Poverty (Copy)

5.2.1 Definition of Absolute and Relative Poverty

• Absolute Poverty:
  • A situation where people do not have enough income to afford the basic necessities of life (food, shelter, clothing, clean water, healthcare).
  • Defined by the World Bank as living on less than $2.15 per day (PPP, 2017 prices).
  • Absolute measure → does not change with average income levels in a country.
  • Example: A rural household unable to afford sufficient food and clean water.
• Relative Poverty:
  • A situation where individuals or households have significantly lower income than the average in their society, leading to exclusion from normal living standards.
  • Common definition: Living below 60% of median household income.
  • Relative → changes as average income levels change.
  • Example: In a rich country, someone may afford food but cannot afford internet, proper housing, or education, making them “relatively poor.”

Diagram:

Absolute Poverty → Cannot meet basic needs (fixed line)
Relative Poverty → Income far below national average (moving line)

5.2.2 Causes of Poverty

• Unemployment:
  • No job = no income.
  • Long-term unemployment leads to loss of skills and higher poverty risk.
• Low wages:
  • Working poor: employed but earnings too low to cover living costs.
  • Common in informal economies or countries with weak labour laws.
• Lack of education and skills:
  • Limits access to high-paying jobs.
  • Creates cycle of poverty across generations.
• Illness and disability:
  • Inability to work reduces income.
  • Medical expenses worsen financial hardship.
• Old age:
  • Elderly people without pensions or savings fall into poverty.
• Rapid population growth:
  • More dependents per working adult.
  • Strains household income and resources.
• Economic inequality:
  • Wealth concentrated among a small elite.
  • Poor groups excluded from benefits of growth.
• Geographical disadvantages:
  • Rural or remote areas may lack infrastructure, schools, healthcare, and job opportunities.
• Government and institutional failures:
  • Corruption, poor welfare system, and lack of social security increase poverty.

Diagram: Causes of poverty

                 Causes of Poverty
        -----------------------------------
        | Unemployment  |  Low wages      |
        | Education gap |  Illness/age    |
        | Inequality    |  Gov. failures  |
        -----------------------------------

5.2.3 Policies to Alleviate Poverty and Redistribute Income

Promoting Economic Growth

• Strong, sustained growth → more jobs, higher incomes.
• Expands government tax revenue → funds social services.
• Growth alone may not reduce poverty if benefits are unevenly distributed.

Improving Education and Training

• Increases employability and skills.
• Long-term solution: breaks cycle of poverty.
• Equal access for men and women reduces inequality.

Welfare and State Benefits

• Cash transfers, unemployment benefits, food stamps, healthcare subsidies.
• Provides safety net for vulnerable groups (elderly, disabled, unemployed).
• Risk: may reduce incentives to work if benefits too generous.

Progressive Taxation

• Higher-income groups taxed at higher rates.
• Redistributes income → funds welfare, education, healthcare.
• Helps reduce inequality.

National Minimum Wage

• Ensures workers earn enough to meet basic needs.
• Reduces working poverty.
• Risk: if set too high, may cause unemployment.

Microfinance and Credit Access

• Small loans to the poor → encourage entrepreneurship.
• Allows poor households to invest in small businesses.

Rural and Infrastructure Development

• Building roads, electricity, clean water → improves opportunities for rural poor.
• Connects poor communities to markets and services.

Diagram: Policy framework

                Poverty Alleviation
                -------------------
       Growth → Jobs → Income ↑
       Education → Skills ↑
       Welfare → Safety net ↑
       Taxes → Redistribution ↑
       Min. wage → Fair pay ↑