Absolute & Relative Poverty
- Absolute poverty is a situation where individuals cannot afford to acquire the basic necessities for a healthy & safe existence
- These necessities include shelter, water, nutrition, clothing & healthcare
- In 2022, the World Bank defined absolute poverty as anyone who was living on less than $1.90 a day
- Absolute poverty is more prevalent in developing countries than developed ones
- Relative poverty is a situation where household income is a certain percentage less than the median household income in the economy
- Poverty in a household is considered relative to income levels in other households
- The UK defines relative poverty as households that are living with less than 60% of the median household income
- In May 2022, the median UK monthly household income was £2072/month
- This meant that the relative poverty line was any household earning less than £1243,20/month
- In early 2022, 22% of the UK population was in relative poverty
- Relative poverty is the main form of poverty that occurs in developed countries
Causes of Changes in Poverty
- There has been a significant decrease in absolute poverty since 1990
- There were 1.9 billion people in absolute poverty in 1990. By 2022 it had fallen to 750 million
- Absolute poverty can decrease even while income inequality increases
- This means that the income of wealthier households is rising faster than the income of the poorer households
- A reduction in absolute & relative poverty requires the benefits of both the workings of the free market & government intervention
Causes of changes in absolute poverty
- There is a strong correlation between economic growth & a decrease in absolute poverty
- Economic growth increases household incomes
- Government tax & benefit policies can support the most vulnerable groups in society e.g. children, pensioners, people stuck in long-term unemployment
- In developed economies, benefit policies can ensure that no household is living in absolute poverty
Causes of changes in relative poverty
- Rising asset prices can decrease relative poverty in households which own their own properties
- Asset prices often increase faster than wages or income
- Trade liberalisation increases potential market size & output in an economy
- This leads to an increase in the demand for labour & a wage rise
- This creates additional income which has a multiplier effect & pulls households out of relative poverty
- Decreased levels of government benefits can lower household income & increase relative poverty
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