AQA Specification focus:
‘The difference between relative and absolute poverty.’
Understanding poverty requires distinguishing between relative and absolute poverty, both of which are key measures used by economists to evaluate living standards, inequality, and policy effectiveness globally.
Absolute Poverty
Definition and Core Concept
Absolute Poverty: A condition where an individual or household lacks sufficient resources to meet basic physical needs such as food, shelter, and clothing.
Absolute poverty is typically measured against a fixed poverty line that represents the minimum level of income or consumption required to survive. This threshold does not change with overall societal living standards but remains constant in real terms over time.
This diagram illustrates the poverty line concept, showing how individuals below the threshold lack the resources to meet essential needs, as described in the context of absolute poverty. Source
Measurement
International institutions like the World Bank use a universal poverty line (e.g., living on less than 2.15 per day, consistent with the World Bank’s absolute poverty measure. Source
Strengths of Measuring Absolute Poverty
Clear and objective benchmark.
Useful for monitoring progress in low-income countries where many still lack access to essentials.
Provides a strong basis for international development goals, such as the United Nations Sustainable Development Goals (SDGs).
Limitations of Measuring Absolute Poverty
Does not account for differences in cost of living within or between countries beyond basic PPP adjustments.
Ignores social dimensions of deprivation, such as exclusion from education, healthcare, or participation in society.
Less relevant in developed economies, where extreme deprivation is rare but relative deprivation remains significant.
Relative Poverty
Definition and Core Concept
Relative Poverty: A condition where individuals or households have significantly lower income or resources compared to the average or median within their society, limiting their ability to participate fully.
Relative poverty considers not only whether basic needs are met but whether people can maintain an acceptable standard of living relative to others in their society.
Measurement
Typically defined as living with an income below a set proportion of the median household income.
In the UK and EU, a common threshold is 60% of median equivalised disposable income.
Equivalisation adjusts household income according to family size and composition to allow fair comparisons.
Strengths of Measuring Relative Poverty
Reflects inequality within a society, making it useful for assessing social cohesion.
Sensitive to changes in income distribution.
Captures broader notions of social exclusion, including access to healthcare, education, and cultural life.
Limitations of Measuring Relative Poverty
The threshold is arbitrary (e.g., why 60% and not 50%?).
It can show persistent poverty even in wealthy nations, since the definition depends on relative comparisons.
International comparisons are less straightforward, as the measure depends heavily on national income distributions.
Key Differences Between Relative and Absolute Poverty
Nature of Measure:
Absolute: Based on fixed survival needs.
Relative: Based on comparisons within society.
Relevance:
Absolute: More relevant for developing countries.
Relative: More relevant for developed economies.
Dynamic vs Static:
Absolute: A static threshold, unchanging over time in real terms.
Relative: A dynamic threshold, shifting with median income changes.
Policy Implications:
Absolute: Focus on eradicating hunger, ensuring access to clean water, healthcare, and shelter.
Relative: Focus on reducing inequality, improving access to opportunities, and preventing exclusion.
Policy Relevance and Measurement Challenges
Why Definitions Matter
The distinction between relative and absolute poverty is critical because it shapes how governments and institutions:
Identify who is in poverty.
Design redistributive policies, such as welfare payments, minimum wage laws, or subsidies.
Track progress towards economic and social development goals.
Measurement Challenges
Data Reliability: Household surveys may underestimate poverty due to underreporting or informal sector activity.
Cultural Variations: Standards of what counts as "basic needs" differ by country.
Changing Living Standards: In advanced economies, the poverty line rises as societies grow wealthier, reflecting evolving expectations.
Poverty in the UK Context
The UK primarily measures relative poverty using the 60% of median household income threshold.
This captures individuals at risk of social exclusion, even if they are not in absolute deprivation.
However, debates continue about the relevance of this measure for assessing true living standards.
The UK also occasionally reports on material deprivation indicators, such as whether households can afford heating, nutritious meals, or durable goods. These complement income-based measures to provide a fuller picture.
Links to Broader Economic Themes
Understanding relative and absolute poverty links directly to:
Income distribution and inequality, which affects social stability and economic efficiency.
Government intervention, since different poverty measures justify different policy approaches.
Value judgements in economics, as perceptions of fairness influence the design and evaluation of redistribution policies.
FAQ
The World Bank establishes the absolute poverty line using purchasing power parity (PPP), ensuring it reflects equivalent buying power across countries.
It is periodically updated using data on consumption patterns in low-income nations. For example, the current threshold is set at $2.15 per day in 2017 PPP.
This approach allows meaningful cross-country comparisons, although it cannot capture cultural or regional differences in what is considered a “basic need.”
Relative poverty reflects inequality rather than sheer deprivation.
In wealthy countries, individuals may still fall below the 60% median income threshold, meaning they cannot fully participate in the norms of society.
This persistence highlights that rising national income alone does not eliminate poverty; distributional factors and social exclusion remain crucial concerns.
Household composition affects how income is adjusted through equivalisation.
Larger households benefit from economies of scale (shared housing costs).
Children and non-working dependants lower equivalised income compared with single-earner households.
This adjustment ensures comparisons are fairer, showing that poverty risk is often higher for families with many dependants.
Relative poverty rates are sensitive to shifts in the median.
If median income rises but low-income households remain stagnant, more people fall below the 60% threshold.
If the median falls during recessions, poverty rates may appear lower, even if living standards worsen.
This dynamic nature means relative poverty is more about distribution than absolute material well-being.
Policymakers’ choices reflect priorities:
Absolute poverty is favoured when tackling extreme deprivation, particularly in developing nations.
Relative poverty is used in advanced economies to capture inequality and social exclusion.
The chosen measure shapes policies: welfare systems and redistribution target relative poverty, while aid and development strategies address absolute poverty.
Practice Questions
Define absolute poverty. (2 marks)
1 mark for recognising that it refers to a condition where basic needs are not met.
1 mark for including reference to a fixed poverty line or minimum resources required for survival.
Explain two key differences between relative poverty and absolute poverty. (6 marks)
Up to 3 marks for each difference explained (maximum 6 marks).
1 mark for identifying a difference.
1 mark for developing the explanation (e.g., static vs dynamic measure, developed vs developing country relevance).
1 mark for giving context or elaboration (e.g., UK 60% median income threshold for relative poverty, World Bank $2.15/day measure for absolute poverty).
