4.2 poverty and inequality

Question 1

what is absolute poverty?

Answer 1

measure of people below an absolute threshold, reflect minimum requirements of food, shelter, clothing etc (income insufficient to allow a basic standard of living)

Question 2

how is absolute poverty measured?

Answer 2

world bank use £2.15 per day PPP

Question 3

what is relative poverty?

Answer 3

measure of the income or wealth inequality within a country

Question 4

how is relative poverty measured?

Answer 4

OECD and UE measure it as below 60% of media earnings, a income inequality rises so does relative poverty

Question 5

how is income inequality measured?

Answer 5

Lorenz curves- shows the distribution of income in an economy (closer to straight line, more equal distribution of income)
GINI coefficient- numerical measure of income inequality based on Lorenz curve 0= perfect equality 1= maximum inequality

Question 6

what are the causes of absolute poverty?

Answer 6

-homelessness
-inability or unwillingness to claim welfare benefits
-wars
-famines
-natural disasters
-lack of economic development
-low level of economic welfare from government

Question 7

what are the causes of relative poverty?

Answer 7

-unemployment
-part time work instead of full time
-discrimination
-disparities in skills
-lack of wealth
-low level of welfare benefits
-regressive taxation
-inflexibility in labour market
-regional disparities
-poverty trap

Question 8

distribution of income in the UK?

Answer 8

north-south divide, regional inequality in the UK often characterised as a north-south divide

Question 9

what is the poverty trap?

Answer 9

low pay reduces incentives to take up or paid work creating a dependency culture, low income households have disincentives to earn extra income because of tax and benefit system, employees become liable to pay income tax, national insurance etc

Question 10

income vs wealth inequality?

Answer 10

wealth inequality tends to be greater than income inequality, individuals need some kind of income to survive but many have zero wealth, existing wealth inequality can create income inequality as wealth creates income

Question 11

role of inequality in capitalism?

Answer 11

capitalism relies on market to allocate resources via incentives, if higher income results from harder work and greater skills, creates an incentive to work hard and acquire new skills, without sine level of inequality, would be a lack of incentive to make capitalism work BUT inequalities are passed down through generations

Question 12

what are causes of inequality?

Answer 12

• differences in assets/ wealth
  -level of benefits
  -levels of government intervention
  -unemployment and underemployment
  -discrimination
  -disparities in skills
  -regressive taxation
  -regional disparities

Question 13

how does difference in assets/wealth cause inequality?

Answer 13

those with existing wealth have opportunities to raise their incomes, home ownership is a key area of wealth in the UK (difficult to get on housing ladder if poor)

Question 14

how does difference in assets/wealth cause inequality? evaluation

Answer 14

depends on the tax system- high levels of inheritance tax can redistribute wealth and make more equal, depends on type of assets- some more ‘liquid’- more easy to turn into funds/income

Question 15

how does levels of benefits cause inequality?

Answer 15

lower level of unemployment benefits means those out of work have lower disposable incomes, benefits tracked to price rises instead of wage rises means they fall behind earners, low state pensions means elderly may be trapped on a low income with little prospect of raising it

Question 16

how does level of benefits cause inequality? evaluation

Answer 16

low unemployment benefits may provide an incentive t take work, reducing inequality in the LR, raising benefits would have been paid for , low benefits may allow funds to be used to reduce inequality in other ways

Question 17

how does level of government intervention cause inequality?

Answer 17

more capitalist economies may tax and spend less, leading to less distribution of income and wealth and more inequality, prioritisation of other macroeconomic objectives may mean that reducing inequality is not central to policy

Question 18

how does level of government intervention cause inequality? evaluation

Answer 18

less intervention may create more incentives for businesses and individuals- good in LR, greater intervention may lead to government wastage worsening outcomes for all, even if inequality is reduced

Question 19

how does unemployment and underemployment cause inequality?

Answer 19

obvious link between employment and earnings

Question 20

how does discrimination cause inequality?

Answer 20

gender pay differences

Question 21

how does disparities of skills cause inequality?

Answer 21

natural or through taxation

Question 22

how does regressive taxation cause inequality?

Answer 22

poorer paying a greater proportion of income in tax

Question 23

what policies are there to reduce inequality?

Answer 23

-more progressive tax system
-increase the level of benefits
-increase in national minimum wage
-improved training and education for the unemployed
-employment legislation
-measures to reduce the geographical immobility of labour
-reduction in indirect taxes
-improvements in health care
-job creation schemes

Question 24

how does a more progressive tax system reduce inequality?

Answer 24

rich pay a greater proportion of their income in tax than the poor, switching from indirect taxes to direct taxes can be seen to be more progressive

Question 25

how does a more progressive tax system reduce inequality? evaluation

Answer 25

higher top rate of tax may have distinctive effects , fairness issues, should the rich pay more

Question 26

how does can increasing the level of benefits reduce inequality?

Answer 26

should increase disposable incomes for the poorest in society, linking benefits to average wage rises rather than average price rises would prevent those on benefits from falling behind earners

Question 27

how does can increasing the level of benefits reduce inequality? evaluation

Answer 27

disincentive effect for the unemployed to find work, opportunity cost- could alternative uses of government spending be more effective in reducing inequality

Question 28

how does can increasing the national minimum wage reduce inequality?

Answer 28

raise the threshold of pay for millions in the lowest paying jobs, improes incentives for those unemployed as the reward for taking paid work is greater, the aim is to get NLW up to 60% of median earnings

Question 29

how does can increasing national minimum wage reduce inequality? evaluation

Answer 29

could cause greater unemployment if employers can no longer afford to pay staff, may not target poorest households-someone on NMW may not be only earner, partner may be on a high salary

Question 30

how does improving training and education for the unemployed reduce inequality?

Answer 30

particularly relevant in regions where structural unemployment is high, improved skills make individuals more employable, raising earning potential

Question 31

how does improving training and education for the unemployed reduce inequality? evaluation

Answer 31

difficulty of knowing what type of training to provide, cost of training must be met by firms or the government, time lags- impact may not be seen for a long time

Question 32

how does employment legislation reduce inequality?

Answer 32

rules on hiring/ firing workers, anti-discrimination laws, rules on conditions of employment

Question 33

how does employment legislation reduce inequality? evaluation

Answer 33

could create constraints on businesses, could be more difficult to enforce

Question 34

how does measures to reduce the geographical immobility of labour reduce inequality?

Answer 34

e.g housing subsidies, BUT cost associated with this and problem of targeting subsidies effectively

Question 35

how does reduction in indirect taxes reduce inequality?

Answer 35

BUT loss of tax revenues for the government which could have been used more directly to reduce inequality

Question 36

how does job creation schemes reduce inequality?

Answer 36

BUT issues with quality and relevance to the needs of the economy