4.2.1 Absolute and Relative Poverty

Question 1

What is the Distinction between Absolute Poverty and Relative Poverty?

Answer 1

Absolute Poverty: Absolute poverty is a measure of poverty that focuses on a fixed, minimum standard of living necessary for basic survival. It is usually expressed in terms of income or consumption below a certain threshold. The World Bank has set the threshold at $2.15 per day as of 2024.

Relative Poverty: Relative poverty, on the other hand, is a measure that considers a person’s income or resources in comparison to the overall standard of living within their society. It is more concerned with inequality and social exclusion.

Question 2

What is the difference between the thresholds for absolute and relative poverty?

Answer 2

Absolute Poverty: It has a specific threshold, often set as the income required to meet basic needs such as food, shelter, and clothing. The threshold is relatively constant.
Relative Poverty: The threshold for relative poverty varies as it depends on the distribution of income or resources in a particular society. People are considered relatively poor if their income falls significantly below the median or average income in their society.

Question 3

What are some Measures of Absolute Poverty?

Answer 3

a. Income-Based Approach: This measures poverty based on income or consumption levels relative to a fixed poverty threshold. Common approaches include:

Poverty Line: A specific income level below which individuals or families are considered to be in absolute poverty.
Basic Needs Approach: Assessing whether individuals can afford essential goods and services such as food, shelter, education, and healthcare.
b. Cost of Basic Needs (CBN): Calculating the cost of a basket of goods and services necessary for basic survival and determining whether individuals can afford it.

Question 4

What are some Measures of Relative Poverty?

Answer 4

a. Income Inequality Indices: These indices, such as the Gini coefficient quantify income distribution and help identify relative poverty. Higher values indicate greater income inequality.

b. Percentiles: Relative poverty can be assessed by comparing an individual’s income or wealth to specific percentiles of the income distribution, e.g., the bottom 20% of earners.

c. Subjective Measures: Surveys and questionnaires can also be used to assess how individuals perceive their economic well-being relative to others in society.

Question 5

What are the Causes of Changes in Absolute Poverty and Relative Poverty?

Answer 5

1. Economic Factors:
   Economic Growth: Increases in a country’s overall income and GDP can reduce absolute poverty by providing more resources to meet basic needs.
   Income Inequality: Rising income inequality can lead to an increase in relative poverty, even in economically prosperous societies.
2. Social and Demographic Factors:
   Population Growth: Rapid population growth can strain resources and lead to an increase in absolute poverty.
   Age and Gender: Vulnerable groups such as children and women are often more prone to poverty due to factors like limited access to education and employment opportunities.
3. Government Policies:
   Social Safety Nets: Effective social welfare programs can reduce both absolute and relative poverty by providing support to those in need.
   Taxation and Redistribution: Progressive tax systems and income redistribution policies can help mitigate income inequality and reduce relative poverty.
4. Global Factors:
   Globalization: Economic globalization can impact poverty levels through changes in trade, investment, and labor markets.
   Foreign Aid: International aid and development programs can contribute to poverty reduction in developing countries.