4.2.1

• Absolute poverty

  Absolute (extreme) poverty

  • When a household does not have sufficient income to sustain even a basic standard of living or meet people's basic needs
  • Absolute poverty thresholds will vary between developed and developing countries
  • World Bank has two extreme poverty lines: 1) % of population living below $2.15 (PPP) 2) % of population living below $3.65 (PPP)
  • Extreme poverty is multi-dimensional - it is about more than very low income per capita
• Relative poverty

  Opposite to absolute

  • A level of household income considerably lower than the median level of income within a country
  • The official UK relative poverty line is household disposable income of less than 60% of median income
• Main causes of extreme poverty:
• Population growing faster than GDP in low-income countries leading to lower per capita incomes
• Severe savings gap - with many families unable to save and living on less than $2.15 per day
• Absence of basic government/public services such as education and health care
• Effects of endemic corruption in government and business
• High levels of debt and having to pay high interest rates on loans
• Damaging effects of civil wars and natural disasters leading to huge displacements of population
• Low rates of formal employment, many vulnerable/insecure jobs and poverty wages
• Absence of basic property rights which, for example, constraints ability to own land, claim welfare
• Mains causes of relative poverty

  • Cuts in top rate income taxes in many countries increasing disposable incomes of richer households
  • Surging executive pay and high rewards for skilled workers compared to other employees
  • Regressive effects of higher food and energy prices on poorer households
  • Deep market failures in access to good quality education, health and housing
  • Declining strength of trade unions in many countries and rising monopsony power of some big employers