4.2 Flashcards
What is relative poverty
Earning a low amount in the context of a country, measured by comparison of average income in a country
> Big problem in UK as in UK people are earning less than 60% of median household income
What is absolute poverty
people who are unable to afford sufficient necessities to maintain life, measured by people who are on under $2.15 a day
Main causes of poverty?
- Unemployment
- Lack of skill
- Health problems
- Income dependency
> Absolute poverty falls as GDP increases assuming the state provides support to those who are unable to benefit from economic growth
Causes of relative poverty?
- Higher salary earners see a larger income growth than those on low salaries
- Changes in taxation and gov spending
- Inequality in wage growth eg those in public sector see low wage increases and several years of falling real wages
- Decline of trade unions = decreased bargaining power
- Growth in zero-hour contracts, underemployment and part-time jobs = decreased wages
- De-industrialisation = increased service sector jobs = paid lower
Wealth definition
stock of assets, eg home,shares or land.
> Wealth inequality exists when there is unequal distribution of assets
Income definition
Income- flow of earning eg a job or welfare payments.
> When these are unevenly distributed across a nation, income inequality exits
Lorenz curve
Lorenz curve= cumulative percentage of population plotted against the cumulative percentage of income that those people have
- The closer the Lorenz curve is to the line of equality, the smaller area A is. And the Gini coefficient will be low.
- If there is a high degree of inequality, then area A will be a bigger percentage of the total area.
- A rise in the Gini coefficient shows a rise in inequality – it shows the Lorenz curve is further away from the line of equality.
Gini coefficient = A/A+B
0= perfect equality = same income and wealth
1= perfect inequality = income and wealth concentrated in one area
Causes of wealth and income inequality
WCAWB- WE CAN ALL WIN BIG
Within countries:
- Wages- some earn more than others for things like educational achievements or hours of work, skills are more in demand = higher wages. Also higher incomes= save= accumulation of wealth through assets whilst low incomes spend on necessities
- Chance - People who buy houses or assets in the right area = increased prices of assets= increased wealth
- Age - working adults in peak of career = earn more than starters , older = more time to accumulate wealth
- Wealth levels: some may already be wealthy through savings or inheritance eg take risky investments = increase return of profit. Also high levels of wealth mean people can earn rent and interest on their assets and therefore see increased income.
Between countries:
- Wars, droughts, famines, earthquakes
Kuznet hypothesis
Kuznets hypothesis- society develops and moves from agriculture to industry= increases inequality as wages of industry rise faster than farmers. However gov redistributes wealth through tax and gov spending so inequality falls
Picketty
Pickety= discredited kuznets theory by arguing inequality increases as a country develops as rate of return increases, so rich get richer and inequality increases
Significance of capitalism
- Wage differentials- capitalism leads to income inequality because of wage differentials as wages vary due to supply and demand of jobs and workers
- People owned resources= wealth differs based on assets they own- wealth can be passed on or gained through saving
- Capitalism doesnt work without inequality as without the incentive to gain more people will not take risks = economy wont grow
> a degree of inequality is desirable and necessary but not excessive as it can lead to problems with social justice and effieeny = more crime = increased saving and decreased consumption - Incentive to work harder
- Profit motive= increased comp due to innovation
