Absolute and Relative Poverty

Absolute Poverty

Absolute poverty means not having sufficient resources to subsist; ie not having enough food to prevent malnutrition, clothing to protect against the elements and some form of simple housing. Absolute poverty is also sometimes referred to as extreme poverty.

There is no universally accepted measure of absolute poverty, but a widely used measure is that of the World Bank, which sets an income of $1.90 per person per day as the level below which someone is in absolute poverty (ie the absolute poverty line). This figure reflects the purchasing power of $1.90 in the United States. To get a measure of the poverty line in a particular country, this figure has to be converted to local currency at a purchasing power parity rate of exchange, and not a market rate of exchange.

This works out at approximately $700 per capita per year. South Asia (and particularly India) has the ___highest total ___of people in absolute poverty, but sub-saharan Africa has the highest proportion of its population in absolute poverty (the population of south Asia is much greater than sub-saharan Africa). In the most economically developed countries, absolute poverty is a very small number of people; welfare benefits and charitable organisations reach most people who would otherwise fall into absolute poverty.

In recent decades the proportion of the world’s population living in absolute poverty has been steadily falling, and is now just below 10%. But that still means that around 700 million people; about the equivalent of the USA and Europe combined.

Causes of Changes in Absolute and Relative Poverty

Economic growth and rising GDP tends to greatly reduce levels of absolute poverty. China provides an outstanding example of how hundreds of millions of people have been lifted out of absolute poverty. So all the factors that contribute to economic growth are likely to help reduce absolute poverty (see notes on 2.5.1 and 2.5.4).

But economic growth can also contribute to rising levels of relative poverty, because the benefits of economic growth may not be equally shared. In China there are now more billionaires than any other country apart from the USA. Industrialisation and the adoption of a capitalist economy has enabled some business owners to get very rich. Incomes are also much higher in urban areas compared to the countryside, because productivity in manufacturing and service industries is much higher than in agriculture.

For much of the 20th century, relative poverty declined in the United Kingdom and other rich countries. This was mainly because of the increased role of the state. The introduction of state benefits such as retirement pensions, unemployment benefits and child benefits, combined with higher and more progressive taxes helped to narrow the gap between richer and poorer people. Free healthcare and better standards of housing also kept people healthier and more able to work, thereby raising their incomes. The big expansion of council house building, let to tenants at affordable rents also helped to reduce relative poverty. After world war two secondary education became free and universal, giving more young people the chance to go on to higher paid jobs. This was followed by a big growth in provision of higher education, which had previously been the preserve young people from wealthy families.

From the 1970s relative poverty started to increase. Unemployment tended to be higher due to the decline of older industries. More jobs tended to be in low paid, low skilled areas such as retail and hospitality. There has also been a trend towards creating more part-time and insecure patterns of employment. The tax system has become less progressive and state benefits have fallen relative to earnings, making it more likely that people dependent on benefits will be in relative poverty.

Explain why the World Bank's measure of poverty (an income of $1.90 per person per day) is of little use in understanding poverty in a country such as the U.K.
Your answer should include: absolute poverty / relative poverty / Human Poverty Index / deprivation / social exclusion

Relative Poverty

Relative poverty is defined as having an income below the level required to enjoy a minimum standard of living that is considered acceptable in a particular society. For instance, in the U.K. we may consider someone to be poor if they cannot afford to have at least one short holiday away from home in a year, or if they cannot afford to have a mobile phone.

Again, there is no universally agreed measure of relative poverty, but there are some widely used measures. In the U.K., people are considered to be in relative poverty if they are in a household where the household income is below 60% of the median level.

Another approach to relative poverty is to look at deprivation; what people go without, rather than what they have. The Human Poverty Index (HPI), measures deprivation in a country by looking at 3 factors: - life expectancy, education and a minimum standard of living. It defines these factors differently for developed, rich countries on the one hand, and developing countries on the other. For developed countries there is an additional factor – social exclusion, which means being marginalised and not able to fully participate in society.

HPI-1 (for developing countries)

life expectancy is measured by the probability at birth of not surviving to the age of 40

_education _is measured by the % of the population who do not have basic literacy

_minimum standard of living _is measured by the % of the population who do not have an improved (clean) water source, and the % of children under weight for their age

HPI-2 (for developed countries)

life expectancy is measured by the probability at birth of not surviving to the age of 60;

_education _is measured the percentage of adults lacking functional literacy (ie insufficient to be employable)

_minimum standard of living _is 50% of median household disposable income.

social exclusion is measured by the long term rate of unemployment.