Poverty

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    Poverty

    Absolute Poverty

    • People are said to be in absolute poverty when their income is insufficient for them to be able to afford adequate shelter, food and clothing
      • In rich countries such as the UK, relatively few people are in situations of absolute poverty – around 500 (think tramps)
      • In other countries, such as Nigeria, 70% of the population was living on less than $1 a day

    Relative Poverty

    • Someone in the UK may see themselves as poor if they live in poor accommodation and can only afford to go out once a week
      • The same standard of living could be for a rich person in a country like Mali
    • This is relative poverty – a situation of being poor relative to others – they are unable to participate in the usual activities of the society they live in
    • Economists often define poor as those people living in households with income below that of 60% of average disposable income

    Causes of Poverty

    • Unemployment
    • Low Wages
    • Sickness and disability
    • Old age
    • The poverty trap
      • The poor find it difficult to raise disposable income as if they get a job, they’d have to pay more in taxes whilst receiving less state benefits.
    • Being a lone parent
    • Reluctance to claim benefits

    The Effects of Poverty

    • The poor tend to suffer worse physical and mental health and have lower life expectancy
    • The poor tend to have less education, e.g. they can’t buy books for their kids or won’t have a computer at home
    • The poor can feel cut-off from the rest of society
    • It imposes a burden on the government, as they have to spend more

    Government Policy Measures to Reduce Poverty

    • Government may seek to reduce absolute poverty by introducing measures that raise the income of the poorest groups
    • They may reduce relative poverty by introducing measures that narrow the gap between the rich and the poor
    • Amongst the measures they might use are:
      • Operating a NMW
        • This will help the low paid who stay in employment
        • However, most people earning minimum wage are secondary earners from middle and high income households
      • Cutting the bottom rate of income tax
        • May reduce the poverty trap and provide a greater incentive for people to work
      • Increasing employment opportunities
        • A major cause of poverty is unemployment
        • There is no easy way of increasing the number of jobs on offer
      • Improving the quantity and quality of training and education
        • This is a long term measure but will increase productivity
      • Making use of trickle-down effect
        • Controversial, but basically means cutting taxes like corporation and inheritance tax so that rich entrepreneurs will take business ventures that will hopefully mean a greater aggregate demand for jobs
      • Increasing benefits for the unemployed
        • Some economists argue that this could raise aggregate demand in the economy, as the unemployed will spend more, thus creating more jobs
        • Others, however, believe it can increase voluntary unemployment
      • Increasing the provision of affordable childcare
        • This would enable more lone parents to undertake full-time employment and raise them out of poverty.

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