4.2 Poverty & Inequality Flashcards
What is absolute poverty?
A situation where individuals cannot afford to acquire the basic necessities for a healthy & safe existence
- more prevalent in developing countries than developed
What is the world banks 3 main poverty lines?
percentage population living on less than:
- >$2.15
- >$3.65
- >$6.85
What can extreme poverty by described as?
multidimensional
- much more than living on a very low income per capita
What is the projection of poverty globally?
- global poverty has been falling but starting to increase due to pandemic
- decreased poverty is a benefit of globalisation
What is the national poverty headcount ration
the percentage of the population living below the national poverty lines.
- national estimates are based on population weighted subgroups estimates from household surveys.
What things can be indicators of development?
- increased quality of electricity, water, etc.
What is relative poverty
where household income is a certain percentage less than the median household income in this country
- individuals who experience relative poverty may not suffer absolute poverty
- relative poverty is more prevalent when a society has more income inequality
What does the UK define income inequality as
below 60% of the median household income
What was the poverty line as an income in the UK in May 2022
- household income was £2072/month
- this meant that the relative poverty line was any household earning less than £1243.2
What is the composition of UK poverty consist of?
- children
- children of single parents
- pensioners
- low skilled workers/unemployed
-e.g.3mill living on min wage but depend on inheritance, partners earnings etc - disabilities, rely on benefits
Causes of changes to poverty
- unemployment changes
- change in rate of economic growth
- economic development
- fdi
- policies resulting in trade
- gov tax/ benefits
- change in asset prices
- external factors; war climate illness
- life expectance
What is income?
flow of money into a household
What are examples of income
- rent
- wages
- interest
- profit
What is wealth?
stock of assets
Examples of wealth
paintings, inheritance, shares
What is the relationship between income and wealth
Wealth can lead to income
- savings lead to interest
- share capital to dividends
- ownership of second properties lead to rent
- ownership of business leads to profit
What is an acronym that can be used to remember causes of income and wealth inequality in a country?
GAS
What does gas stand for?
- government policies
- asset ownership
- skills
What are the government policies that cause inequality?
- tax
- benefits
- corruption
- inheritance tax
- minimum wage
- policies towards trade union
how does taxation levels cause inequality
- tax tends to be lower for countries with high levels of inequality
- developing countries have a low figure for tax revenue as a % of GDP
How does benefits cause inequality
- social benefits have been cut or not increased with inflation - or in some countries do not exist
- this will cause greater inequality
How is asset ownership a cause of inequality
- generates income
- lack of developed financial markets prevents individuals borrowing to acquire land/ assets.
- so assets tend to be handed down through family or acquired by corrupt governments
How are a lack of skills a cause of inequality
lack of skills causes a decrease in the level of income due to lack of skills/ training
- a country with a poor education system will see greater inequality than one with a good education system
How do wage rates cause income inequality
- min wage is there to improve the equity distribution of income.
- without it, more households would be earning less and inequality would increase
What is Simon Kuznetsk hypothesis
how income inequality changed as an economy goes through stages of industrialisation and development
Why did industrialisation increase inequality
some workers moved from lower productivity, lower paid agricultural sector to the higher productivity manufacturing sector
- causing greater income inequality with the workers left behind
What happens to inequality after this decreases
due to government intervention, funded by increased state tax revenue brought about as a result of the increased production in the economy
What does the Kuznetsk curve look like
- a quadratic
- developing economies on + gradient of slope
- developed economies on - gradient of slope
- income inequality on y-axis
- per capita income
An analysis of the kuzneys curve
- as a country changes from primary to secondary, productivity increases and per capita income increases
- however inequality is also increasing as the gain wages between the two sectors is significant
- at some point, the economy will reach a Turing point of income where inequality begins to fall
what is capitalism?
an economic system based on private ownership.
How does inequality occur under capatalism
under capitalism workers with higher skill and higher MRP earn higher wages
- having less skill causes little to no wage to be received creating inequality
- the higher income can acquire more assets leading to higher levels of inform
How is the extenet of inequality under capitalism determined
inequality under capitalism is a form of market failure
- this can be reduced by government policy
- inequality before tax and benefits or laws against the inequality after
- the impact of it overall with the government intervention policies.
