y-axis. Complementing this graph would be a diagonal line at 45⁰ angle from the
origin (meeting point of the X & Y axis) indicating the perfect income or wealth distribution among the
population.
Below this straight diagonal line would be this actual distribution Lorenz curve and the area enclosed
between the line and this curve is the actual measurement of inequality. The area between the two lines
expressed as a ratio to the area under the straight line gives a representation of the inequality and is called
the Gini Coefficient (developed by the Italian statistician Corrado Gini in the year 1912).
 Example of Lorenz Curve
Following is the example to understand the Lorenz curve with the help of a graph.
Let us consider an economy with the following population and income statistics:
Population Income Portion %
0 0
20 10
40 20
60 35
80 60
100 100

And for the line of perfect equality, let us consider this table:
Population Income Portion %
0 0
20 20
40 40
80 80
100 100
Let us now see how a graph for this data actually looks:
As we can see, there are two lines in the graph of the Lorenz curve, the curved red line, and the
straight black line. The black line represents the fictional line called the line of equality i.e. the ideal graph
when income or wealth is equally distributed amongst the population. The red curve, the Lorenz curve, which
we have been discussing, represents the actual distribution of wealth among the population.
Hence, we can say that the Lorenz curve is the graphical method of studying dispersion. Gini
Coefficient, also known as the Gini Index, can be computed as follows. Let us assume in the graph area
between the Lorenz Curve and the line is represented by A1 and the line below the curve is represented by
A2. So,
Gini Coefficient = A1/ (A1+ A2)

Gini Coefficient lies between 0 and 1; 0 being the instance where there is perfect equality and 1 being the
instance where there is perfect inequality. The higher the area enclosed between the two lines represents
higher inequality in the economy.
By this, we can say that in measuring income inequality, there are two indicators:
o The Lorenz curve is the Visual Indicator and

o The Gini Coefficient is the Mathematical Indicator.
Income inequality is a pressing issue across the world. So, what are the reasons for inequality in an
economy?
o Corruption
o Education
o Tax
o Gender differences
o Culture
o Race and Cast discriminations
o The difference in preferences of leisure and risks.
Reasons for income inequality are the following:
o The distribution of economic characteristics across the population should be considered.

o Analyzing how the differences give rise to different outcomes in terms of income.
o A country may have a high degree of inequality because of –
o The great disparity in these characteristics across the population.

o These characteristics generate huge effects on the amount of income a person
earns.
 Uses of the Lorenz Curve
o It can be used to show the effectiveness of a government policy to help redistribute income.
The impact of a particular policy introduced can be shown with the help of the Lorenz curve,
how the curve has moved closer to the perfect equality line post-implementation of that policy.
o It is one of the simplest representations of inequality.
o It is most useful in comparing the variability of two or more distributions.
o It shows the distribution of wealth of a country among different percentages of the population
with the help of a graph which helps many businesses in establishing their target bases.
o It helps in business modelling.
o It can be used majorly while taking specific measures to develop the weaker sections in the
economy.
 Limitations
o This might not always be rigorously true for a finite level of population.
o The equality measure shown may be misleading.
o When two Lorenz curves are being compared and such two curves intersect, it is not possible
to ascertain which distribution represented by the curves display more inequality.
o The variation of income over the lifecycle of an individual is ignored by the Lorenz Curve
while determining the inequality.
To conclude by summarizing what we have learned, Introduced more than 100 years ago, the Lorenz
curve provides an innate and complete understanding of the income distribution and provides the basis for
inequality measurements through the Gini Index.
The curve defines the relationship between the cumulative portions of income as received by the
cumulative population when the income-earning population is arranged in ascending order.
The extent to which the curve bulges downward below the straight diagonal line called the line of
equality indicates the degree of inequality of distribution. This implies the curve will always be bowed
downwards until there exists inequality in the economy.
Though considered to be the simplest among all other measures of inequalities, the graph can be
misleading and might not always produce accurate results.

Population Growth Pattern in Developed and Developing Countries
Growth of Population: Growth of population refers to the change in the number of inheritances of a
country or territory during a specific period of time. Say, during the last 10 years, the population change is
about changes in population composition; like, age-sex structure, sex ratio, literacy rate, occupational
structure etc. The current population in the world is now greater than 7.4 billion, estimated by the United
States Census Bureau (USCB) in 2016. But current projection shows that, a continued increased in near
future the global population expected to reach between 8.5 billion to 10.9 billion by 2050.
Population Growth Pattern: Pattern of population growth in which a population starts out growing
slowly but grows faster and faster as the population size increases. Two types of population growth patterns
may occur depending on specific environmental conditions: An exponential growth pattern occurs in an ideal,
unlimited environment & a logistic growth pattern occurs when environmental pressures slow the rate of
growth.
Global North and Global South: The concept of Global North & Global South was originated in a
1952 article by Alfred Sauvy entitled "Trois Mondes, Une Planète." The terms the North and the South, when
used in a global context, are alternative designations for “developed” and “developing” countries. Together,
the North and South constitute virtually the entire global population. As terms, the North and the South
emerged during the 1970s, probably simultaneously, and in contrast with each other. This article thus
discusses these two terms together.
 Global North
The global North refers to ‘Developed Countries’ of Europe and North America, which are
characterized by established democracy, wealth, technological advancement, political stability, aging
population, zero population growth and dominance of world trade and politics. Generally, definitions of the
Global North include the G8 countries, the United States, Canada, all member states of the European Union,
Israel, Japan, Singapore, South Korea, as well as Australia and New Zealand and four of the five permanent
members of the United Nations Security Council, excluding China.
 Global South
The Global South refers to the ‘Developing Countries’. An emerging term ‘Global South’ used by the
World Bank to refer to low- and middle-income countries located in Asia, Africa, Latin America and the
Caribbean which contrast to the high-income nations of the Global North. These nations are often described
as newly industrialized or in the process of industrializing, are largely considered by freedom indices to have
lower-quality democracies, and frequently have a history of colonialism by Northern, often European states.
Generally, The BRIC countries, Brazil, Russia, India and China, along with Indonesia, have the largest
populations’ economies among Southern states.

