Absolute & Relative Poverty

• Absolute poverty

• Absolute poverty is a situation where individuals cannot afford to acquire the basic necessities for a healthy and safe existence

  • These necessities include shelter, water, nutrition, clothing and healthcare

  • In 2022, the World Bank defined absolute poverty as anyone who was living on less than $1.90 a day

  • Absolute poverty is more prevalent in developing countries than developed ones

Relative poverty

• Relative poverty is a situation where household income is a certain percentage less than the median household income in the economy

  • Poverty in a household is considered relative to income levels in other households

  • The UK defines relative poverty as households that are living with less than 60% of the median household income

  • In May 2022, the median UK monthly household income was £2072/month

    • This meant that the relative poverty line was any household earning less than £1243,20/month

  • In early 2022, 22% of the UK population was in relative poverty

  • Relative poverty is the main form of poverty that occurs in developed countries

Causes of Changes in Poverty

• There has been a significant decrease in absolute poverty since 1990

  • There were 1.9 billion people in absolute poverty in 1990. By 2022 it had fallen to 750 million

• Absolute poverty can decrease even while income inequality increases

  • This means that the income of wealthier households is rising faster than the income of the poorer households

• A reduction in absolute and relative poverty requires the benefits of both the workings of the free market and government intervention

Causes of changes in absolute poverty

• There is a strong correlation between economic growth and a decrease in absolute poverty

  • Economic growth increases household incomes

• Government tax and benefit policies can support the most vulnerable groups in society e.g. children, pensioners, people stuck in long-term unemployment

  • In developed economies, benefit policies can ensure that no household is living in absolute poverty

Causes of changes in relative poverty

Rising asset prices can decrease relative poverty in households which own their own properties

Asset prices often increase faster than wages or income

Trade liberalisation increases potential market size and output in an economy

This leads to an increase in the demand for labour and a wage rise

This creates additional income which has a multiplier effect and pulls households out of relative poverty

Decreased levels of government benefits can lower household income and increase relative poverty