Poverty Revision Notes

Absolute poverty occurs when an individual or household lacks sufficient income to meet the basic necessities required for survival. These necessities typically include adequate food, safe drinking water, shelter, clothing, and essential healthcare. The focus is on a fixed minimum standard of living below which survival is threatened.

A common international benchmark for absolute poverty is living on less than $1.90 per day (adjusted for purchasing power parity). For example, a family earning below this threshold may struggle to afford enough food and clean water, risking malnutrition and disease.

Absolute poverty is a clear-cut measure because it sets a universal minimum standard that does not change with societal wealth or income distribution. It is useful for identifying extreme deprivation and targeting humanitarian aid.

• Focuses on survival and basic needs.
• Measured by a fixed income threshold (e.g., $1.90/day).
• Highlights extreme deprivation and risk to life.

Relative poverty is defined in relation to the economic status of other people within the same society. It occurs when an individual's income or resources are significantly lower than the average or median income, resulting in a lower standard of living and limited access to goods, services, and opportunities that are considered normal in that society.

For example, in a wealthy country, a person earning 50% of the median income may be classified as relatively poor, even if they can afford basic food and shelter. This type of poverty reflects social inequality and exclusion rather than survival risk.

Relative poverty thresholds vary between countries and over time because they depend on the overall income distribution and societal standards. It helps to understand social cohesion and the impact of inequality on well-being.

• Based on comparison with society's average income.
• Reflects social exclusion and inequality.
• Thresholds vary with societal wealth and norms.

The main difference lies in the reference point: absolute poverty uses a fixed standard of basic needs, while relative poverty depends on the income distribution within a society.

Absolute poverty measures whether people can survive, whereas relative poverty measures whether people can participate fully in society.

Because relative poverty changes with societal wealth, a country can reduce absolute poverty but still have high relative poverty if income inequality remains large.

• Absolute poverty = fixed survival needs; relative poverty = social comparison.
• Absolute poverty is universal; relative poverty is context-specific.
• Policies addressing each type differ in focus and goals.

Absolute poverty is measured by setting a poverty line based on the cost of a basket of essential goods and services. For example, if the basket costs $2 per day, anyone earning less is in absolute poverty.

Relative poverty is often measured as a percentage of median income, such as 50% or 60%. For instance, if the median income in a country is $20,000 per year, those earning less than $10,000 or $12,000 are considered relatively poor.

These measures help governments and organisations to identify who needs support and to monitor changes over time.

• Absolute poverty line based on cost of essentials.
• Relative poverty line based on median income percentage.
• Measurement guides policy and resource allocation.

Understanding the difference between absolute and relative poverty is crucial for designing effective policies. To reduce absolute poverty, policies focus on providing basic needs, such as food aid, clean water, healthcare, and shelter.

To address relative poverty, policies aim to reduce income inequality and improve social inclusion through progressive taxation, social welfare programs, education, and minimum wage laws.

For example, a developing country may prioritise reducing absolute poverty to save lives, while a developed country may focus more on reducing relative poverty to improve social cohesion and equality.

• Absolute poverty policies target survival needs.
• Relative poverty policies target inequality and inclusion.
• Policy priorities depend on a country's development level.

Unemployment occurs when people who are willing and able to work cannot find jobs. Without employment, individuals lose their primary source of income, making it difficult to afford basic necessities such as food, housing, and clothing. For example, a factory worker laid off during an economic downturn may struggle to pay rent and buy groceries, pushing them into poverty.

Unemployment also affects job security and future earnings potential, as prolonged unemployment can erode skills and reduce employability. This creates a cycle where unemployed individuals remain trapped in poverty due to lack of income and opportunities.

• Unemployment causes loss of income.
• Prolonged unemployment reduces future job prospects.
• Example: A laid-off worker unable to find new employment.

Low income means earning wages or salaries insufficient to cover essential living costs. Even if employed, workers in low-paying jobs may still experience poverty because their earnings do not meet basic needs.

For instance, a part-time retail assistant earning minimum wage might struggle to afford adequate housing or healthcare. Low income restricts access to education, nutrition, and safe living conditions, perpetuating poverty across generations.

• Low income limits access to essentials.
• Employment does not guarantee escape from poverty if wages are too low.
• Example: Minimum wage workers facing difficulty paying bills.