Factors that affect population growth The key factor of Population growth is natural increase. It also
determined by Birth rates and mortality rates are, in turn, determined by a combination of factors. Often
economic growth and economic development have led to a decline in population growth, but there are no hard
and fast rules and other factors, such as availability of family planning, social expectations and government
intervention can play an important role.
 Factors Influencing Population Growth
(a) Education. Education makes a huge change in the thought process of people. In the developed
world, an educated women or women those who are working, they have often chosen to get married later and
delay having children because they prefer to work and concentrate on their career. And in developing
countries, due to the lack of education or awareness children are considered as. But, in today’s scenario,
family planning is playing an important role also in the developing countries.
(b) Economic factors. In general, there is a negative relation between economic pattern & rate of
population growth. That means, developing countries tend to have higher rates of population growth. In
agriculturally based societies, children are seen as potential income earners to help their family. In developed
countries the population growth rate is low; here the children are no longer economic assets – but economic
costs.
(c) Medical facilities. Increased availability of contraception can enable women to limit family size
closer to the desired level. In the developing world, the availability of contraception is more limited, and this
can lead to unplanned pregnancies and more rapid population growth. Due to the improvement in medical
facilities, number of deaths are become decreasing, which also lead to the population growth.
(d) Social and cultural factors:-India and China (before one family policy) had strong social
attachments to having large families. In the developed world, smaller families are the norm.
 Population Growth Rate: Population growth rate is how fast a population changes in size over time.
Population growth is determined by rates of birth, death, immigration, and emigration
(a) Birth Rate. There are two main ways that individuals are added to the population. The first is
through births of new individuals. The way we measure additions of this type is with the natality rate (also
called the birth rate), which is the number of births per 1000 individuals per unit of time, usually per year.
(b) Immigration Rate. The second way individuals are added to the population is through immigration.
This is the permanent arrival of new individuals into the population. These individuals are of the same species
as the rest of the population, and they increase the size of the population as they join the group.
(c) Mortality Rate. We have two main ways that individuals leave a population and reduce its size.
First is through deaths of individuals. We measure this with the mortality rate (also called the death rate),
which is the number of deaths per 1000 individuals per unit of time. Again, this time period is usually a year.

(d) Emigration Rate. Second individuals may leave through emigration. This is the permanent
movement of individuals out of a population. These may be juveniles who are heading out on their own, or it
may be adults leaving the group for some other reason such as overcrowding or searching for new areas of
food and shelter.
 Population Growth Pattern in Developed Countries
World as a whole has a population of 7.7 billion where a developed county occupies about 19.3%.
Since we are discussing about developed countries; the word “DEVELOPED” must be clearly understood.
Thus “the countries which are more industrialized and have higher per capita income levels of around or about
$12,000 stable population growth, high HDI where the inhabitants consume 88% of the world’s resource” can
be considered as developed countries.
In 2012, the developed countries are:
1. U.S.A. 8. Singapore
2. Canada 9. Taiwan
3. Japan 10. Israel
4. Korea 11. Western Europe
5. Australia 12. Sweden
6. New Zealand 13. Switzerland
7. Scandinavia 14. Germany
The human development index is a statistic composite index of life expectancy, education and per
capita income indicators which are used to rank countries into four tiers of human development. A country
scores a higher HDI when the life span is higher, the education level is higher and gross national income per
capita is higher (developed by Pakistani economist Mahbub Ul Haq and Indian economist Amartya Sen) Even
though there are differences between different developed countries like size, man land ratio and hence their
attractiveness for external migrants, their attitude towards population size growth structure and policy
example: USA in contrast to Russia. for the basic understanding they are considered as a single unit. To
understand this developed pattern the process can be sub divided into following three phases.
Up to 1750 prior to the onset of industrial revolution the population in the developed was experiencing
the growth rate of 0.33 from 1652 – 1750 which was happening after 200 years of stagnation. A recent
estimate by American historian Jan De Vrias set Europeans population (excluding Russia, Ottoman empire).
At 61.6 million in 1500, 70.2 million in 1550, 78.6 million in 1600 then lapsed back to 74.6 in 1650. During the
17th century the population of these countries increased very gradually because of many disasters like cold
waves, crop failure, famine,rebellion and epidemics up to 1750 with the 106 million population the developed
region had 20.91% share in global scale with most of the countries like North America Oceania(1652-1750)
showing 0% growth rate and only the European region had a positive growth rate of 0.34%.

