Other Policies to Reduce Inequality & Poverty (DP IB Economics)

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Steve Vorster

Written by: Steve Vorster

Reviewed by: Jenna Quinn

Other Policies

  • The poverty cycle diagram (below) was introduced in the previous subtopic and helps to explain the causes of poverty

  • Any policy that helps to break the poverty cycle at any point will help to improve the standards of living within a country 

  • Policies used to alleviate poverty include promoting economic growth, improving education, providing more generous state benefits, progressive taxation, and the establishment/increase of a national minimum wage
     
     

    5-2--poverty

Policies which help to improve any factor in the diagram will help to alleviate poverty
 

How Different Policies Alleviate Poverty


Policy


Explanation


Impact on Poverty Cycle

Investing in human capital e.g. education

  • Investing in this supply-side policy increases the potential output of the country (shifts the production possibility frontier outwards)

Higher education/skill levels → higher human capital → increased productivity → higher output → higher income

More generous transfer payments

  • Transfer payments are usually given to the poorest and most vulnerable people in society

  • Transfer payments include unemployment and disability payments, pension payments, heating discounts, public transport subsidies etc.

More benefits → higher wages → better education/healthcare → better human capital → better productivity → higher wages

Establishment/increase of national minimum wage

  • Minimum wages are set above the free market rate

  • Firms are not allowed to pay anyone less than the legal rate

Higher wages → better education/healthcare → better human capital → better productivity → higher wages

Establishing a universal basic income

  • A universal basic income (UBI) is a guaranteed minimum income level - and when necessary,  paid by the government to each individual in society

Minimum income for all → better education/healthcare → better human capital → improved labour offer → decreasing unemployment

Targeted government spending on goods/services

  • This can be aimed at the greatest needs in society

  • E.g. Providing more schools, teachers or hospitals

Higher education/skill levels → higher human capital → increased productivity → higher output → higher income

Policies to reduce discrimination

  • Discrimination occurs in many different forms (age, ethnicity, gender, disability etc) and in each case results in social exclusion leading to inequalities of opportunity and income

  • Reducing discrimination reduces inequality

Less discrimination → better productivity → higher wages

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Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.

Jenna Quinn

Author: Jenna Quinn

Expertise: Head of New Subjects

Jenna studied at Cardiff University before training to become a science teacher at the University of Bath specialising in Biology (although she loves teaching all three sciences at GCSE level!). Teaching is her passion, and with 10 years experience teaching across a wide range of specifications – from GCSE and A Level Biology in the UK to IGCSE and IB Biology internationally – she knows what is required to pass those Biology exams.