4.2 Flashcards
What is absolute poverty?
Absolute poverty is when people are unable to afford sufficient necessities to maintain life.
The World Bank defines anyone living on less than $1.90 a day as living in absolute poverty.
What is relative poverty?
Someone is said to be in poverty if their income falls below an average income threshold for the economy: they are at the bottom end of the income scale.
In Britain, relative poverty is classed as those with with an income of less than 60% of median household income after deducting housing costs.
What is the poverty line?
The minimum level of income deemed necessary to achieve an adequate standard of living in a given country.
What is the poverty trap?
When the tax and benefits system creates a disincentive to look for work or work for longer hours. By working longer hours, individuals may find they lose income due to income tax and national insurance contributions as well as losing some income-related state benefits.
Causes for change in absolute poverty
It tends to fall as GDP increases, assuming that the state provides support to those who are unable to benefit from a growing economy.
Why has there been relative poverty growth in the UK at the moment?
Inequalities in wage growth. Those in public sector have had low wage increases and several years of falling real wages due to the policy of austerity.
De-industrialisation - increased the number of service sector jobs which tend to be lower paid.
Growth in underemployment, zero-hour contracts, part-time hobs and temporary jobs.
The decline of trade unions - less workers bargaining for higher wages.
State benefits have fallen in relative value whilst taxes have become more regressive.
Long term and structual unemployment has risen.
What’s the difference between wealth and income?
Income is a flow of earnings, while wealth is a stock of an asset.
Why is wealth more unequally distributed than income?
Assets that make up wealth can be accumulated over time. People who are wealthy now can generate income from those assets and as long as income exceeds expenditure, they are able to build up a stock of assets.
What is the Lorenz curve?
It shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have.
A perfectly equal society would have a straight line.
What is the Gini coefficient?
A/(A+B) - the ration of the area between the 45-degree line and the Lorenz curve divided by the whole triangle under the 45-degree curve.
The bigger the coefficient, the more unequal the country.
Causes of wealth and income inequality within countries. (9)
Wages (also, the higher the level of income, the more people can build up wealth)
Wealth levels (someone who already has a high level of wealth is able to build up larger wealth than those on lower levels of wealth, like taking more risks with investment) - Rent is also increase income from wealth.
Chance (Those who bought assets in the right area will see a huge increase in the price of their assets and therefore wealth. Same goes for type of job.)
Age (adults at peak of career will earn a higher income than those who have just started. Those who are older will have had a chance to build up more assets.)
Inheritance
Pension rights
Changes in taxation
Trade union power
Economic development
Causes of inequalities between countries (10)
Natural causes
Developed countries favouring each other through trade
Education/skills
Type of employment
Globalisation
Technological progress
Offshoring
International wage competition
Access to natural resources
Economic change
What is the Kuznets hypothesis?
As society develops and moves from agriculture to industry, inequality increases as the wages of industrial workers rises faster than farmers.
Then, wealth is redistributed through taxation and govt spending so inequality falls.
What was Piketty’s response to the Kuznets hypothesis?
Inequality rises as a country develops as the rate of return on capital grows, so the rich get richer and inequality increases.
Causes for change in relative poverty
Higher salaries seeing larger income growth than those on lower salaries
Changes in govt spending and taxation.
