Absolute poverty: the inability to afford basic necessities needed to live (food, water, education, health care and shelter). This is measured by the number of people living below a certain income threshold (called a poverty line).

Relative poverty: the condition of having fewer resources than others in the same society. It is measured by the extent to which a person’s or household’s financial resources fall below the average income level in the economy. Relative poverty is basically a measurement of income inequality since a high relative poverty should indicate a higher income inequality.

Causes of poverty

  • Unemployment: when people are unemployed and have to go without income for a long time, they may end up having to sell their possessions, consume less and go and into poverty.
  • Low education levels: this means that people are uneducated, unskilled and unable to find better jobs, keeping them in poverty.
  • The size of family: more family members with only a few people earning, means more costs of living, pulling the family into poverty if they’re not earning much.
  • Age: older people are likely to have more health problems and be less suitable for further employment, causing poverty. Young people are still employable and may find ways to earn an income.
  • Poor government support for basic services.
  • Poor health: ill mental and physical health is both a cause and result of poverty.
  • Overpopulation: high population density will put pressure on scarce resource and the economy may not be able to produce and provide for everyone, causing poverty.
  • Minority group/ethnicity/migrants: will face discrimination from bureaucrats, employers and the society at large and so won’t be able to access and enjoy all services. E.g.: African-Americans in the US tend to be poorer than their white counterparts.
  • Gender: women usually face discrimination, especially in employment and end up being poorer than men.

Policies to alleviate poverty

  • Introduce measures to reduce unemployment: an expansionary fiscal/monetary policy will increase aggregate demand and increase employment opportunities. Income and standards of living will rise.
  • Impose progressive taxes: income taxes are progressive, that is, they increase as income increases. Imposing these will mean that people on higher incomes will pay a large percentage of their incomes as tax and help reduce relative poverty.
  • Introduce welfare services: money from taxes can be provided as income support to people with very low incomes. It can also be used to provide free or low-cost homes, healthcare and education.
  • Introduce minimum wage legislation to raise the wage of low-paid employees.
  • Increase the quantity and quality of education.
  • Attract and invite inward investments from firms abroad to provide jobs and incomes for people.
  • Overseas aid could be gained from foreign governments and aid agencies. This will include food aid, financial aid, technological aid, loans and debt relief.

Notes submitted by Lintha

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2 thoughts on “5.2 – Poverty

  1. In terms of welfare spending, government assistance can help unemployed people while they find jobs. This is not significant however. It would be better to link welfare expenditure to demand and consumption and therefore, growth in the economy.

    Liked by 1 person

  2. One of the ways the governments spends is by providing public goods and services such as schools, roads, bridges and other infrastructure, which will employ a lot of people. Similarly, when taxes are cut, private enterprises will produce more which will entail more employment, this decreasing unemployment!


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