4.2 Poverty and Inequality Flashcards
What is absolute poverty?
Absolute poverty is when people are
unable to afford sufficient necessities to maintain living standards
What is relative poverty?
Relative poverty is people’s income compared to others in the area.
What are the causes of poverty?
Unemployment, lack of skills, health problems and income dependency.
How does level of GDP relate with level of absolute poverty?
Absolute poverty tends to fall as GDP increases.
assuming state provides support to those who are unable to benefit from growing economy.
What are the 2 main causes to increase in relative poverty?
- Higher salary individuals see larger income growth than others e.g rising asset prices
- Change in government spending or taxation
Examples of causes of relative poverty
Regressive tax system
- Rich get richer
Inequality in wage growth
Tax cuts for rich
- Rich disposable income increases
Growth in underemployment
- 0-hour contracts, part/temp jobs
Decline of trade unions
- Less wage setting power
Decrease in state welfare benefits
- Poorer recieve less money; increased inequality gap
What is the difference between income and wealth?
Wealth is value of money in terms of assets whereas income is flow of earnings.
Causes of Wealth & Income Inequality
- Education, training, skills
- Trade unions
- Benefit system
- Pension payments
- Minimum wage
- Employment legislation
- Tax structure
- Asset ownership
How does wages create wealth and income inequality?
Some workers earn more than others; due to higher education/longer hours or in-demand skills. Workers on lower wages aren’t able to build up assets.
How does wealth level create income/wealth inequality?
Some people may inherit wealth and assets; they are able to build up larger wealth than those with lower wealth. People with assets may be able to generate income from them.
What curve is used to measure income inequality?
The Lorenz curve
x - % of income
y - % of population
What does the Lorenz curve show?
Lorenz curve shows cumulative percentage of the population against the cumulative percentage of income those people have.
What is the Gini Co-efficient?
ini coefficient a measurement of the income inequality of the country.
Ratio of the area under 45° line and Lorenz curve.
How does education/training/skills affect wealth/income inequality?
Higher education/skill/training, higher level of income.
Country with poor education system will see greater inequality.
How does trade unions affect wealth/income inequality?
Countries with strong trade unions tend to have higher income.
Countries without weaker TUs have lower incomes as exploitation of workers is easier.
How does benefit system affect wealth/income inequality?
Countries with benefit system raise income of poorest 20%, closing inequality gap.
How does pension payments affect wealth/income inequality?
State pension ensure minimum living for retirees; more equal distribution.
How does natoinal minimum wage affect wealth/income inequality?
National minimum wage helps improve income distribution as without it households would be earning less and inequality will increase.
How does employment legislation affect wealth/income inequality?
The more workers protected by law, the better income distribution.
How does tax structure affect wealth/income inequality?
Progressive tax systems allows high incomes to be taxed higher and low incomes to be taxed less; closes inequality and more equal distribution.
How does asset ownership affect wealth/income inequality?
Assets generate income. The more equal the asset ownership, the less inequality.
e.g Council house tenants have right to buy at discounted price.
How does capitalism contribute to inequality?
Wage differentials
- Higher wages for higher skills
Why does capitalist society never obtain equality?
Capitalist society encourages hard work through possibility of better living standards.
Without incentive to gain more, people will not try hard; economy won’t grow
