Absolute & Relative Poverty (Edexcel A Level Economics A)

Absolute & Relative 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 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