4.2 Porverty and inequality Flashcards
Lorenz curce, Gini coefficient, relative/absolute poverty (19 cards)
Absolute/extreme poverty
When a household doesn’t have enough income to sustain a basic standard of living or meet essential needs
Relative poverty
When household income is significantly lower (60% or less) than the median income
Measures of absolute poverty
- Poverty thresholds=poverty lines where ppl are in absolute poverty if income is below a certain level (global poverty line is $2.15 a day)
- Basic needs approach=measures someone’s ability to pay for basic essentials
Causes of absolute poverty
- Politics (poor governance, lack of accountability, corruption)
- Conflict & instability
- Social exclusion of specific groups
- Poor infrastructure
- External shocks (in 2020, absolute poverty rose to 700m bcs of COVID)
Causes of relative poverty
- Income inequality
- Wealth inequality
- Educational disparities
- Underemployment
- Unemployment
- Poor social welfare
- Regressive taxes
Policies to tackle relative poverty
- Minimum wages
- State provision of public/merit goods
- Progressive tax system
- Anti-discrimination laws
Micro causes fo relative poverty
- Wider inequality with firms using more tech/globalisation/lower trade union density, reducing need for low-skilled workers, while executives benefit from wider margins bcs of innovation
- Market failure in education/healthcare/housing, increasing disadvantages for ppl
Macro causes for relative poverty
- Limited tax base (only in low-GDP countries) as they have lower taxes for growth but have less funds for welfare and infrastructure
- Human capital gaps bcs of limited access to education/healthcare, limiting productivity levels and how much they can earn
Free/command market debate
Free-market economists say lower taxes causes growth, reducing relative poverty from creation of jobs. But critics say pro-poor gov intervention (welfare system) is required to really reduce poverty/inequality
Factors determining income per capita
- Productivity
- Resources in the country
- Human capital (education/healthcare)
- Access to tech
- Access to global economy
Inequality
Unequal distribution of resources or outcomes in society
Wealth inequality
The difference in total assets in society
Income inequality
The difference in how much people earn in society
Causes of income inequality
- Gap between high/low-paying jobs (decline in unions, zero-hour contracts, bonus culture)
- Regressive indirect taxes
- Less generous welfare system
- Unaffordable housing
Policies to reduce income inequality
- Higher tax on high incomes (progressive tax)
- Higher minimum wage
- Higher benefits
- Reduce unemployment
- Rent controls
Lorenz Curve
Graph representing distribution of income/wealth in society, showing proportion of population and what % of income/wealth they own
Kuznets Curve
Economist, Kuznets, said inequality rises in early stages of economic development, reaches a peak, and falls as the economy matures and implements good welfare systems
Gini Coefficient
- A/A+B
- Calculation used with Lorenz Curve to show level of inequality in society
How to calculate Area B (Gini Coefficient)
(cmltv % of income + cmltv % income in previous quintile)
/
(2)
