Improvement in labor market conditionshas been the main explanation behind many of the povertysuccess stories observed in the last decade, that is theprimary conclusion of an analysis of changes in poverty byincome source. Changes in labor earnings were the largestcontributor to poverty reduction for a sample of 16countries where poverty increased substantially. In 10 ofthese countries, labor income explained more than half ofthe change in poverty, and in another 4 countries, itaccounted for more than 40 percent of the reduction inpoverty. A declining dependency rate accounts for over afifth of the reduction in poverty in 10 out of 16 countries,while transfers and other non-earned incomes account formore than a quarter of the reduction in poverty in 9 ofthese countries. A further decomposition of the contributionof labor income to poverty reduction in Bangladesh, Peru,and Thailand found that changes in individualcharacteristics (education, work experience, and region ofresidence) were important, but that overall, increases inreal earnings among the poor matter the most.
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