4.1.7.2 - The problem of Poverty

Poverty =

Lack of access to basic human needs (food, shelter, safety, education)

Absolute Poverty =

When a person’s income falls below a thershold necessary for survival.

• $2.15/day PPP globally

Relative Poverty

When an individual’s income is much lower than a typical person in their country.

• <60% of median income in the UK

How many people in UK live in Relative Poverty?

13.4m (20%)

Causes of Relative Poverty

Think ‘why some people earn less’

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Unemployment:

• No wage income → only u/e benefits paid which are lower than wages - lower income

• Therefore, rising unemployment → rising relative poverty

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Wage Inequality/Differentials:

• High-skilled jobs pay more than low-skilled jobs

• Lack of education/training → low skill level → stuck in low paid jobs

• Workers on NMW are still in relative poverty

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Rate of Increase of Welfare Benefits vs Wages:

• Inflation erodes welfare benefits faster

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Unequal Distribution of Income:

• Fast wage growth of richest groups in last 60 years

• Unearned income not distributed equally → higher earners’ income may grow faster

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Unequal Distribution of Wealth:

• Wealthier benefit from capital gains → wealthy get wealthier

Causes of Absolute Poverty

Low level of Overall GDP:

• Less job opportunities

• Gov gets low tax rev → can’t invest in healthcare/education/social housing

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Unemployment - Cyclical & Structural:

• Those who lose jobs → no income

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Poor Education / Skills:

• Low skill levels → stuck in low paid jobs - no access to higher-paid jobs

• Occupational mobility of labour - can’t change jobs

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Poor Health/Healthcare:

• Inability to work due to poor health

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Homelessness:

• No address - can’t apply for jobs → no way to lift themselves out of poverty

• Need home address & bank account to claim welfare benefits

Effects of Poverty

Cost to Government:

• Gov spending on welfare benefits

• Reduced tax receipts

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Reduced Economic Growth:

• Those in poverty can spend less → reduced C → reduced AD

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Educational Deprivation:

• Less people able to access education

• → Lower skill levels in future → lower productivity → restrict LRAS growth

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Health Deprivation:

• Less able to access healthcare

• Reduces quality of life & living standards