Poverty
Absolute vs. Relative Poverty
To understand poverty, you must distinguish between two distinct definitions. Cambridge exams often test the difference between these concepts in multiple-choice questions or as a starting point for structured answers.
| Concept | Definition |
|---|---|
| Absolute Poverty | The inability to afford the basic necessities of life required for survival (e.g., food, clean water, shelter, clothing). It is measured against a fixed standard that does not change over time or with the country's wealth. |
| Relative Poverty | The inability to afford the ordinary living standards considered acceptable in the society where one lives. It is measured relative to the median income of the population; even in wealthy countries, some people are poor compared to the majority. |
Key Distinction: Absolute poverty is about survival. Relative poverty is about social exclusion and inequality. A country can eliminate absolute poverty but still have relative poverty if income inequality remains high.
Poverty Line
The poverty line is the threshold of income or consumption below which a person is considered to be living in poverty.
- For absolute poverty, this line is often set at a fixed international standard (e.g., $2.15 per day).
- For relative poverty, this line is typically set at 50% or 60% of the median household income in that specific country.
Identifying Poverty Types
Scenario: In Country A, the median income is 50,000. Person X earns15,000 and can afford food and shelter but cannot afford a car or holiday, which are common in Country A.
Analysis:
- Person X is not in absolute poverty because they have basic necessities.
- Person X is in relative poverty because their income is significantly below the median standard of living in that society.
⚠︎ Confusing Causes with Definitions
The Error: Students often write about why people are poor (e.g., 'low wages') when asked to define poverty, or they confuse the two types.
The Fix:
- If asked for a definition, focus on the state of lacking resources (absolute) or falling behind the median (relative).
- If asked for causes, focus on the reasons (e.g., unemployment, illness). Do not mix them up. For example, 'low wages' is a cause of low income, which leads to poverty; it is not the definition of poverty itself.
Answering 'Cause of Relative Poverty' Questions
Context: Use this when asked to identify a cause of relative poverty in a developed economy.
Why Examiners Accept This: Examiners look for the link between income inequality and social standards. Relative poverty exists because the gap between the rich and the poor widens, or because the poor fall behind the median income growth.
Correct Phrasing: 'Relative poverty increases when the incomes of the poorest households grow more slowly than the median income, leading to a wider gap in living standards.'
Incorrect Phrasing: 'People are poor because they cannot afford food.' (This describes absolute poverty, not relative).
Causes of Poverty
Q:
Identify two reasons why a person may experience absolute poverty. [2]
A:
- Unemployment (loss of income source).
2. Illness or disability (inability to work + high medical costs).
Other acceptable answers: Old age, war/famine, lack of education.
Q:
Explain how unemployment can lead to poverty. [4]
A:
- Unemployment leads to a loss of regular income (1).
2. The individual cannot afford basic necessities such as food and shelter (1).
3. This results in absolute poverty (1).
4. Long-term unemployment may also lead to skill erosion, making it harder to find work later, perpetuating the cycle of poverty (1).
Causes of Poverty
Poverty is rarely caused by a single factor. It is often a combination of personal circumstances and broader economic or environmental conditions.
| Cause | Mechanism Leading to Poverty |
|---|---|
| Unemployment | No income → inability to buy necessities → absolute poverty. Also reduces tax contributions to the state. |
| Low Wages | Even if employed, wages may be below the minimum living wage, trapping workers in 'working poverty' (common in relative poverty contexts). |
| Illness / Disability | Increases expenditure on healthcare while decreasing ability to earn income. Can lead to catastrophic health spending. |
| Age | Children: Depend on parents; if parents are poor, children are in poverty. Elderly: May rely on fixed pensions that do not keep up with inflation or healthcare costs. |
| Environmental Factors | Natural disasters (droughts, floods) destroy assets and livelihoods, particularly in Less Developed Countries (LDCs). |
Policies to Alleviate Poverty and Redistribute Income
Governments use two main approaches: Alleviation (helping the poor directly) and Redistribution (taking from the rich to give to the poor). Note that Promoting Economic Growth is a distinct long-term strategy that creates the resources for these policies.
