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Wage Labor: An Essential Piece of the Poverty Puzzle

Authored by

Jake Grover
Jake Grover
Senior Policy Analyst, Bureau of Policy, Planning and Learning

Jake Grover is the chair of the working group currently drafting USAID's Vision for Ending Extreme Poverty and a Senior Policy Analyst in the Bureau of Policy, Planning and Learning’s Office of Pol

icy (PPL/P). He has also worked at the Millennium Challenge Corporation's Department of Policy and Evaluation, the Department of Treasury's Office of African Nations, the Center for Global Development, and the Bureau of Labor Statistics. Jake received a BSBA in Economics and a BA in Political Science and International Relations from The Ohio State University before getting a Master's of Public Policy in International Policy and Development from Georgetown University.

What does it take to end extreme poverty? Ever since President Obama committed us to this lofty goal, we’ve been asking ourselves this question quite frequently at USAID. While there is no silver bullet for what is a problem of broad development progress, it is difficult to emphasize enough the importance of labor earnings, and it is much more common to understate its importance. Let’s see if I can convince you: first, I’ll explain what USAID means by extreme poverty; second, I’ll make the case for the importance of labor; and finally, I’ll give an example where USAID is making a (huge) impact. 

First, our definition of extreme poverty. Foremost, USAID recognizes that extreme poverty is a complex and multi-dimensional phenomenon. Its causes and consequences vary greatly according to gender, location (think: rural versus urban), and myriad other variables. But to boil it down to a digestible sentence or two, we define extreme poverty as the inability to meet basic consumption needs and acquire assets, which often entails hunger and poor health, limited education, marginalization or exclusion, and lack of access to basic services. But that’s just a snapshot – extreme poverty is also dynamic. Borrowing a paradigm from recent research supported by LEO, the extreme poor find themselves along a continuum that ranges from struggling against destitution to fighting to stay out of poverty to working towards a sustained escape from extreme poverty. 

But despite these definitional nuances, the development record is clear on how to reduce extreme poverty: inclusive economic growth is the only way to rapidly and sustainably reduce extreme poverty at scale. For the extreme poor, inclusive growth entails getting more out of their most basic asset: their labor. Such increased labor productivity can take many forms: a new, better-paying job; another year of learning in school; or a connection to the energy grid. The cumulative effect of everyday improvements like these is what propels productivity gains, economic growth, and, ultimately, sustainable escapes from extreme poverty.

Not convinced yet? Let’s dig a bit deeper into the evidence. Wage labor – including wage-earning agricultural labor – is the most important form of employment for the extreme poor, both for survival and as a pathway out of extreme poverty. Nearly half of the extreme poor – and as much as 60 percent in some countries – are employed as wage workers. Empirically, increased labor income has been identified as the main vehicle that lifts people out of poverty. A recent World Bank study, for example, found higher work earnings accounted for fully half of progress in poverty-reducing countries. 

So what is USAID’s role? Not surprisingly, the answer is not always direct or immediate. Earlier this month, I had the opportunity to visit our Mission in Timor-Leste and the training facility of Cooperativa Café Timor (CCT). While CCT is no longer funded by USAID, it is an example of USAID’s transformative work in helping to generate employment and economic growth. While the partnership is primarily focused on creating income-generating opportunities for subsistence farmers, CCT has been so successful that it is not merely financially self-sustaining: it is now one of the largest employers in Timor-Leste, having created 500 full-time jobs and 3,000 seasonal, part-time, or indirect jobs. With an effective membership of about 21,500 farmers (and an average family size of about seven), CCT has boosted incomes for nearly 15 percent of the Timorese population. 

As we continue to sharpen our focus on ending extreme poverty, it will be critical to learn from success stories like CCT, particularly in countries like Timor-Leste with stubborn extreme poverty rates. But we are committed to this learning agenda, and we will continually strive to focus on what matters most. Labor is just one piece of the puzzle, and we still have a long way to go in figuring out what it takes to end extreme poverty.