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IB DP Economics Study Notes

3.4.3 Poverty Types

Poverty is a multifaceted economic issue indicating a lack of means among individuals or communities to fulfil basic life necessities. It takes various forms and imposes broad impacts on societies and economies. This section elaborates on the causes and effects of absolute and relative poverty. Understanding the broader economic context, such as alternative measures of economic performance, is essential to grasp the full scope of poverty's impact on societies.

A chart illustrating poverty in selected countries

Image courtesy of statista

Absolute Poverty

Definition

  • Absolute Poverty is a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information. Individuals experiencing absolute poverty lack the necessary means to procure these basic needs, rendering survival a constant struggle.
An infographic illustrating poverty figures in India

Image courtesy of worldbank

Causes

Lack of Resources

  • Individuals undergoing absolute poverty typically lack access to essential resources such as clean water and medical services due to the unavailability of infrastructure or unaffordability.

Insufficient Income and Employment Opportunities

  • Unemployment, underemployment, and exceptionally low wages can lead individuals to fall into the trap of absolute poverty, often making it challenging to break the cycle. The dynamics of market structures like oligopoly can also influence employment opportunities and wage levels.

Educational Deprivation

  • Limited access to education and training impedes the acquisition of skills and knowledge necessary for well-paying jobs, leaving many entrenched in poverty.

Poor Health Conditions

  • A compromised state of health due to malnutrition, inadequate healthcare, or unsanitary living conditions can incapacitate individuals, limiting their earning capacity.

Economic Instability and Inflation

  • Economic volatility, recessions, and inflation can result in job loss and reduced wages, propelling people deeper into poverty.

Conflicts and Wars

  • Areas ridden with conflict often see rampant destruction, disruption of societal structures, and depletion of resources, pushing populations into severe poverty.

Effects

Deteriorated Living Standards

  • Individuals living in absolute poverty endure extremely impoverished living conditions with scarce access to food, clean water, and safe shelter.

Malnutrition and Health Complications

  • Absolute poverty often results in malnutrition and susceptibility to diseases due to inadequate healthcare and poor living conditions.

Hindered Educational Attainment

  • Children impacted by absolute poverty usually face barriers to education, impacting their future employment prospects and perpetuating poverty through generations.

Social Marginalisation

  • Absolute poverty leads to societal exclusion and marginalisation, preventing individuals from partaking in societal, economic, and cultural life.

Relative Poverty

Definition

  • Relative Poverty denotes a situation where individuals or households, even with some income, possess considerably less than the societal average. It is a measure of income inequality, reflecting a lower living standard within a specific societal context. The concept of externalities provides insight into how poverty affects not only individuals but also society at large.
An infographic illustrating relative poverty figures in Scotland

Image courtesy of gov

Causes

Disparities in Income

  • Predominant income disparities within societies lead to relative poverty, making access to goods, services, and opportunities uneven.

Inequitable Social and Economic Policies

  • Policies that neglect income disparities and don’t support the underprivileged contribute to increased levels of relative poverty. The development of sustainable business practices can play a crucial role in addressing such inequities.

Structural Unemployment

  • Economic transitions, technological advancements, and globalisation can induce structural unemployment, causing certain groups to experience relative poverty due to lack of matching employment opportunities.

Educational Inequity

  • Varied access to and quality of education result in differences in income levels and opportunities, leading to relative poverty among certain segments of the population.

Effects

Social Exclusion and Stigma

  • Individuals in relative poverty often face exclusion and stigma due to their lower socioeconomic status within their communities.

Mental Stress and Physical Health Deterioration

  • Living in relative poverty can result in mental health issues like stress, depression, and also impacts physical health due to limited access to quality healthcare and nutritious food.

Limited Opportunities and Development

  • Access to quality education, career advancement, and personal development is often limited for those experiencing relative poverty, reducing their ability to ameliorate their conditions. The measures of inequality further illustrate the challenges faced by these individuals.

Escalation in Crime and Social Discontent

  • Increased crime rates and social unrest may emanate from the frustrations and deprivations associated with relative poverty.

Comparative Analysis between Absolute and Relative Poverty

  • Context Dependency: Relative poverty is dependent on societal standards and varies, whereas absolute poverty signifies a lack of basic needs universally.
  • Measurement: Absolute poverty is measured through established income thresholds, but relative poverty is measured relative to the societal median income.
  • Severity: Absolute poverty indicates more severe deprivation, with life-threatening implications, while relative poverty reflects disparities in living standards within a society.