1750-1950: From the mid-18th century mortality condition in Europe began to improve as a result of
socio-economic development which followed first the agricultural revolution and later the industrial revolution.
It was around 1800 when the world population reached 1 billion and developed region occupied 21.93% with
912 million. While some of the population explosion in Europe after 1800 derived for a while from” higher
fertility”; declining mortality eventually became more important. the reduction in death rate was partly due to
the greater availability of food supply, establishment of conditions of better law and order and standard of
living. This reduction in death rate was however also due to the advancement of the medical technology and
reforms in the field of environmental sanitation and public health (vaccine; smallpox 1799, puerperal
fever1843, polio 1929). Most of this fertility followed the downward trend, which concentrated in a few
decades starting in 1870 and accelerating after 1890. In some countries like UK, Germany, Sweden,
Netherlands, Finland and Belgium there where sustained and sometime marked increased in fertility before
decline set in. For example, the average no. of children per women rose from 4.5-5.5 in the Netherlands
between 1850-1880. By 1900 it had returned to its earlier level. In most European countries the first significant
reduction in fertility occurred after 1880’s and some countries saw large reduction in infant mortality before
fertility started to decline. While in the case of USA the high growth rate of 3.65 was justifiable by the
continuous immigration from Europe and partly due to the early marriage and extremely high marital fertility.
With the medical advancement the growth rate reached its highest of 1.05(1850-1900) which slipped
to rate of 0.92 (1900-1920) because of the 1st world war where casualties occurred between 20.5 – 22 m. The
growth again felt a major set back by the great economic depression from 1929-1930 during which world
witnessed global GDP decline from -26.7%, as a result people avoided getting married and having children as
purchasing power and supporting power for the family has reduced considerably. With a little period of
economic recession, the population growth again escalated because of the 2nd world war. Europe was
severely affected resulting in a growth rate of 0.05% per year the lowest level reached in several centuries.
From 1950 after the 2nd world war following economic recovery there was a short “BABY BOOM” phase in
the Europe and North America. In case of the Europe the growth continued up to 1956 until it started tapering
off with the change in socio and economic conditions. Same case was experienced over North America and
Oceania up to 1960 resulting in an increased rate of population growth. Between 1950-1960, the developed
region added more than 100m with oceanic countries showing highest rate of 2.38 /365.

The legalization of abortion and easy access to the various kind of contraception and other methods
from 1950s played a major role. Until the late 19th century those below age of 20 made up for 50% of the total
population while those over 60 0nly constituted small minority. In Europe low fertility and increasing life
expectancy, both reversed the age structure leading to the shrinking no of younger people. The TFR of 1.78
lower than the replacement level 2.1. On contrary to the shrinkage natural increase is giving way to the
international migration where they accounted of about 8.3% of western and central Europe’s total population.
The sharpest decline is to be found in the former socialist states, mainly those resulting from breakup of the
former USSR where the deficit is compounded by negative net migration.
Future Prospect: With the yearly change of only 0.6% (Europe) and 1.28% (Australia) it is expected
to continue decline in TFR thus the natural increase. Projected demographic change has a significant impact
on future age structure. In the European Union, working age population (15-64) years was 328 m in 2005.
This group started to decline from 2015 depicting it will reach 314 m in 2025 and 2068 m in 2050. UN
projection indicates that this decline will be even larger in the CIS countries including Russia. All these
projections assume continuing net gains from migration in the order of 40 m people during the period 2005-
2050.In the absence of any international migration this decline would be even larger. It means decrease in the
labor force participant and as a result of increasing life expectancy and the aging of the baby boom generation
the age group 65+ will grow from 81m (2005) – 111m in 2025 and to 1401m in 2050. This is an increase of
some 60m dependent people. Today for every 100 Europeans working age group 15-65 there are 25 senior
citizens in age group 65+. A nation basically depends upon its young working population. Thus, the developed
countries must follow or introduce some policies like higher retirement age, higher labor force participation
rates of women, Higher labor force participation rates of migrants Active family policy (improving domestic
fertility rates) Proactive economic migration policy (countries with current and future shortage of labor and
skill) for the future demographic problem.

