Poverty and Inequality Flashcards
Absolute poverty
The minimum standard of living needed for survival. Usually expressed in terms of income below a certain threshold
- commonly used in international comparisons to assess the needs of people in a developing country
Relative poverty
A measure that considers a persons income to the overall standard of living in that society
- more relevant in developed countries with higher average living standards
Measures of relative poverty
- Gini coefficient - higher values indicate greater income inequality
Measures of absolute poverty
- A poverty line: A specific income level below which individuals or families are considered to be in absolute poverty.
- Assessing whether individuals can afford essential goods and services such as food
Gini coefficient
Area A/ (Area A + Area B)
Higher the number the greater the income inequality
Economic factors
- economic growth: increase in GDP can decrease poverty by providing more resources to meet basic needs
- increase in income inequality can lead to an increase in relative poverty
Social and demographic factors
- population growth: can strain resources, increase in absolute poverty
- age & gender: children and women are more likely to be in poverty
Global factors
- globalisation: economic globalisation can impact poverty systems
- foreign aid
Causes of inequality (income and wealth)
- Age: the greater the age the greater their earning potential due to skills, productivity -> can demand higher wages -> therefore wealth accumulation larger
- Education: causes distribution of income -> more qualifications the greater the earning potential
- Ownership of assets: those who are able to purchase financial assets are going to be better off -> an unequal distribution of wealth -> can be through employers as contribute to pension schemes
- Ownership of property: investment or to live in -> often these are inherited
- Wage differentials: differences between wages in different professions.
Policies to redistribute income and wealth inequality
- Taxation:
- Increase progressive tax -> raising tax rates for highest brackets -> can collect more revenue -> spent on education for example. Or raising tax free allowance.
- Decreasing regressive tax e.g. alcohol, cigarette tax, VAT
- However by raising tax rates, Laffer curve, the incentive to make more money disappears knowing that a lot of the income will be taxed -> so less tax revenue - Increasing benefits - universal credit
- However, risk of poverty trap -> less incentive for the poor to not find work as income will be taxed
-Gov finances - Minimum wages or maximum wages: Control how much wages can go below a certain level
- However maximum wages - incentive
- Minimum wage could cause unemployment - Legislation: anti-discrimination, making it more difficult to fire/hire, min wage, maternity leave
-However cost for businesses - may have to relocate - Government spending on education/ training -> increase skills -> higher MRP -> higher wages
-However expensive & time lag - Gov spending on healthcare: less people ill -> better productivity
Evaluation:
- impact on incentive
- depends on state finances - can they afford?
- equity vs efficiency:
- may be based on normative judgements
- gov failure
- is inequality always bad
Causes of poverty
- Unemployment: recession - cyclical and structural. Cyclical less AD in the economy loss of jobs. Structural - mismatch of skills, if the economy used to be in the manufacturing industry, now moved to services industry, not many transferable skills - poverty. Especially if there is no training
- Poor education and skills: lack the qualifications to have an MRP to gain employment
- Poor heath & healthcare: limit the amount that people work
- Wage differentials: the bigger the wage differential the greater relative poverty will be
- Born into poverty: single parent
- Tax cuts for the well off: will increase relative poverty
- Subsitence agriculture: developing culture, when children just work in agriculture, no education etc
