theme 4- 4.2 poverty and inequality Flashcards
absolute poverty definition
occurs when a person has insufficient resources to meet basic human needs e.g. food, education, housing, clothing
relative poverty definition
measured in comparison with other people in a country and varies between countries e.g. living under an income threshold
measure of absolute poverty
World Bank 2015- international poverty line = below $1.90 a day
measure of relative poverty
a poverty line is set, which is a % of average income
EU- below 60% of median income = “at risk of poverty”
problems with the concept of relative poverty
- highly subjective
- changes over time
- can be easily used to make international comparisons
other measures of poverty
United Nations Human Poverty Index: HPI-1 = measure of deprivation in the poorest countries in the world, HPI-2 = more relevant to developed countries
both are composite measures that combine:
- life expectancy
- literacy rates
- long term unemployment etc
causes of changes in poverty
- level of indebtedness
- level of unemployment
- health/education
- access to public services
- state of the economy and real incomes
- distribution of income
income definition
a flow concept e.g. the money earned by a person over a period of time
income inequality- unequal distribution of earnings between individuals
wealth definition
stock of assets a person owns
wealth inequality- difference in value of stocks of assets owned by individuals
measuring income inequality- the lorenz curve
plots the cumulative percentage of the populations against the cumulative percentage of total income
the 45° line represents perfect inequality
the curved line represents the income distribution of a particular country
measuring income inequality- the gini coefficient
a numerical calculation of inequality based on the lorenz curve
0 = perfect equality (the 45° line)
1 = perfect inequality
calculating the gini coefficient from a lorenz curve
A= area between the diagonal line and the lorenz curve
B= area under the lorenz curve
gini = A/A+B
causes of income and wealth inequality within countries
- globalisation
- differences in education, training and skills
- differences in wage rates in different occupations
- strength of trade unions
- degree of employment protection
- level of welfare benefits
- progressiveness of the tax system
causes of income and wealth inequality between countries
- natural resources
- geography
- history e.g. impact of colonialism on economic growth
- degree of political stability
- macroeconomic policies
- amount of FDI attracted by different countries
- degree of trade liberalisation
- degree of technological change
impact of economic change and development on inequality
illustrated by kuznets curve (n shape)
x axis- income per capita
y axis- inequality
shows when an economy is in the early stages of development and primarily agricultural, incomes are relatively evenly distributed
industrialisation results in increased inequality but will start to decrease at some point
BUT in the 30 yrs before 2008 GFC, inequality in advanced economies was increasing