 Population Growth Pattern in Developing Countries
In the world there are around 157 developing countries and 85% people lives in these countries,
where population growth is about 1.1% as per the record of 2011. But this growth rate fluctuates over time to
time which have been shown in the following table.
The reason behind changing pattern of population growth
Population growth rate in developing countries was very low from 1650 to 1750. As in this time there
was no machinery developed, people used to live in unhygienic society. Unhygienic environment increased
mortality rate, which ultimately results slower population growth. During 1750 to 1800 population growth in
developing countries increase at minimal rate than the developed countries because there was no positive
effect of industrial revolution. During 1800 to 1850 population growth rate of developing countries suddenly
decrease. Due to frequent famine, drought, epidemic many people died, which increase death rate. But birth
rate remains same, as a result, growth rate decrease. During the time of 1850 to 1900 most of the developed
nations using their colonial power and they drain out natural resources from the developing nations and
improve the economy of their own nation. In this purpose, they force the farmers to harvest cash crops instead
of food crop. As a result, in the developing countries inadequate food supply generate hunger condition. Thus,
mortality rate increase but fertility rate remains high as usual and population growth rate tend to increase.
After that, world experienced World War I (1914-1918), which decrease the population size as many people
died in this war. But the loss of man power in developing countries were quite low as these countries were not
main participants. So, during the phase of 1900 to 1920 population growth was more or less same comparing
to previous time period. In the year 1930 Agricultural Revolution take place in developing countries, which
improve food supply in adequate amount, provide nutritious food. Thus, longevity increase which causes
population growth. Almost at this time, developing countries were situated in the Early Expanding/ Industrial
Stage of Demographic Transition, when industrial revolution take place. During this time transportation
facilities developed, slow improvement in health care/sanitation, literacy rate increase. As a result, mortality
rate decreases dramatically and population growth rate increase. During 1940 to 1950 the fertility rate and
mortality rate was more or less same (CBR=CDR). After this moment of stabilization, longevity/life expectancy
as well as total population size increase significantly, this situation is known as Demographic
Momentum/Population Momentum. In this time World War II (1939-1945) take place, where many people
especially male population died in this war. In this situation people started to mix with another race, cast,
religions and the marriage system become exogamy. Thus, war does not affect the population growth
severely, the growth rate remains more or less same. This condition is known as ‘Baby Boom’. During 1960 to
1970 invention of anti-biotic, Medical Revolution take place and modern public health methods introduced to
developing countries together with campaigns of inoculation against infectious diseases, use of antibiotics in
their treatment has rapidly reduce the death rate but birth rate remains constant. So, population in these
countries grow rapidly. During 1970 to 1980 the quantum jumps of agricultural production take place, which
provide adequate nutritious food, leads to population growth in developing countries. During 1990’S
developing countries faces problem of population explosion. Due to medical revolution, death rate decline, life

expectancy increase; but awareness among female population does not spread, some of the remain illiterate,
which leads to high birth rate. Thus, population growth increases. After 1990’S it is observed that, population
growth rate in developing countries tend to decrease due to better education facilities, increasing awareness
about use of contraceptives, family planning, massive industrialization etc. Thus, with the help of economic
and socio-cultural development developing countries will decrease the growth of population in near future.
Comparison of Population Growth Pattern in Between Developed and Developing Countries
If we review the history of population growth ever since the world started experiencing high growth
since 1750, we find that the rate of population growth experienced by the developed countries has been
higher than that experienced by developing countries until 1950. After second world war, mid twentieth
century (1950) emerged as a vital turning point in the Modern history of population growth in the world. Since
1950 developing or less developed countries have been recording a massive surge in their population.
Source- Bhende & Kanitkar
Underutilization of Labor
The labor force is underutilized if there is a mismatch between the labor offered by workers (supply),
and the employment opportunities available to them (demand). This concept can be measured in a number of
ways, including (but not limited to): Unemployment: Working-age persons not in employment, but available
and seeking employment. Time-related underemployment: Working-age persons in employment willing and
available to work more hours than their current working time. Potential labor force: Made up of two groups of

working-age persons not in employment: - Those who are available for employment although they are not
seeking; and - Those who are seeking employment although they are not immediately available.
 Trends in Unemployment and Inactivity
The global unemployment rate peaked in 2009, corresponding to the global jobs crisis which followed
the global financial crisis of 2007-2008. The number of people in unemployment is more volatile than the
number outside the labor force, since unemployment is highly reactive to the business cycle, while the size of
the labor force reflects largely demographic and slower economic trends. Indeed, the number of people
outside the labor force has grown at a rather stable pace in the past few decades.
 Unemployment and Time-Related Underemployment
We tend to associate low unemployment rates with healthy labor markets able to provide employment
to all who seek it, but this is not always the case. Often times, there is an additional (less visible) lack of
employment among the employed and those outside the labor force: some employed persons could desire
and be available to work more hours, and some persons outside the labor force may be available for or
seeking employment.
In 2017, in 70 per cent of countries with data available both the time-related underemployment rate
(the share of persons employed who were willing and available to work more hours) and the unemployment
rate were below 10 per cent.
Youth not in employment, education or training (NEET)
In 2018, 21 per cent of the world’s youth were not in employment, education or training. Moreover, the
youth NEET rate was higher for women than for men in all regions of the world. The youth NEET rate was
relatievly low in Europe and Northern America, where less than 15 percent of the young population was not in
employment, education or training. It is particularly high in Southern Asia, Northern Africa and the Arab States
where youth NEET make up around 30 percent of the young population.
Rural- Urban Migration
Rural-urban migration is the movement of people from the countryside or villages to cities or towns.
Rural-urban migration is a reaction to some of the prevailing conditions in the rural areas. The propensity to
migrate from the rural areas to urban areas is presently high in West Africa, as a result of multifarious
reasons.
 Causes of Rural-Urban Migration
The factors that cause rural-urban migration are divided into two majors groups known as push or pull
factors. The factors are those conditions in the rural areas that compel people to leave, while the pull factors
are those things in the urban areas that attract people in the rural areas. These push and pull factors include
the following.
1. Lack of Social Amenities. Absence of social amenities like good roads, electricity, pipe-borne water,
hospitals, etc. contributes in compelling people to leave the rural areas.
2. Availability of Recreational Facilities in the Urban Areas. Many people especially the youths leave
rural areas to cities they can find recreational facilities like stadia, swimming pools, cinemas, amusement
parks, etc.
3. Higher Education. The need for higher education makes many people to migrate to urban areas
where majority of our higher institutions like universities, polytechnics and colleges of education are located.
4. Employment Opportunities. Many people move to urban areas for meaningful employment
opportunities that they might not have access to in rural areas.
5. Marriage. Newly married ladies whose husbands are in urban areas leave their base in order to go
and live with their husband.

