4.2 poverty and inequality Flashcards
absolute poverty
when people are unable to afford sufficient necessities to maintain life
-world bank defines this as anyone who is living on less than $1.90 a day
relative poverty
someone is said to be in relative poverty if their income falls below an average income threshold for the economy; they are at the bottom end of the income scale
-One in 5 people in the UK live below the poverty line
-People who cannot afford social norms like an electric fridges and mobile phones
causes of poverty
-unemployment
-lack of skills
-health problems
-income dependancy
main causes of growth of relative poverty
-those on higher salaries see larger income growth than those on lower salaries
-changes in government spending and taxation
why has relative poverty been growing in the UK
-higher paid jobs seeing their wages increase higher than those on lower wages (the wages of the richest are now 170 times the average worker)
-de-industrialisation
-growth in unemployment, zero hour contracts, part time jobs, temporary jobs, all of which means lower wages for workers
-decline of trade unions hayloft many workers unable to bargain for higher wages
-state benefits have fallen in relative value whilst taxes have become more regressive
-long term and structural unemployment has risen
distinction between wealth and income inequality
-a flow of earnings, whilst wealth is a stock of asset
-wealth is unlikely to be more unequally distributed than income because assets that make up wealth can be accumulated over time
-the accumulation of wealth can occur over successive generations through inheritance
measures of income inequality
-the Lorenz curve
-the gini coefficient
causes of wealth and income inequality within countries
-Wages, some workers earn more than others because of higher educational achievements, work longer hours or their skills are more in demand
-Wealth levels, someone who already has a high level of wealth, whether through inheritance or savings, is able to build up larger wealth than those on lower levels of wealth
-Chance, those who bought houses in the right area or bought the right assets will see a huge increase in their wealth
-Age, working adults at the peak of their career will earn higher income than those who have just started
causes of wealth and income inequality between countries
some countries are held back by wars, famines and earthquakes. certain social groups may have been excluded and marginalised. developed countries tend to favour each other when trading, negotiating etc, which helps them to develop more than countries who re not involved in the agreements
impact of economic change and development
-the kuznets hypothesis says that as society develops and moves from agriculture to industry, wealth is redistributed through taxation and government spending so inequality falls
-however piety discredited this theory by arguing that inequality rises as the country develops as the rate of return on capital grows, so the rich get richer and inequality increases
significance of capitalism
-capitalist economy leads to income inequality because of wage differentials. wages vary as they are based on demand and supply, and demand and supply vary for different jobs
-individuals also own resources and thus wealth differs based on the assets they own
-inequality is essential for capitalism to work as without the incentive to gain more, people will not try hard or take risks
-a degree of inequality is necessary and desirable, but excessive inequality causes problems with efficiency and social justice
what is the Lorenz curve?
a graphical representation of income or wealth inequality
