5.2. Poverty
- Syllabus
- 0455–2027–2028
- Topic
- 5.2
- Level
- —
Learning objectives
5.2.1Definitions of absolute and relative poverty• difference between absolute poverty and relative poverty5.2.2Causes of poverty• unemployment• low wages• illness• age• environmental factors5.2.3Policies to alleviate poverty and redistribute income• promoting economic growth• improved education• improved healthcare provision• more generous state benefits• progressive taxation• national minimum wage (NMW)
Distinguish absolute and relative poverty
Poverty means having too few resources for an acceptable standard of living. Absolute poverty tests whether basic needs can be met; relative poverty compares a person's living standard with what is considered normal in their society.
| Type | Test | What it reveals |
|---|---|---|
| absolute poverty | income or resources are insufficient for basic necessities such as food, shelter and essential healthcare | severe material deprivation; a person may be unable to survive safely or healthily |
| relative poverty | income or living standard is far below the normal or minimum acceptable level in that society | inequality and exclusion from activities or goods that most people in that society can access |
A person may experience both types at once. Economic growth or benefits may lift income above a basic-needs threshold and reduce absolute poverty, while relative poverty can remain if typical incomes rise faster or income becomes more unequal.
Relative poverty does not mean merely earning less than somebody else. The comparison is with a defined social standard; absolute poverty focuses on basic necessities rather than the country's average income.
Trace the causes of poverty
Poverty often results from a fall in earning power, a rise in essential costs or both. Several causes can reinforce one another, turning a temporary loss of income into persistent poverty.
| Cause | Causal chain into poverty |
|---|---|
| unemployment | loss of wages → lower household income → basic necessities become unaffordable; long unemployment may also erode skills and future job chances |
| low wages | paid work provides too little real income, especially when prices or family needs are high → absolute or relative poverty can persist despite employment |
| illness | reduces the ability to work and earn while treatment or care costs may rise; poor health can also lower productivity and wages |
| age | children cannot earn and older people may no longer work; without adequate family support, savings, pensions or benefits, dependent groups can have very low income |
| environmental factors | drought, flood, natural disaster, pollution or conflict can destroy homes, crops, health, jobs and infrastructure → income falls while essential needs become harder to meet |
A poverty cycle can form: low income → low saving and weak access to education, healthcare or capital → low investment in people and equipment → low productivity → low wages or unemployment → low income.
The same cause does not affect everyone equally. Savings, insurance, family support, public services and state benefits may prevent an income shock from becoming poverty; weak support can make it last.
Evaluate policies to reduce poverty and redistribute income
Anti-poverty policy can raise market income, provide essential services or redistribute disposable income. Effectiveness depends on which cause and which type of poverty the policy targets.
| Policy | Main transmission | Important limitation |
|---|---|---|
| promote economic growth | higher output can create jobs, wages and tax revenue for services or benefits | poverty may remain if growth is jobless, inflationary or concentrated among higher-income groups |
| improve education | greater skills and productivity can improve employment and wages | long time lag; poor households may still face access barriers |
| improve healthcare | healthier people can work and learn more effectively; free or subsidised care also reduces an essential cost | requires funding and may take time to expand effective provision |
| more generous state benefits | immediately raises the income of eligible unemployed, ill, old or low-income people | fiscal cost, weak targeting or benefits rising slower than prices can reduce impact; incentives may change |
| progressive taxation | higher earners pay a larger proportion, narrowing disposable-income gaps and financing support | avoidance, weaker incentives or poor use of revenue may limit redistribution |
| national minimum wage | raises pay for covered low-paid workers when binding and enforced | does not help people unable to work; if labour costs rise sharply, some employment may fall |
Use a policy mix: short-run benefits and services protect basic needs, while education, healthcare and broad-based growth address earning capacity. Judge outcomes separately for absolute poverty, relative poverty, employment, prices, government cost, coverage and time lag.
A policy that raises average income is not automatically redistributive. It reduces relative poverty only if lower-income households gain sufficiently compared with the rest of society.