21809 - The five-part framework Suppose we are considered...

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The five-part framework… Suppose we are considered with poverty. Poverty is a function of unemployment, total wage bill (the total amount of wages paid to workers) If we want to broaden our analysis from unemployment alone to also take account of how much people earn when they work, we might consider the function above. Policy #1: Urban employment creation Policy #2: Rural development Working with the specific example we went thru on Monday, take the same numbers and add to them by making three sets of calculations: the original situation – where urban employment creation is followed – and where rural development is followed; what would be the effect of these on unemployment and the wage bill. Originally, we had a $3 wage in the urban sector, $1 wage in the rural sector. 100 people employed in urban, everybody employed in rural sector, 200 unemployed. Policy of urban employment creation results in 230 unemployed and the policy of rural development results in 100 unemployed What is the wage bill in the original situation? $1000 =$3*100 + $1*700 = 1000 (unemployed people – 200 – do not get paid anything) What is the wage bill when urban employment creation is followed? $1000 = we add 15 jobs, so $3*115 + $1*655 What is the wage bill when rural development is followed? $3*100 + $1.5*800 = $1500 (unemployed people – 100) policy two raises wages of rural development to $1.5 Evaluating the function: Policy #1: increases poverty because there are now more people unemployed Policy #2: poverty goes down, we evaluate looking at unemployment which goes down If we look at wage bill, it goes up. So poverty also goes down. If we switch our attention from just unemployment to poverty, a policy of urban employment creation is going to raise poverty and a policy of rural development is going to lower poverty. We can make a stronger statement using this welfare judgment function, and saying a policy of rural development will also reduce poverty by considering other factors Bottom-line management, would insist on: Policy analyst must answer three very basic but very crucial questions:
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21809 - The five-part framework Suppose we are considered...

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