6. Business Activities. Those in the rural areas who have business intentions move to urban areas
where the business action is.
7. Natural Disaster. Natural disasters like outbreak of diseases, erosion, earthquake, etc., may push
people from rural areas to cities.
8. Ostracism. If one is kept at arm’s length by members of his community for any reason, one of the
options left to that person is to migrate to urban areas that is made up to people from different areas.
9. Political Reasons. A person may move from rural area to urban area considered as point of political
activities, in order to participate fully in politics.
 Consequences of Rural-Urban Migration
1. Uneven distribution of Population. The urban areas become densely populated at the expense of
rural areas.
2. Congestion. Many Urban areas are today congested as a result of mass movement of rural
residents into them.
3. Increased house Rents. More people are now chasing the few houses in urban areas which leads
to increase in rents.
4. Escalation of Unemployment. Many unemployed people reject job offers in rural areas and move to
cities thereby worsening the unemployment situation.
5. Increase in Crime Rate. Many unemployed people who moved away from the rurl areas to cities
with the hope of getting employment take to crime when their hopes are dashed in order to keep body and
soul together.
6. Agriculture is Greatly Affected. The able-bodied people move to urban areas leaving children and
the aged behind in the rural areas to practise agriculture.
7. Increase in price of Goods. The presence of many people, especially the unproductive,
unemployed in the cities, low agricultural productivity, etc., are some of the contributory factors to increase in
price of goods.
8. Disparity in Development. The dense population in the urban areas attracts more government
attention at the expense of sparse population in the rural areas.
9. More Business Activities in Urban Centres. Densely populated areas like our ctities are the focus of
business activities because demand is always higher than in sparsely populated areas of the countryside.
10. Increase in political Malpractices. Political Violence is higher in urban areas because of the
presence of many unemployed youths from rural areas who constitute ready tools used by the politicians in
achieving their atrocious and selfish political aims.
 How to Solve the Problem of Rural-Urban Migration
1. Provision of Social Amenities to Rural Areas. The availability of social amenities in rural areas will
discourage many people from migrating to urban.
2. Establishment of Industries in Rural Areas. This will provide jobs to rural residents and discourage
them from leaving to cities in search of jobs.
3. Provision of Recreational Facilities. If recreational facilities like stadia, swimming pools, cinemas,
amusement parks, etc., are made available in rural areas, they will reduce the propensity of our youths to
move to urban areas.

4. Establishment of higher Institutions in Rural Areas. This will discourage rural-urban migration in the
quest for higher education which can now be obtained in the rural areas.
5. Improved Agricultural System. If this is done, agriculture will be more attractive and many school
leavers will take it as their occupation and stay in the rural areas instead of migrating to urban areas in search
of white-collar jobs that are scarce.
Education and Development
It is argued by many development economists that more that the financial and other productive
resources, the human capital of a country is the real determinant of growth and development (Hicks, 1980).
The real wealth of a nation they say is its population as active agents that apply their skills in production,
manage enterprises, develop technology and utilize raw materials for development. In this connection, the
improvement of the quality of the population has become the object of attention of politicians and economists
who are convinced that the means to this end lies in great part, upon education (Wheeler, 1984).
 Educational Expansion
The years immediately following World War II saw the rapid expansion of education in the elementary
and secondary levels in the developing countries. This was followed by rapid growth of tertiary education in
the 1950’s and thereafter. This was also true in the Philippines. It was not until the late 1970’s however that
keen emphasis was given to vocational-technical education for its direct relevance to manpower needs in
agriculture and industry.
Studies have shown that in developing countries like South Korea, Malaysia and Taiwan in the
1980’s, the contribution of education was very positive and there was direct correlation between educational
expansion and economic growth. This was however found untrue in the Philippines where the educational
expansion in terms of the output of all levels of education did not bring about a rise in national income and
growth of per capita income commensurate to educational attainment (Psacharopolous, 1986).
Education does not bring about positive effect to the growth of the economy in general when
educational expansion is too large and too rapid compared to the absorption capacity of the productive sector,
which might be depressed. Lack of savings resulting in low investments and the meagre flow of foreign
investments can result in only slight increase of employment opportunities. Moreover, educational expansion
that is unbalanced with a strong bias in favour of tertiary education is not developmental.
Expansion in education that will not match the manpower needs in the future leads to the
accumulation of a large number of the educated unemployed (Psacharopolous, 1986). This in turns renders
the cost of education mount over time while returns to the economy are limited to those who are able to
secure employment or are able to become self-employed. The unemployment of those who work at lower
level jobs after obtaining professional level education compounds problem. The expansion thus leads to the
incidence of diminishing returns in the education sector as more are graduated without the chance of
employment later on. If education has no intrinsic value in terms of the citizenship, cultural and moral
formation of the individual, education beyond the secondary level for the many unemployed Filipinos would be
a costly exercise. To the economy it would mean foregone opportunity for capital formation and job creation.
 The Economics of Education
The educational cost is not an expensive. This is an investment. The object of education is the
development of the human capital whose productivity is raised by education. The quest for increased
productivity does not only involve direct outlay for the period of education. It also includes the value of
earnings that the individual gives up by not working during the period of schooling. This value is imputed
opportunity cost based on the average earnings in jobs that the individual could have taken had he or she
gone to work (Schultz, 1993).
The cost of education is either public or private. When the individual goes to the public schools is part
of the total public sector budget. The total cost will be the sum of the public sector contribution and what the
households spends for the student (Rosario-Braid, 1987). When education is taken in the private schools, the
cost is borne entirely by the household. Either way, the cost of education has opportunity cost. Its rate of
return is derived from the sum of earning differentials attributed to education over the sum of the actual cost of

