Poverty and Inequality
Poverty
According to the World Bank, “poverty is
pronounced deprivation in wellbeing.”
Absolute poverty is defined by the UN as “a
condition characterised by severe deprivation of
basic human needs, including food, safe drinking
water, sanitation facilities, health, shelter,
education and information. It depends not only
on income but also on access to services.”
Extreme poverty defined by World Bank as $1.25
per day (2005 prices PPP), and poverty as $2 per
day.
Absolute poverty
World Bank defines extreme poverty as less than $1.25 per day
(measured in 2005 PPP dollars), and poverty as $2 per day
Extreme poverty has “decreased considerable” in the past 30 years,
from 52% of the developing world in 1981 to 21% in 2010 (World Bank)
Extreme poverty has fallen in all regions, but only marginally in SubSaharan Africa – as a result of a fall in the last decade.
Poverty in China has fallen from 84% to 12% (think of this and use in
questions on globalisation)
Causes of absolute poverty
(developing countries)
Absolute poverty
Why is absolute poverty falling? Where is it falling
fastest? Where is it still entrenched?
Poverty levels in your chosen
countries?
Evaluate the causes of absolute poverty in a
developing country of your choice. (25)
Relative Poverty
Relative poverty defines income or resources in relation to the average.
It is concerned with the absence of the material needs to participate
fully in accepted daily life.
How is it measured?
Relative poverty is generally defined as when household income is less
than 60% of median household income
https://www.theguardian.com/commentisfree/video/2013/oct/08/inequalityhow-wealth-distributed-uk-animated-video
Wealth & Inequality
Wealth relates to differences in people’s stock of assets.
Income is a flow concept; therefore, income inequality relates to
differences in people’s income flows from wages, dividends, rents, etc.
Wealth
Inequality in
America
Remaking the
Middle Kingdom:
China
Oxfam says wealth of richest
1% equal to other 99%
The richest 1% now has as much wealth as the rest of the world combined,
according to Oxfam.
It uses data from Credit Suisse from October for the report, which urges leaders
meeting in Davos this week to take action on inequality.
Oxfam also calculated that the richest 62 people in the world had as much wealth as
the poorest half of the global population.
It criticised the work of lobbyists and the amount of money kept in tax havens.
Oxfam predicted that the 1% would overtake the rest of the world this time last
year.
It takes cash and assets worth $68,800 (£48,300) to get into the top 10%, and
$760,000 (£533,000) to be in the 1%. That means that if you own an average house
in London without a mortgage, you are probably in the 1%.
BBC News: 18 January 2016
Causes of Inequality
Earned income
Non workers
Physical and financial wealth
Causes of Inequality
Household composition
Government policy
The degree of competition in product markets
200 years in 4 minutes
Changing your view on poverty
The washing machine
World Bank – living in poverty
Inequality
Measure using Lorenz curves and Gini coefficient
Can measure inequality in income, or in wealth
Any difference between UK and US?
Causes of income inequality
(UK)
Unemployment
Wage differentials:
◦ More qualified earn more because productivity is higher so MRP is higher
◦ Older workers (but not ancient!) tend to earn more because they have more
experience and thus higher productivity/MRP.
◦ Can certainly think of this in terms of career progression within an organisation
◦ Because some skills are in short supply
◦ Can apply in professions like actuaries, medicine, but also with eg top footballers
Causes of income inequality
Wage differentials. Other reasons:
◦ Discrimination (though illegal in the UK)
◦ Net returns from work
◦ Some jobs are so rewarding that workers accept lower wages. Examples….
◦ Regional differences
◦ Different jobs (eg financial services London) but also different cost of living
Causes of income inequality
Changing structure of economy
◦ Advances in technology mean higher skills are needed
◦ Shifting demand means those with IT skills/transferable skills can earn more
Wealth
◦ One of the biggest causes of inequality since wealth is a source of income
Causes of wealth inequality
(eg UK)
Inheritance
◦ Biggest factor (Inheritance tax is 40% on the value of an estate over £325,000 or over
£650,000 from a couple)
Income
◦ Assets tend to build up during a person’s working life as people buy property and build
assets for retirement
Hard to redistribute assets
◦ No asset taxes in the UK (aside from inheritance tax and arguably stamp duty)
◦ Even with an asset tax it is hard to give assets to the poorer
Causes of (relative) poverty
Unemployment, particularly long term
Lack of education and skills, which leads to
◦ unemployment (see above), particularly with changing structure of the
economy from manufacturing to services
◦ Lower income than high skilled workers (who have higher MRP, ie produce
more)
Single parenthood
Ageing population
◦ People may not have saved enough for a longer retirement
Government policy to alleviate
poverty (and inequality) in the UK
Remember poverty is defined as relative
◦ very difficult to see it being eliminated without a very equal distribution of
income. Would this be desirable?
Main policies
◦ Redistribution of income
◦ Progressive taxes (higher top rate, raise personal allowance so fewer pay tax)
◦ Means tested benefits – tax credits for poorer households, job seekers allowance for
unemployed
◦ Universal benefits – education and health free for all, state pensions
◦ Minimum wage
200 years in 4 minutes
Changing your view on poverty
The washing machine
World Bank – living in poverty
Ageing
http://www.bbc.co.uk/learningzone/clips/why-is-the-uks-populationageing/537.html
http://www.neighbourhood.statistics.gov.uk/HTMLDocs/dvc3/projectio
ns.html