4.4 Poverty and inequality in developed/developing countries Flashcards
What is absolute and relative poverty?
-Insufficient income to sustain basic standard of living
-Varies - usually below $2 a day
extreme poverty is about more than very low income per capita
Relative: - household incomes considerably lower than the median income within a country - in the UK it is less than 60%% and average income is roughly £30,000
What are the trends of absolute poverty?
- Set to fall to less than 3%
- Percentage fell to a low of 8
- Half of world countries below 3%
- 41% in SS Africa below 2%
What are the causes of absolute poverty?
- pop grows faster than GDP
- Severe savings gap - unable to save
- Absence of government and services
- Corruption in government and business
- High debt levels
- Civil wars and natural disaster
- Low rates of formal employment
- Absence of property rights
What are the causes of relative poverty?
- Cuts in top rate income ta increases disposable income of rich householders
- Higher reward for skilled workers relative to other employers
- Regressive effect of higher food and energy prices
- Market failure in service provision
- Declining strength of trade unions
How is absolute poverty measured?
- Level of household incomes
- Numbers with access to given set of goods/services
- Indebtedness
- Unemployment
- Extent of ill-health or disease
- Illiteracy
- Access to public services
What are the problems with measuring relative poverty?
- Threshold - 60% of median - based on value judgement
- Hard to compare between countries
- Revised as incomes change
- Expressing as a % of total population conceals other data - age, gender, regional inequality etc. may better understand reasons for poverty
What is the difference between income and wealth? What is the distribution of income?
-Income is flow concept of returns households receive from factors of production e.g. wages, rent, interest - over time
Wealth is a stock concept, a measure of household assets - owned over given period
The distribution of income refers to how income is shared out amongst the population - wealth inequality is how wealth is shared
How is income shared in the UK?
- Top 5th 40% of income
- Fourth 5th 23%
- Third 17%
- Seconds 13%
- Bottom 5th 8% of income`
What is the lorenz curve? What is the gini coefficient/
- Visual representation of income inequality, plotting cumulative share of income against cumulative share of population.
- Diagonal line shows perfect equality where every £1 is evenly distributed amongst the population. The further away from the line, the greater the inequality
-Gini coefficient is the area between the Lorenz curve and perfectly equality as a proportion of the total area below the total curve, showing how unequal it is in comparison to perfect equality.
Why does poverty and inequality matter?
- Inequality leads to absolute poverty and unrest
- Poor can’t pay for education or start businesses, cannot lift out of poverty
- Populations too poor to save - limit funds available for investment
- Rich individuals in poor countries may take wealth out of the country (capital flight)
- Persistent inequality leads to social unrest
What causes inequality?
- Deindustrialization and outsourcing - Kuznets curve shows inequality rises in industrialisation and falls after developed tertiary sectors
- Strucutral unemployment - creates areas with high unemploymend rates
- Rise in female participitation widens gap
- Rise in self employed
- Benefits risen slower than wages creating gap
- Reduction in trade union power - Thatcher
- Gradual change from direct to indirect tax which is regressive
- Differences in wages and earnings - may be caused by barriers to entering labour market, varying trade union representation and skill requirements
- Damaging effects of poor health and nutrition
- Changing in taxation of income
What causes glocal inequality?
- Low life expectancy
- Low school enrolement as unequal access to education
- Lack of training
- Higher wage rates in HICs
- Weak trade unions and legal protection of employment
- Low levels of employment and pension benefits
- Regressive or indirect taxes
- Lack of assets in LICs
- Stage of economic development
- Globalisation - moving abroad although China 800m lifted out
- TNCs taking profits
- Low real spending
- Low/volatile commodity prices
- Limited innovation and technology
- Lack basic health care and nutrition
Why do capitalist markets cause ineqaulity?
1.Profit motive leads to profits flowing to shareholders and inequalities to workers
However: many operate social enterprises where reinvested, profits are shared out, government can tax high profits and incomes and copmetition policy can control monopoly profits
- Capitalist labour markets influenced by demand and supply - few limits to top earners whereas low pay not represented with trade union or have bargaining popwer.
However: -minimum wages, wage caps, legal protection for employees and government investment in human capital can increase earnings potentials.
What are some policies to reduce inequality for HICs?
- Redistribution of income - progressive tax
- Redistribution of wealth - inheritance tax and capital gains tax
- Improve labour mobility
- Reduce causes of poverty - tackle low pay, raise NMW, enable work, less benefits to those in poverty trap
What are some policies to reduce inequality in LICS?
- Improve primary education
- Access to healthcare
- Infrastructure and communications
- Address corruption, disease and conflict
- Taxation systems and legal systems to protect land rights and fofer loans to help small businessess
- Incentivise growth of business and trade.