Policy Implications and Strategies

  • Alleviating Absolute Poverty: Tackling absolute poverty necessitates international aid, substantial investments in infrastructure, healthcare, education, and implementing measures for economic stability.
  • Mitigating Relative Poverty: To alleviate relative poverty, policymakers should focus on reducing income inequalities, enhancing educational and employment opportunities, and devising supportive mechanisms for the disadvantaged.

Understanding the distinct facets of poverty is imperative for economists, policymakers, and societies. It enables the development and implementation of effective strategies and policies to diminish both absolute and relative poverty, cultivating more egalitarian and sustainable economic development, and fostering societal harmony.

FAQ

Yes, governments can devise policies targeting both absolute and relative poverty simultaneously. Policies focused on wealth redistribution, like progressive taxation coupled with robust social welfare programmes, can alleviate both absolute and relative poverty by providing essential services and support to those below the poverty line while narrowing income disparities. For instance, a well-structured Universal Basic Income (UBI) can elevate those in absolute poverty above the poverty threshold while reducing income disparities within the population, addressing the implications of both types of poverty and promoting overall societal wellbeing and equality.

Relative poverty can indeed exist in affluent societies as it is a measure of the disparity in income and living standards within a given population, rather than an absolute measure of deprivation. In wealthy societies, individuals or households classified as relatively poor may have incomes substantially lower than the median, resulting in difficulty maintaining the average standard of living or participating fully in societal activities, even though their incomes may be above the threshold set for absolute poverty. This situation can result from various factors including high income inequality, lack of access to quality education and employment opportunities, or systemic socio-economic disparities.

Education policies can significantly contribute to reducing both absolute and relative poverty. By improving access to quality education for all, especially those in impoverished conditions, governments can empower individuals with the skills and knowledge needed to secure better economic opportunities, breaking the cycle of absolute poverty. Enhanced education also promotes social mobility and economic equality, addressing relative poverty by allowing individuals from low-income backgrounds to improve their socio-economic status. For instance, policies ensuring free, inclusive, and equitable quality education can equip individuals with the requisite competencies to participate effectively in the evolving global economy, thereby mitigating the impacts of both absolute and relative poverty.

While both relative poverty and income inequality pertain to disparities in income and wealth within a population, they differ conceptually. Relative poverty refers specifically to the condition wherein individuals or households earn significantly less than the median income of their society, struggling to maintain the average standard of living and participate fully in their community. Income inequality, on the other hand, is a broader concept that quantifies the distribution of income within a population, reflecting the extent of disparity between the highest and lowest income earners. It does not necessarily denote inability to meet basic needs or maintain an acceptable standard of living.

The poverty threshold for absolute poverty is typically determined by the minimum income level required to meet basic needs such as food, clothing, shelter, and healthcare. This threshold is often set by international organisations, like the World Bank, which currently defines the global absolute poverty line as living on less than $1.90 per day (in 2011 international prices), adjusted for purchasing power parity. This threshold reflects the minimum income required to sustain a person's life and is instrumental in identifying individuals and populations experiencing extreme deprivation, enabling more targeted and effective poverty reduction interventions.

Practice Questions

Evaluate how absolute and relative poverty, although different, might intersect and mutually reinforce each other in certain contexts.

In many contexts, absolute and relative poverty can indeed intersect and reinforce each other. Absolute poverty, characterised by a severe deprivation of basic needs, can be exacerbated by relative poverty, which is more concerned with income disparity within a society. When individuals or households, already struggling to meet basic needs, find themselves in environments of pronounced income disparity, it can further limit their access to resources, services, and opportunities, thus intensifying the cycle of poverty. Conversely, relative poverty can lead to absolute poverty when societal inequalities are severe and pervasive, leaving those in relative poverty without means to access basic life necessities, pushing them into absolute poverty. Policies addressing one type of poverty should be mindful of the potential implications for the other, considering a comprehensive approach to addressing both absolute and relative poverty is paramount to fostering sustainable societal development.

Discuss how economic policies might alleviate the impact of both absolute and relative poverty. Provide one example for each.

Economic policies can play a pivotal role in alleviating both absolute and relative poverty. For absolute poverty, policies focused on direct provision of basic needs like food, water, and healthcare are crucial. For instance, the implementation of Universal Basic Income (UBI) can significantly reduce absolute poverty by providing individuals with the financial means to access essential goods and services. In the case of relative poverty, policies aimed at reducing income disparities, like progressive taxation, are essential. Progressive taxation can redistribute wealth more equitably within society, thereby mitigating the impacts of relative poverty by enabling more equal access to opportunities and resources. These policies, when effectively implemented, can address the root causes and manifestations of poverty, contributing to more equitable and inclusive economic development.

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