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1.7.2 The problem of poverty (A-level only)

Absolute Poverty Is About Survival, Relative Poverty Is About the Median

Definition

Relative poverty: a situation in which a household's income is a set proportion below the median income of the economy, so people cannot afford the living standards regarded as normal in that society.

  1. Absolute poverty is being unable to afford the basic necessities to sustain life.
  2. These include food, shelter and clean water, often set against an international poverty line.
  3. Relative poverty is income below a given proportion of the median, commonly 60%60\%60%.
Note
  • Absolute poverty is about basic survival needs.
  • Relative poverty is about falling below the normal standard in your society.

Growth Can End Absolute Poverty but Not Relative Poverty

  1. Absolute poverty can in principle be eliminated by economic growth.
  2. Relative poverty persists as long as inequality does.
  3. So a country can grow richer yet still have substantial relative poverty.
Example
  • A UK household above the survival line can still be in relative poverty.
  • Its income may sit below 60%60\%60% of the median for the country.

Policy Must Be Clear About Which Poverty It Targets

  1. The two measures track different things.
  2. Growth tackles absolute poverty but not always relative poverty.
  3. So policy needs to be clear about which it targets.

State Which Poverty You Mean

Exam technique
  • Define absolute and relative poverty separately.
  • Explain why growth can cut one but not the other.
Common Mistake
  • Do not confuse the two definitions.
  • Absolute poverty is about basic needs; relative poverty is about the median.

Worked Example: Calculating the Relative Poverty Line

  1. Suppose median UK household disposable income is £31,000\pounds 31{,}000£31,000 a year.
  2. The standard relative poverty line is set at 60%60\%60% of the median, so 60%×£31,000=£18,60060\% \times \pounds 31{,}000 = \pounds 18{,}60060%×£31,000=£18,600.
  3. Any household with an income below £18,600\pounds 18{,}600£18,600 counts as being in relative poverty, even though this is far above any international absolute poverty line.
Example
  • If the median income rises to £35,000\pounds 35{,}000£35,000, the poverty line rises with it to 60%×£35,000=£21,00060\% \times \pounds 35{,}000 = \pounds 21{,}00060%×£35,000=£21,000, showing that relative poverty is a moving target tied to overall living standards.
  • This is why a country can grow richer in absolute terms while its relative poverty rate stays the same or even rises, if the poorest incomes do not keep pace with the median.

UK Application: Relative Poverty Today

  1. The DWP's Households Below Average Income statistics estimate that roughly one in five people in the UK, around 181818–20%20\%20%, live in relative poverty after housing costs.
  2. Child poverty rates are higher, at around 29%29\%29%, since larger households with children often have lower income per head.
  3. Universal Credit and the National Living Wage are UK policies aimed at reducing poverty by raising the incomes of low-paid and out-of-work households.
Hint
  • It is a common misconception that eliminating absolute poverty also ends relative poverty.
  • Because relative poverty is defined against the median income, it can persist, or even rise, even as absolute living standards improve for everyone.

Poverty Has Reinforcing Causes and Effects

  1. Poverty has several causes that reinforce one another.
  2. They include unemployment, low pay, poor education and skills, ill health and old age.
  3. Benefit levels and structural change in the economy also matter.
Note
  • Poverty often starts with low or no earnings.
  • Its effects can feed back and deepen it.

Unemployment, Low Pay and Ill Health Cut the Income a Household Receives

  1. Unemployment and low pay cut the income a household receives.
  2. Poor health or old age can limit the ability to earn.
  3. In developing countries, civil conflict and lack of aid add to it.
Example
  • A worker made redundant by structural change loses a steady wage.
  • Without new skills, they struggle to find equally paid work.

Poverty's Effects Feed Back and Trap People in Low Income

  1. Poverty brings poor health and lower life expectancy.
  2. It lowers educational attainment and causes social exclusion.
  3. Low productivity then traps individuals and economies in low income.

Explain the Mechanism From Cause to Low Income

Exam technique
  • For each cause, show the chain that leads to low income.
  • Link effects back to causes to show the poverty trap.
Common Mistake
  • Do not just list causes of poverty.
  • Explain the mechanism linking each cause to low income.
Self review
  • Define absolute and relative poverty, and say which uses a proportion of the median.
  • Why can growth remove absolute but not relative poverty?
  • Name three causes of poverty.
  • How does poor health cause poverty?
  • How can low productivity trap people in poverty?
  • If median income is £30,000\pounds 30{,}000£30,000, calculate the relative poverty line and explain why it moves when the median changes.
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1.7.2 The problem of poverty Revision Guide

  1. A Level
  2. /Economics
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