education and the amount that could have been earned had the cost for education not been incurred.
On account of the demand for education and the concomitant pressure exerted by the electorate upon
government, the application of public funds to education has been increased and maintained at a high level in
proportion to the national budget and the national income. The Philippines has been providing funds in the
vicinity of 30 per cent of the national budget not only to cover the increase of enrolment but also to improve
the quality of instruction. The cost of education however does not apply fully to its intended development
effect. One cause is the high rate of dropouts and the failure of learners to attain targeted learning rates due
to absenteeism, which is common in developing countries where the children are used in household or farm
labor.
Considering that in the developing countries the problems of unemployment and underemployment
are found in both the agricultural and industrial communities, the communities, the question is how much
education is enough. Education that does not result in employment is needless expense, economically
speaking. Education is enough when it can provide the required manpower for the jobs that can be created,
with some surplus to cover any surge of employment in some sectors of the economy (Schultz, 1960). Sound
as this reason might be, however, any effort to limit educational opportunities will meet public opposition.
Funding limitations and the use of selective measures may have the effect of fitting the educational output to
manpower needs but the policy cannot outrightly be said to educate only to the point of what is enough. To
social scientists, including many economists, there is no such thing as too much of education (Ward, 1976).
 Problems of Efficiency in Education
Efficiency in the delivery of the educational content, especially that part which deals with skills
formation, is essential to economic development. This efficiency is also important because the use of
resources in education should produce the most for a developing country, which cannot afford to be wasteful
in the use of funds. Despite the effort to plan the educational system for optimum efficiency, there are
however some problems in education which are persistent and which need to be removed or remedied in
order to get the most out of the funds in the educational system. Some of those problems are as follows:
o out-dated content;
o ineffective methodology;
o antiquated facilities;
o low book/learner ratio;
o under stocked school libraries;
o lowly motivated teachers;
o parent-caused absences;
o malnutrition affects leaning;
o drug menace; and
o language of education.
Agriculture and Development
 Agricultural Transformation and Rural Development
Agricultural transformation is the process by which individual farms shift from highly diversified,
subsistence-oriented production towards more specialized production oriented towards the market or other
systems of exchange (e.g., long-term contracts). The process involves a greater reliance on input and output
delivery systems and increased integration of agriculture with other sectors of the domestic and international
economies. Agricultural transformation is a necessary part of the broader process of structural transformation,
in which an increasing proportion of economic output and employment are generated by sectors other than
agriculture. It is in the agricultural sector that the battle for long-term economic development will be won or
lost. (Gunnar Myrdal, Nobel laurate in Economics)
“Many development policies continue to wrongly assume that farmers are men.” (World Bank, 2008)
Africa is the only region where overall food security and livelihoods are deteriorating. We will reverse
this trend by working to create an environmentally sustainable, uniquely African Green Revolution. When our
poorest farmers finally prosper, all of Africa will benefit (Kofi Annan, Former secretary General of the United
Nation, Nobel laurate in Peace, 2007)

 Dynamics of Agricultural Transformation
The transformation of agriculture from traditional to modern farming requires a continuous growth of
productivity which will allow accumulation of capital to replace tools with small machines. This could arise
when instead of expanding land area; the productivity per man is increased. Land could become scarce in the
future and only increased productivity can offset scarcity (Dipasis and Brandao, 1993).
The transformation of agriculture can be through the change of farm labor from unskilled workers to
being technicians. They have to become knowledgeable in farm mechanics to be able to operate and repair
machines. They should know the use of selected seed, fertilizers, pesticides, control of water, administration
of prescribed veterinary drugs and provide farm sanitation and do farm bookkeeping. This is a transformation
of human capital in agriculture that will ensure greater productivity.
There are two forces at work in the development of agriculture. First is the incidence of diminishing
returns as land is worked by more people. The other is the increment of productivity as modernization takes
place. They mush offset each other with increased productivity being ahead. When land is abundant and a
large population is involved in agriculture, diminishing returns is delayed while increased productivity of the
agricultural sector will hasten industrialization and growth. There will be a flow of savings from agriculture for
capital formation in a small-scale and medium-scale industry.
When land becomes scarce due to population growth, technological transformation to increase
production per hectare should take place even with not a very high level of technology so that rural
industrialization could gain ground. In the long run, the pattern of growth will be tilted in favour of industrial
production in terms of the total value of production and the number of people employed. These dynamics are
started best and made more realizable when population density is still low.
 Agriculture and Rural Development
Rural development is a goal of Philippine economic development. This is because the rural area is the
seat of age-long poverty and that is where 65 per cent of the country’s population reside. This large
percentage of the population contributes only 25 per cent of the Gross Domestic Product from crop
production, animal production, fishing and forestry. Half of the active labor forces of the country are in
agriculture but they receive less than one third of the total value of total labor income. The incidence of rural
poverty stems from low labor income (Esmau and Unhoff, 1984).
In view of the lower agricultural incomes, the agricultural occupational groups have higher percentage
of members living below the poverty line. While poverty incidence is 39 per cent in all occupations, the
incidence is 57 per cent among tenants and lessees and 44 per cent among owner-tillers. When the gross
added value per hectare for one unit of labor is low, wages and income will be low. This is true in Central
Visayas where the value added is only Php 350.00 and where the poverty incidence is 85 per cent. Central
Luzon before the eruption of Mount Pinatubo had a poverty incidence of only 23 per cent and the gross value
added was Php 1,100.
Landless is related to poverty incidence. It can be pointed out that in Western, Central and eastern
Visayas where landless workers abound, the incidence of rural poverty is highest. This means that when the
farmers do not own the productive resources, they are bound to be poor. It is also in these places, together
with the Bicol region where unequal distribution of land prevails, that insurgency was high (Agricultural Policy
and Strategy Team, 1986).
The lack of rural infrastructure and large population in the three Visayan regions account also for their
poverty. This a failure to provide policy that will cause capital to flow to the rural areas instead of extracting
much needed capacity from the rural areas. The bias against rural development and agriculture is not only on
the part of the government. The people themselves can be blamed for investing in urban areas, especially in
manila, every time they accumulate capital.
 The Concept of Integrated Rural Development
Over the last couple of years, the disappointment over the results of past development efforts in many
countries has been growing in the world at large. Nobody brought it more emphatically to the notice of the

