POVERTY + INEQUALITY

• Absolute poverty


  When people are unable to afford sufficient necessities to maintain life
• UN definition of absolute poverty


  A condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information
• World Bank definition of absolute poverty


  Anyone living on less than US$1.90 a day
• Economic development


  Correlated with absolute poverty - the more developed a country, the fewer people in absolute poverty
• Relative poverty


  About people's income compared to others in their area
• Relative poverty in the UK

  Income of less than 60% of median household income (£27,300 in 2017) after deducting household costs
• One in 5 people in the UK live below the official poverty line, with 14m people in relative poverty
• Another way of defining relative poverty


  Those who cannot afford to buy goods which they need to buy in order to not be considered poor according to social norms, for example an electric fridge or mobile phone
• Poverty line


  The minimum level of income deemed necessary to achieve an adequate standard of living in a given country
• Poverty trap


  Affects people on low incomes, when the tax and benefits system creates a disincentive to look for work or work for longer hours
• Causes of poverty


  • Unemployment
  • Lack of skills
  • Health problems
  • Income dependency
• Absolute poverty


  Tends to fall as GDP increases, assuming that the state provides support to those who are unable to benefit from a growing economy
• Main causes of growth of relative poverty

  • Higher salaries seeing larger income growth than those on lower salaries
  • Changes in government spending and taxation
• In the UK, relative poverty has been growing for a number of reasons:
• Reasons for growth of relative poverty in the UK


  • Growing inequality in wages growth, with the highest paid jobs seeing their wages increase higher than those on lower wages
  • Those in the public sector have had low wage increases and several years of falling real wages, due to the policy of austerity
  • The wages of the richest are now 170 times the average worker, compared to 60 times before
  • De-industrialisation has increased the number of service sector jobs which tend to be lower paid
  • Growth in underemployment, zero-hour contracts, part-time jobs and temporary jobs, all of which mean lower wages for workers
  • Decline of trade unions has left many workers unable to bargain for higher wages
  • State benefits have fallen in relative value whilst taxes have become more regressive
  • Long term and structural unemployment has risen
• Income


  A flow of earnings
• Wealth


  A stock of assets
• Wealth is likely to be more unequally distributed than income because assets that make up wealth can be accumulated over time</b>
• Lorenz curve


  Shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have
• Gini coefficient


  The ratio of the area between the 45-degree line and the Lorenz curve divided by the whole triangle under the 45-degree curve, measured between 1 and 0 with a higher coefficient indicating more inequality
• Causes of wealth and income inequality within countries

  • Wages
  • Wealth levels
  • Chance
  • Age
• Causes of wealth and income inequality between countries

  • Wars, droughts, famines and earthquakes
  • Certain social groups being excluded and marginalised
  • Developed countries favouring each other when trading, negotiating etc.
• Kuznets hypothesis


  As society develops and moves from agriculture to industry, inequality increases as the wages of industrial workers rises faster than farmers, then wealth is redistributed through taxation and government spending and inequality falls
• Piketty discredited the Kuznets hypothesis by arguing that inequality rises as the country develops as the rate of return on capital grows, so the rich get richer and inequality increases
• Significance of capitalism


  • Leads to income inequality because of wage differentials and individuals owning resources and wealth being passed on or gained through saving of incomes
  • Equality can never be achieved in a capitalist society where the possibility of having more is important to encourage hard work
  • A degree of inequality is necessary and desirable, but excessive inequality causes problems with efficiency and social justice