poverty and inequality

• Absolute poverty


  Being unable to afford basic necessities such as food, clean water and shelter
• Absolute poverty line


  $2.15 dollars a day at 2017 GDP measured at purchasing power parity
• Purchasing power parity


  How much of one currency is needed to purchase a basket of goods compared to another currency
• Relative poverty


  Earning less than 60% of the average income in the UK
• A society may be able to eradicate absolute poverty but it is likely that relative poverty will always exist
• Most important factors influencing poverty rates


  • Infrastructure
  • Education and training
  • Aid
• Poor infrastructure in South Korea in the 1960s


  Led to low production and transportation of goods and services, therefore leading to lower income availability
• New community movement in South Korea in 1970


  1. Gave rural areas with bags of cement etc and gave a 5-step rule which guided the with ways to create infrastructure to help them increase productivity

  2. Increased infrastructure

  3. Increased productivity

  4. Increased income

  5. Decreased absolute poverty
• Improvements in telecommunications in India


  New cables, tall cellular radio towers has allowed the India's call centre industry to flourish, hiring more workers, raising income and lifting India's workers out of poverty
• Electric grids in China


  Has allowed electric companies in China to get more power and therefore expand their factories, creating new jobs, raising incomes and lifting Chinese workers out of poverty
• Lack of access to electricity for 8 hours a day in Zambia


  Has a very significant negative impact on infrastructure, leading to a considerable reduction in productivity meaning businesses make less profit, which will in turn lead to increased unemployment and reduced incomes, resulting in people remaining in poverty and the possibility of the number of people living below the poverty line increasing
• New roads in Indonesia


  Will allow workers to become more mobile which will lead to an increase in employment, and production costs will decrease as it becomes cheaper for businesses to operate, making them more productive, resulting in profits and incomes increasing and poverty decreasing
• Fall in the standard of education

  May lead to a decrease in skills which will lower productivity and therefore reduce incomes, significantly increasing absolute poverty
• Aid


  If spent on healthcare or education, can make workers more productive, which should increase their incomes and reduce poverty, however aid may not decrease poverty if it ends up going to corrupt politicians
• The 2004 Indian Ocean tsunami and earthquake destroyed vast amounts of infrastructure in several countries, including Indonesia, severely damaging the road network in the coastal area of Banda Aceh
• Ongoing work in Aceh and Nias demonstrates that up to 2,200 workdays can be created per kilometer of district road rehabilitation, and rural roads provide access to markets and employment centres and have a sustained impact on employment
• Income inequality


  When the best paid workers take home more income than the rest of a country's workers
• Lorenz curve


  Used to measure income inequality across countries

  
• Gini coefficient


  As the Gini coefficient increases, income inequality increases. Formula: A / (A + B)

  
• For a perfectly equal economy, the Lorenz curve will be on the line of perfect equality, and the Gini coefficient will be 0

  
• For a perfectly unequal economy, the Lorenz curve will be on the axis (as far as possible from income equality), and the Gini coefficient will be 1

  
• Wealth inequality


  When wealth is shared unequally among a population
• Factors influencing inequality

  • Education
  • Unemployment
  • Trade Unions
• Most important factors influencing inequality


  • Minimum wage rates
  • Assortative Mating
  • Social benefits and tax
  • The "R > G" Hypothesis
• Minimum wage


  Needs to be above the equilibrium wage or it will have no impact, as it causes the quantity supplied to be greater than the quantity demanded, leading to unemployment. The introduction of a minimum wage will increase wage costs for a business, decreasing their profits, but increasing the wages of poorer workers, making the poor richer and the rich poorer, and decreasing income inequality.
• Assortative mating


  When talented, successful and rich women get married to and have children with talented, successful, rich men or women, meaning the children are likely to receive an education and lifestyle that sets them up to be even more talented, successful and rich than their parents, worsening income inequality
• Progressive tax


  Means that the rich pay a higher percentage of their income in tax and the poor pay a lower percentage of their income in tax, making the rich poorer and the poor richer, which will decrease income inequality
• The UK government gives £1.7 B (job seekers allowance) as benefits to those unemployed and £160 B as pensions to the elderly
• Social benefits


  Are paid to the poorest in society and so they help to make the poor richer, increasing income equality
• "R > G" Hypothesis

  If the rate of return (r) is greater than the growth rate (g), then rich people with assets will get wealthier at a higher rate than poor people with no assets, worsening wealth inequality
• Inheritance


  Means that people receive lots of wealth, which can be used to generate even more wealth and more income, worsening wealth inequality and income inequality
• 90% of all wealth is inherited