general public than Robert McNamara in several of his speeches, culminating in the well-known statement
that, in the 40 developing countries for which data are available, the upper 20 per cent of the population
receives 55 per cent of the national income, while the lowest 20 per cent receives 5 per cent only.
This gap between rich and poor has only been widening so far, and, in many cases, has led to worse
conditions for the poorer segments of the population. The traditional socio-economic environment of the rural
population has often been destroyed without being replaced by a better alternative. The increasing population
could not be absorbed by the existing rural system, this leading to massive migration to cities, and resulting, in
many cases, in a virtual breakdown of urban societies. Measures for increasing agricultural production
concentrated on the improvement of land productivity in the better areas with larger farms, leaving behind the
poorer masses in the rural areas.
It is noteworthy that the increasing differences between haves and have-nots generated by past
development are not restricted to the widening gap between rich and poor. The same growing dualism can be
observed between regions within countries, and, on a world-wide scale, between industrial and developing
countries. Reference is made to the proceedings of the UNCTAD-conferences.
In the final analysis, the reason for the very unsatisfactory results of past development efforts seems
to lie in the basic approach. This approach can be characterized as an attempt to promote development by
applying economic principles derived from experiences in developed countries. It was not fully realized that
the conditions in developing countries were far more different, as regards for instance factors like:
o the rate of population increase,

o the degree of international communication,
o the educational level,
o the availability of new technologies,
o the value system of the population, to mention only a few examples.
The reassessment of development strategies during the last years tried to surmount the trial-and-error
period and to use the experience of the past to design a new strategy which, it is hoped, might yield better
results. For the development of the rural areas, during recent years, the concept of integrated rural
development has been widely accepted, and the aim of this paper is to introduce this concept and the
problems of its operationalization.
Environment and Development
One of the factors responsible for environment degradation is population growth or population density.
In particular, population density plays the most important role in shaping the socio-economic environment. Its
effects are felt on the natural environment also.
 Effects of Population Growth on our Environment
o Generation of Waste. Due to his destructive activities, man has dumped more and more
waste in environment. As the man-made waste is not transformed, it causes degradation and
the capacity of environment to absorb more waste is reduced. Further, waste leads to air and
water pollution.
o Threat to Biodiversity. Due to his destructive activities, man has extracted more and more
minerals from the earth. Animals have been hunted and plants have disappeared. There has
been loss of biodiversity. These have led to ecological imbalance.
o Strain on Forests. Man has established new housing colonies. National highways and
hydropower projects have been built and forests have been wiped out. These destructive
activities have increased and led to ecological imbalance.
o Urbanization. Rapid growth of population has led to urbanization which has adversely
affected environment. Due to population pressure, natural resources in the cities are depleted
at a fast rate due to population pressure. Moreover, population does not have proper
sanitation facilities and pure drinking water. As a result, the health of the people is adversely
affected. No doubt, urbanization reduces pressure on the rural environment, but it brings with
if environmental damages through industrial growth, emissions and wastes.
o Industrialisation. Underdeveloped countries are following the policy of heavy industrialisation

which is causing environmental degradation. The establishment of such industries as

