4.2 poverty and inequality Flashcards
absolute poverty
a severe deprivation of basic human needs. World bank -those living on less than $1.90 a day. -doesn’t exist in developed countries as govt intervenes to provide basic necessities
relative poverty
when ppl can’t afford the g/s that are considered normal in that country. If income falls below a threshold for the country e.g in UK income of less than 60% of median household income.
poverty line
min level of income necessary to have an adequate SoL in a country.
poverty trap
in developed countries tax & benefit/welfare system keeps ppl in poverty by creating a disincentive to work.
-happens when benefits may be too generous relative to low income paid employment, disutility of unpleasant work, transport & childcare costs.
causes of changes in poverty -absolute and relative
-poverty caused by unemployment, lack of skills, health probs & income dependency.
-absolute falls as GDP increases, assuming state provides support to those unable to benefit from a growing econ.
-growth of relative poverty- if those on higher salaries see higher income growth but those on lower salaries don’t or changes in govt spending & tax.
why has relative poverty been rising in the UK.
-growing inequality in wage growth-those in public sector -low wage increases & several yrs of falling real wages due to austerity.
-de-industrialisation- increased the no. Of service sector jobs which tend to be lower paid.
-growth in under-employment, zero-hour contracts, part time & temporary jobs =lower wages for workers.
-decline of TU power has left many workers unable to bargain for higher wages.
-state benefits have fallen in relative value whilst taxes have become more regressive
-rise in LT & structural unemployment.
cycle of poverty
Cycle of poverty- poverty damages childhoods & social mobility.
-Low incomes = little access to food, clean water, health/education - hunger, health probs, lack of education - unemployment, few opps, disease & malnutrition - unskilled & unemployed - cycle restarts.
-keeps poverty transmitted from 1 generation to the next.
-poverty is an externality - affects everyone in society.
4.2.2 inequality -income
flow of money received by person/household in a particular time period.
-low incomes =can’t buy assets so usually low wealth.
wealth
a stock of all the assets a person holds at a particular time. it can generate income.
lorenz curve
shows distribution of income data graphically.
-cumulative % of the pop plotted against the cumulative % of income that those people have.
-perfectly equal society = a straight line, degree of bend away from the line indicates the degree of inequality.
gini coefficient
A/ (A+B)
-ratio of the area between the 45 degree line & the Lorenz curve divided by the whole triangle under the 45 degree curve. It’s measured between 1 and 0, the bigger the coefficient the more unequal the country.
causes of wealth and income inequality within countries
Wages - Some workers simply earn more than others -higher qualifications, skills, longer hrs.
Those who aren’t in work will have lower incomes. Moreover, the higher the level of income, the more someone can save and thus the more wealth they can build up. -high incomes=build up a stock of assets, lower incomes may have to spend most of money on everyday items.
Wealth levels - Someone w high levels of wealth, through inheritance or saving, can build up larger wealth than those on lower levels of wealth. E.g more risky investments which give them a higher RoR or buy property -earn rent and interest on their assets so see increased income.
Chance - those who bought the right assets that hugely increase in price see large increases in their wealth. Or ppl who luckily inherited wealth.
Age - Working adults at the peak of their career will earn a higher income than those who have just started.
-older will have had a chance to build up more assets, but some of this stock may have been used to pay for retirement.
between countries
Some countries have been held back by wars, droughts, famines and earthquakes. Developed countries favour each other when trading, negotiating -helps them to develop more than countries who aren’t involved leaving them behind.
kuznets v piketty hypothesis
As society develops moving from agriculture to industry, inequality increases as the wages of industrial workers rise faster than farmers. -wealth redistributed-tax & G.S so inequality falls.
P argued that inequality rises as a country develops as the rate of return on capital grows, so rich get richer & inequality increases.
sig of capitalism
Wages vary in a capitalist econ -based on S & D and these vary for diff jobs = inequality.
-wealth differs based on the assets individuals own.
-argued equality can never be achieved in a capitalist society where the possibility of having more is important to encourage hard work. Without the incentive to gain more, people will not try hard or take risks since they have no reason to, means econ wont grow, -inequality essential for capitalism to work, but excessive inequality causes problems with efficiency and social justice.
policies to reduce poverty and inequality
-redistribution of income
but free market economists argue income inequality is an incentive to educate & train.
Interventionist economists say since initial endowments of production factors & life chances are unequal and the market system is weighted against certain sections of society, the govt must step in to tax the rich & redistribute to the poor.
(1) If people have roughly the same needs the econ system ought to give them access to roughly the same quantity of goods. -idea that the consumption of some goods is a basic human right and ppl that live together in a society shouldn’t be excluded from those goods.
(2) Greater equality would make the econ system more resilient to shocks. Since ppl on low incomes save very little, and have a higher propensity to spend than those on higher incomes. The continued expenditure of the poor during a recession would make AD more resilient.
-progressive tax & redistributing that govt revenue in the form of welfare benefits.
but free market economists argue this comes at the expense of labour market incentives, it leads to a culture of dependency, reducing the incentive to work-worsening poverty, harming E.G and entrepreneurial spirit
