Absolute Poverty

  • People are said to be in absolute poverty when their income is insufficient for them to be able to afford adequate shelter, food and clothing
    • In rich countries such as the UK, relatively few people are in situations of absolute poverty – around 500 (think tramps)
    • In other countries, such as Nigeria, 70% of the population was living on less than $1 a day

Relative Poverty

  • Someone in the UK may see themselves as poor if they live in poor accommodation and can only afford to go out once a week
    • The same standard of living could be for a rich person in a country like Mali
  • This is relative poverty – a situation of being poor relative to others – they are unable to participate in the usual activities of the society they live in
  • Economists often define poor as those people living in households with income below that of 60% of average disposable income

Causes of Poverty

  • Unemployment
  • Low Wages
  • Sickness and disability
  • Old age
  • The poverty trap
    • The poor find it difficult to raise disposable income as if they get a job, they’d have to pay more in taxes whilst receiving less state benefits.
  • Being a lone parent
  • Reluctance to claim benefits

The Effects of Poverty

  • The poor tend to suffer worse physical and mental health and have lower life expectancy
  • The poor tend to have less education, e.g. they can’t buy books for their kids or won’t have a computer at home
  • The poor can feel cut-off from the rest of society
  • It imposes a burden on the government, as they have to spend more

Government Policy Measures to Reduce Poverty

  • Government may seek to reduce absolute poverty by introducing measures that raise the income of the poorest groups
  • They may reduce relative poverty by introducing measures that narrow the gap between the rich and the poor
  • Amongst the measures they might use are:
    • Operating a NMW
      • This will help the low paid who stay in employment
      • However, most people earning minimum wage are secondary earners from middle and high income households
    • Cutting the bottom rate of income tax
      • May reduce the poverty trap and provide a greater incentive for people to work
    • Increasing employment opportunities
      • A major cause of poverty is unemployment
      • There is no easy way of increasing the number of jobs on offer
    • Improving the quantity and quality of training and education
      • This is a long term measure but will increase productivity
    • Making use of trickle-down effect
      • Controversial, but basically means cutting taxes like corporation and inheritance tax so that rich entrepreneurs will take business ventures that will hopefully mean a greater aggregate demand for jobs
    • Increasing benefits for the unemployed
      • Some economists argue that this could raise aggregate demand in the economy, as the unemployed will spend more, thus creating more jobs
      • Others, however, believe it can increase voluntary unemployment
    • Increasing the provision of affordable childcare
      • This would enable more lone parents to undertake full-time employment and raise them out of poverty.