fertilizers, iron and steel, chemicals and refineries have led to land, air and water pollution.
o Land Degradation. Intensive farming and excessive use of fertilizers and pesticides have led
to over-exploitation of land and water resources. These have led to land degradation in the
form of soil erosion, water logging and salination.
o Transport Development. Environmental degradation is also due to transport development in
the different parts of the world. The automobiles release huge quantities of poisonous gases
such as carbon monoxide, nitrogen oxides and hydrocarbons. The development of ports and
harbours has led to oil spills from ships adversely affecting fisheries, coral reefs, mangroves
and landscapes.
o Climatic Change. Climatic changes are irregular due to greenhouse gases. The thin skin of air
that surrounds the planet is being affected by human activities as never before. Urban people
are still being exposed to unaccepted levels of toxic pollutants. Further, forests are still being
degraded by acid deposition generated by faraway industries, and greenhouse gases
continue to accumulate in the atmosphere.
o Productivity. Environmental degradation not only harms health but also reduces economic
productivity. Dirty water, inadequate sanitation, air pollution and land degradation because
serious diseases on an enormous scale in developing countries like India.
These, in turn, reduce the productivity levels in the country. To take specific instances, water
pollution has led to declining fisheries in rivers, ponds and canals in both urban and rural
areas. Water shortages have reduced economic activity in towns, and cities and villages.
Soil and hazardous wastes have polluted ground water resources which cannot be used for
agricultural and industrial production.
Soil degradation leading to soil erosion, drought, etc. have led to siltation of reservoirs and
blocking of river and canal transport channels. Deforestation has led to soil erosion and
consequent loss of sustainable logging potential.
Loss of bio-diversity has resulted in the loss of genetic resources.
Last but not the least, atmospheric changes have given rise to disruption of marine food
chain, damages to coastal infrastructure due to sea-rise and regional changes in agriculture
productivity due to hurricanes in seas.
Thus, environmental degradation undermines economic productivity of a nation.
o Technology. Presently, environmental pollution is caused by old technology which releases

gases and pollutants causing chemical and industrial pressure on environment.
 Impact of Environment on Population
Polluted environment also affects adversely the health of people.
Table 36.1 shows the types of pollution, their poisonous elements and effects on health.

LEARNING ACTIVITY 1
1. “The key to solving the serious problem of excessive rural-urban migration and rising urban unemployment
and underemployment in developing countries is to restore a proper balance between urban and rural
economic and social opportunities.” Discuss the reasoning behind this statement, and give a few specific
examples of government policies that would promote a better balance between urban and rural economic and
social opportunities.
SUMMARY
Every nation had gone through the ups and downs in their economy. Even the developed countries
have suffered depression. The biggest economic problems encountered by developed and developing
countries are poverty, education, unemployment, and agriculture and environment degradation. Every country
has formulated policies to address these alarming problems in order to achieve economic growth and
development.
REFERENCES
Azanza, Patrick Alain, et.al. 2000. Economics, Society and Development. Philippines. Kayumanggi Press, Inc.
Fajardo, Feliciano. 1990. Economics. Quezon City. Rex Book Store.

Miranda, Gregorio S. 2001. Introductory Economics. L & G Business House.
Sicat, Gerardo P. 2003. Macroeconomics. Manila. Anvil Publishing, Inc.
Todaro, Michael P. 2000. Economic Development. Philippines: Pearson Education Ltd.
Vibar, Teofista et. al. 1998. Economics: Theories and Principles. Quezon City, Vibal Publishing House, Inc.
https://www.investopedia.com/terms/p/poverty.asp
https://www.habitatforhumanity.org.uk/blog/2018/09/relative-absolute-poverty/
https://www.wallstreetmojo.com/lorenz-curve/
https://shikshabhumi.blogspot.com/2020/05/population-growth-pattern-in-developed.html
https://www.ilo.org/ilostat-files/Documents/Stats_sheet_labour_underutilization_EN.pdf
https://nigerianinfopedia.com.ng/rural-urban-migration-causes-consequences-and-solutions/
https://www.academia.edu/40330662/Agricultural_Transformation_and_Rural_Development
http://www.professor-frithjof-kuhnen.de/publications/concept-of-integrated-rural-development/1.htm

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FM-AA-CIA-15 Rev.

Study Guide in SSE 108 Comparative Economic Planning Module No. 3

STUDY GUIDE FOR MODULE NO. 3

MODULE LEARNING OBJECTIVES

At the end of the semester the students will be able to:

a. define poverty and absolute poverty;

 Understanding the Cycle of Poverty

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afford them all. So, which one do you prioritize?

 Relative versus Absolute Poverty

 Relative Poverty is a Form of Social Exclusion

o Internet to access jobs or public services

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Lorenz Curve Definition

 Example of Lorenz Curve

Population Income Portion %

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Population Income Portion %

Gini Coefficient = A1/ (A1+ A2)

o The Lorenz curve is the Visual Indicator and

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Study Guide in SSE 108 Comparative Economic Planning Module No. 3

o The Gini Coefficient is the Mathematical Indicator.

Reasons for income inequality are the following:

o The distribution of economic characteristics across the population should be considered.

o The great disparity in these characteristics across the population.

 Uses of the Lorenz Curve

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Population Growth Pattern in Developed and Developing Countries

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 Factors Influencing Population Growth

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 Population Growth Pattern in Developed Countries

In 2012, the developed countries are:

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 Population Growth Pattern in Developing Countries

The reason behind changing pattern of population growth

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Comparison of Population Growth Pattern in Between Developed and Developing Countries

Source- Bhende & Kanitkar

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 Trends in Unemployment and Inactivity

 Unemployment and Time-Related Underemployment

Youth not in employment, education or training (NEET)

Rural- Urban Migration

 Causes of Rural-Urban Migration

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 Consequences of Rural-Urban Migration

 How to Solve the Problem of Rural-Urban Migration