| Policy | How it Works |
|---|---|
| Promoting Economic Growth | Mechanism: Increases GDP and national income. Link to Poverty: Growth creates jobs and raises wages. Crucially, it increases tax revenue. This tax revenue can then be used to fund poverty-alleviation policies (education, healthcare). Note: Growth alone does not automatically reduce poverty if the benefits are not distributed. It is a precondition for sustainable alleviation. |
| Improved Education | Mechanism: Provides skills and qualifications. Link to Poverty: Increases human capital, leading to higher productivity and higher wages. Breaks the intergenerational cycle of poverty. |
| Improved Healthcare Provision | Mechanism: Free or subsidized healthcare. Link to Poverty: Prevents households from falling into poverty due to medical costs. Improves workforce productivity by reducing sick days. |
| More Generous State Benefits | Mechanism: Direct cash transfers (e.g., unemployment benefits, child allowances). Link to Poverty: Provides immediate income support for those unable to work or with low incomes. Reduces relative poverty by raising the floor of living standards. |
| Progressive Taxation | Mechanism: Higher tax rates for higher income brackets. Link to Poverty: Redistributes income from the rich to the poor. Funds public services and benefits without increasing the overall tax burden on low earners. |
| National Minimum Wage (NMW) | Mechanism: Legal floor for hourly pay. Link to Poverty: Ensures full-time workers earn enough to meet basic needs. Reduces 'working poverty' but must be set carefully to avoid unemployment. |
Critical Distinction for Learning Objective 3:
- Redistribution Policies (Benefits, Progressive Tax, NMW) directly transfer resources or set income floors.
- Promoting Economic Growth is an indirect policy. It alleviates poverty by expanding the 'pie' (GDP), but it requires redistribution policies to ensure the poor get a slice of that larger pie.
Discussing Economic Growth and Poverty
Context: Use this when answering 'Discuss whether economic growth reduces poverty' or similar evaluation questions.
Why Examiners Accept This: Examiners want to see that you understand growth is necessary but not sufficient. You must acknowledge that growth can increase inequality if the rich capture most gains.
Correct Phrasing: 'While economic growth increases national income and tax revenue, it does not automatically reduce poverty. If the benefits of growth are concentrated among the wealthy, relative poverty may persist. Therefore, growth must be accompanied by redistributive policies such as progressive taxation or improved public services to effectively alleviate poverty.'
Key Argument to Include: 'Trickle-down' effects are not guaranteed; active government intervention is often required.
Evaluating Policies
Q:
Discuss whether or not economic growth reduces poverty. [8]
A:
Arguments for:
1. Growth creates employment opportunities, reducing unemployment-related poverty (1).
2. Higher incomes lead to increased tax revenue (1).
3. Government can use tax revenue to fund education and healthcare, addressing root causes of poverty (1).
Arguments against:
1. Growth may be unequal; benefits may accrue only to the wealthy, increasing relative poverty (1).
2. Population growth may outpace economic growth, leaving per capita income unchanged (1).
3. Growth may rely on industries that do not employ the poor (e.g., capital-intensive tech vs. labor-intensive manufacturing) (1).
Conclusion: Growth is a vital tool but must be paired with redistribution policies to ensure poverty reduction.
1. Growth creates employment opportunities, reducing unemployment-related poverty (1).
2. Higher incomes lead to increased tax revenue (1).
3. Government can use tax revenue to fund education and healthcare, addressing root causes of poverty (1).
Arguments against:
1. Growth may be unequal; benefits may accrue only to the wealthy, increasing relative poverty (1).
2. Population growth may outpace economic growth, leaving per capita income unchanged (1).
3. Growth may rely on industries that do not employ the poor (e.g., capital-intensive tech vs. labor-intensive manufacturing) (1).
Conclusion: Growth is a vital tool but must be paired with redistribution policies to ensure poverty reduction.
Q:
Explain how an educated labour force reduces poverty. [4]
A:
- Education increases skills and productivity (1).
2. Productive workers earn higher wages (1).
3. Higher wages allow access to basic necessities and better healthcare (1).
4. Education provides information on health and family planning, leading to better long-term economic decisions (1).