4.2 poverty and inequality Flashcards
what is absolute poverty?
measure of people below an absolute threshold, reflect minimum requirements of food, shelter, clothing etc (income insufficient to allow a basic standard of living)
how is absolute poverty measured?
world bank use £2.15 per day PPP
what is relative poverty?
measure of the income or wealth inequality within a country
how is relative poverty measured?
OECD and UE measure it as below 60% of media earnings, a income inequality rises so does relative poverty
how is income inequality measured?
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
what are the causes of absolute poverty?
-homelessness
-inability or unwillingness to claim welfare benefits
-wars
-famines
-natural disasters
-lack of economic development
-low level of economic welfare from government
what are the causes of relative poverty?
-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
distribution of income in the UK?
north-south divide, regional inequality in the UK often characterised as a north-south divide
what is the poverty trap?
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
income vs wealth inequality?
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
role of inequality in capitalism?
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
what are causes of inequality?
- differences in assets/ wealth
-level of benefits
-levels of government intervention
-unemployment and underemployment
-discrimination
-disparities in skills
-regressive taxation
-regional disparities
how does difference in assets/wealth cause inequality?
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)
how does difference in assets/wealth cause inequality? evaluation
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
how does levels of benefits cause inequality?
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
how does level of benefits cause inequality? evaluation
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
how does level of government intervention cause inequality?
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
how does level of government intervention cause inequality? evaluation
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
how does unemployment and underemployment cause inequality?
obvious link between employment and earnings
how does discrimination cause inequality?
gender pay differences
how does disparities of skills cause inequality?
natural or through taxation
how does regressive taxation cause inequality?
poorer paying a greater proportion of income in tax
what policies are there to reduce inequality?
-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
how does a more progressive tax system reduce inequality?
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