Health problems, whether chronic illness or disability, can prevent individuals from working or reduce their productivity. This loss or reduction of income increases vulnerability to poverty.

For example, a person suffering from a long-term illness may be unable to maintain regular employment, leading to financial hardship. Additionally, medical expenses can drain savings, further deepening poverty.

Poor health can also limit educational attainment and skill development, reducing future employment opportunities.

• Health problems reduce ability to work.
• Medical costs can increase financial strain.
• Example: Chronic illness causing job loss and expenses.

Both young and elderly people face age-specific challenges that can contribute to poverty. Young people may lack work experience or education, making it difficult to find well-paid jobs.

Older individuals might retire or be forced out of the workforce due to declining health or age discrimination, losing their income source. For example, an elderly person relying solely on a small pension may struggle to cover living costs.

Age-related challenges can limit earning potential and increase dependency on social support.

• Youth face lack of experience and education.
• Elderly may lose income due to retirement or health.
• Example: Pensioners living on fixed, low incomes.

Economic growth refers to an increase in a country's total output of goods and services, usually measured by GDP. When an economy grows, businesses expand and new firms emerge, creating more job opportunities. More jobs mean more people can earn incomes, which helps lift them out of poverty.

For example, if a country’s GDP grows by 4% annually, firms may hire additional workers, reducing unemployment from 10% to 7%. This increase in employment raises household incomes, enabling families to afford better food, housing, and healthcare.

However, economic growth alone does not guarantee poverty reduction if the benefits are unevenly distributed. Growth that mainly benefits the wealthy may widen income inequality. Therefore, growth strategies should be inclusive, targeting sectors that employ many low-income workers, such as agriculture or manufacturing.

• Economic growth creates jobs and increases incomes.
• Growth must be inclusive to effectively reduce poverty.
• Example: A 4% GDP growth reduces unemployment from 10% to 7%.

Education equips individuals with knowledge and skills, increasing their employability and potential earnings. Better education allows workers to access higher-paying jobs and adapt to changing labour market demands.

For instance, a vocational training programme teaching computer skills can enable unemployed youth to find jobs in the growing IT sector, raising their income above the poverty line.

Improving education also has long-term benefits, as a more skilled workforce attracts investment and supports sustained economic growth. However, education improvements require government investment and time before results appear, so they are a medium- to long-term strategy.

• Education improves skills and job prospects.
• Skilled workers earn higher incomes, reducing poverty.
• Example: Vocational training helps youth enter IT jobs.

State benefits include welfare payments such as unemployment benefits, pensions, and child allowances. These payments provide financial support to vulnerable groups who cannot earn sufficient income, helping to reduce absolute poverty.

For example, an unemployed person receiving £100 per week in benefits can meet basic needs while searching for a job, preventing destitution.

Better state benefits improve living standards and reduce inequality. However, they require government funding through taxation and may create dependency if not well designed. Benefits should be targeted and combined with policies encouraging employment.

• State benefits support vulnerable individuals.
• They prevent destitution and reduce absolute poverty.
• Example: £100 weekly unemployment benefit supports job seekers.

Progressive taxation means higher income earners pay a larger percentage of their income in tax than lower earners. This system helps redistribute wealth by reducing income inequality.

For example, a person earning £50,000 might pay 30% tax, while someone earning £10,000 pays 10%. The government can use the tax revenue to fund public services and benefits for poorer citizens.

Progressive taxes promote fairness and provide resources for poverty reduction programmes. However, very high taxes may discourage work or investment, so tax rates must balance equity and economic incentives.

• Higher earners pay a larger tax percentage.
• Tax revenue funds services and benefits for the poor.
• Example: £50,000 income taxed at 30%, £10,000 at 10%.

A national minimum wage sets the lowest legal hourly pay employers can offer workers. It aims to ensure all workers earn enough to cover basic living costs, reducing in-work poverty.

For example, if the minimum wage is set at £8 per hour, a full-time worker earning 40 hours weekly receives £320, which may be above the poverty threshold.

The minimum wage increases incomes for low-paid workers and can reduce income inequality. However, if set too high, it may lead to unemployment as firms reduce hiring or replace workers with technology. Governments must set the minimum wage carefully, considering economic conditions.

• Minimum wage guarantees a basic income for workers.
• It reduces poverty among employed individuals.
• Example: £8/hour wage gives £320 weekly income for full-time work.