4.2.1 Absolute and relative poverty

Question 1

What is absolute poverty?

Answer 1

When a household does not have sufficient income to sustain even a basic acceptable standard of
living /to meet people’s basic needs
o Absolute poverty thresholds will vary between developed and developing countries

Question 2

What are the World Bank’s two absolute poverty lines?

Answer 2

§ (1) Percentage of population living below $1.90 a day (PPP)
§ (2) Percentage of population living below $3.10 a day (PPP)

Question 3

What is relative poverty?

Answer 3

o A level of household income considerably lower than the median level of income within a country
o The official UK relative poverty line is household disposable income of less than 60% of median
income

Question 4

What is the data from the World bank about declining extreme poverty?

Answer 4

According to data from the World Bank, extreme poverty is declining but perhaps not quickly enough to meet one of
the sustainable development goals of lowering absolute poverty to less than 3% of the global population by 2030.
The percentage of people living in extreme poverty globally fell to a low of 8.6 percent in 2018 — down from 11 percent
in 2013. The number of people living on less than $1.90 a day fell during this period by 68 million to 736 million.

Question 5

How much of Sub Saharan live on less than $1.90 a day?

Answer 5

• 41 per cent of people in Sub Saharan Africa live on a per capita income of less than $1.90 a day (PPP)

Question 6

What are the main causes of absolute poverty?

Answer 6

1. Population growing faster than GDP in low income countries leading to lower per capita incomes
2. Severe savings gap – with many families unable to save and living on less than $1.90 per day
3. Absence of basic government / public services such as education and health care
4. Effects of endemic corruption in government and business
5. High levels of debt and having to pay high interest rates on loans
6. Damaging effects of civil wars and natural disasters leading to huge displacements of population
7. Low rates of formal employment, many vulnerable/insecure jobs and poverty wages
8. Absence of basic property rights which for example constrains ability to own land, claim welfare

Question 7

What are the main causes of relative poverty?

Answer 7

• Cuts in top rate income taxes in many countries increasing disposable incomes of richer households
• Surging executive pay and high rewards for skilled workers compared to other employees
• Regressive effects of higher food and energy prices on poorer households
• Deep market failures in access to good quality education, health & housing
• Declining strength of trade unions in many countries and rising monopsony power of some big employers