Inequality and Poverty Flashcards
Wealth
A stock of valuable assets
Marketable Wealth
Wealth that can be transferred to others eg Property
Non-marketable Wealth
Wealth specific to a person, which cannot be transferred eg life insurance
Personal Distribution of Income
The distribution of the total income to all individuals.
Absolute Poverty
When an individual or household’s income is insufficient for them to afford basic shelter, food and clothing. (Minimum level being $1.25 a day at PPP - World Bank)
Relative Poverty
When people are poor in comparison to others. - normally below 50% of median income, in the UK it is below 60%
Causes of Poverty
Unemployment Poor Education/Skills Poor Health/Healthcare Born into Poverty Subsistence agriculture.
Poverty Trap
Where those on the poverty line may not benefit from working, they might be better off staying on welfare benefits.
Eg a family with 3 children, without work will receive £120 in benefits. If one parent gets a job, they receive £140, but after tax and national insurance, gets £110, therefore, there is no incentive to work.
Sources of Wealth
Inheritance
Saving
Entrepreneurship
Chance (eg lottery)
Causes of inequality in income
Earned income - some workers earn more than others due to various factors eg occupation, amount of time in work.
Non-workers - Not all people work, so people who do not work are likely to receive less income then people who work.
Physical and financial wealth - Those in society who own a great deal of physical or financial wealth will be able to generate a higher income for their assets than those who own little or nothing.
Household composition - May depend on who the income earner has to support, one may only have to support themselves, others may have to support a large family.
Government Policy - The extent to which government redistributes income through taxes and benefits will affect the distribution of income.
Measuring Income Inequality
Lorenz Curve - visual indicator
http://image.ibb.co/hfTMa8/20180609_155445.jpg
Line 2 has greater inequality compared to line 1
Gini coefficient - mathematical indicator
Perfect equality = 0
Perfect inequality = 1 or 100
Eg South Korea Gini is 31.6 in 2013 and 1999 and 32.3 in 2010.
Causes of changes in absolute and relative poverty
Absolute poverty tends to fall as GDP rises. In rich developed countries, there is very little absolute poverty. The free market might make most individuals and households better off because wages and other earnings rise, but there will always be groups who will never be able to work and earn money and who have no private sources of income. They then have to depend either on charity or on the state. For example, the elderly and those too ill to work are two vulnerable groups. The elimination of absolute poverty is then dependent on how well then state can reach those at risk and provide support.
Relative poverty changes for two main reasons. First, the market mechanism may alter relative income including wages and relative wealth overtime. These changes may push a larger number of individuals or households below a measure of relative poverty, such as below 60 percent of median earnings. For example, a disproportionate growth in minimum wage jobs in the economy is likely to increase relative poverty. Second, government spending and taxation may change affecting relative incomes. Cuts in benefits combined with increases in VAT, for example, are likely to raise levels of relative poverty because they will affect those on low incomes the most.
