Understanding the Rise in Poverty: Initial Conditions, Institutional Legacies, and Policies

110 The poor in Europe and Central Asia cite loss of stable income as the overwhelming factor associated with poverty. Poverty is largely the result of bad labor market outcomes, such as the loss of a paying job, the failure to be paid for work completed, or insufficient income because of a lack of the skills needed to compete in the new, more market-oriented economy. For those who are not able to work—children and the elderly—poverty is linked to a decline in public transfers and other forms of income support, and to being one of many dependents living on few and low incomes. Similar causal forces underlie the rise in poverty in all ECA countries, namely the economic and social dislocation associated with transition, and the ensuing collapse in output and incomes. But poverty outcomes are vastly different across countries. Not only are the absolute levels of poverty different (chapter 1, table 1.1), but the characteristics of the poor vary also. In Central Europe, South Eastern Europe, and the Baltics (CSB), the risk of poverty is linked to well-identified household characteristics (education, number of income earners, employment status), which influence a household’s ability to earn its income. Thus, the risk of poverty is especially high for households where the main income earner is unemployed, where there are many dependents living on a single income, or where workers’ skills are no longer in demand. In contrast, relative poverty risks in the Commonwealth of Independent States (CIS) look remarkably similar across households that in theory would have widely differing income-earning opportunities. The bulk of the poor in the CIS are working poor, and they do not look all that different from the nonpoor.