Transcript Poverty - SHS Learn

Poverty and Inequality
How much do you live on per day?
• Lunch
• Bus/Train Fare
• Breakfast/Dinner
• Phone contract / month / 30
• Going out evenings/weekends? Clothes, Birthdays?
• Housing ….? (Mortgage / rent costs ~ £15/day)
• Sky/TV, Heating, Landline, Gas, Electricity…..
• Annual Holiday cost / 365……..still too low? (£40/day for SHS)
•-> Virtually no-one in the UK exists on income below £10/day ($15/day)
Poverty
According to the World Bank, “poverty is
pronounced deprivation in wellbeing.”
Poverty defined by World Bank as income of
$2 per day (2005 prices PPP), and extreme
poverty as $1.25 per day.
Absolute poverty is defined by the UN as “a
condition characterised by severe deprivation
of basic human needs”…what are these?
World Poverty
1.
Of the 6.4bn in the world, how many are illiterate?
2.
How many of the 6.4bn live without electricity?
3.
World bank has 2.4bn people living in low income countries – what
% of world exports come from these countries?
Poverty – a big problem
Nearly a billion
people entered the
21st century unable
to read a book or
sign their names
(Unicef)
The world’s low
income countries
(2.4 billion people)
account for just
2.4% of world
exports (WB)
1.6 billion people —
a quarter of
humanity — live
without electricity
(WEF)
BUT its getting
better 
Includes India
Includes China
Absolute poverty
Notes:
Extreme poverty has “decreased considerably” in the past 30 years, from
52% of the developing world in 1981 to 21% in 2010 (World Bank)
Extreme poverty has fallen in all regions, except Sub-Saharan Africa. SSA
has not improved due to:
1.
High Pop Growth (Av. 2.6% pa) – Income growth is higher but high pop
growth dilutes the effect
2.
SSA poverty starts from a lower base than other regions, so many
people are well below the $1.25/day and growth won’t get them over
the threshold
3.
Income inequality is worse in SSA so Income can flow
disproportionately to the higher income groups
Poverty in China has fallen from 84% to 12% (also of use in questions on
globalisation)
Relative Poverty
(UK & Developing World)
Relative poverty defines income or resources in relation to the average.
It is concerned with the absence of the material needs to participate
fully in accepted daily life.
How is it measured?
Relative poverty is generally defined as when household income is less
than 60% of median household income (EU definition)
https://www.theguardian.com/commentisfree/video/2013/oct/08/inequalityhow-wealth-distributed-uk-animated-video
What are the factors driving
Absolute and Relative Poverty?
Factor
Changes in the rate of
economic growth
Absolute Poverty?
Relative Poverty?
Y
Y
FDI
Y
Y
Policies which result in
increased trade
Y
-
Government tax and
benefits policies
Y
Y
Changes in asset (ie Oil is a
national asset) prices
Y
Y
How do we solve Poverty?
Factor
Absolute (Developing World)
Relative
Changes in the rate of
economic growth
Minimise Debt/Corruption which saps
growth; Boost education, skills;
Discrimination (Gender,
Race, Caste)
FDI
Technology spill overs from MEDCs,
assists human capital formation,
contributes to international trade
integration, helps create a more
competitive business environment.
Promotion of inward
investment in depressed
regions to boost local wage
income (Ie UK enterprise
zones)
Policies which result in
increased trade
Remove Tariffs and Quotas – benefit from
comparative advantage in long term, plug
into world economic growth
N/A
Government tax and
benefits policies
Services to remove poverty (Sanitation,
Education, safe water etc.)
Redistribution of Income via
progressive tax
Changes in asset prices
National assets such as Oil wealth,
Diamonds, Agricultural products are all
inelastic (PED) hence large changes in
revenue
Housing affordability in UK
(lower prices in south via
higher stamp duty; lower
duty in north, removal of
tax benefits)
Relative Poverty in the UK
1. Ways to get around Inheritance Tax (The rich stay richer – Govt has to tax others more)
2. Falling Relative value of State Benefits
3. Inequality in Wages and Earnings Growth
Workers with high levels of skills and qualifications will be in demand and therefore will be able to
gain higher wages. However those with low skills will find themselves in low paid jobs or even
unemployed.
In recent years wage differentials have increased due to:
De-industrialisation…
Public Sector…
Growth in part time and temporary jobs…
Decline of trades unions …
Increased demand for ?? workers
=> Structural and LT Unemployment amongst the low paid
(Higher competition for low paid jobs = lower pay; minimum wage may reduce number of lowest
paid jobs?)
It’s a good time to be qualified!
(Source Rowntree Foundation)
Figures are in percentages ie in
2000 14.2% employed had no
qualification; estimates are that
by 2020 only 5.7% of UK
workforce will have no
qualification.
Result: the uneducated will find
it much harder to get jobs,
hence will be more likely to be
in Poverty
(GCSE A*- C is level 2,
A levels are level 3)
Wealth & Inequality
Wealth relates to differences in people’s stock of assets.
Income is a flow concept; therefore, income inequality relates to
differences in people’s income flows from wages, dividends, rents, etc.
Oxfam says wealth of richest
1% equal to other 99%
The richest 1% now has as much wealth as the rest of the world combined,
according to Oxfam.
It uses data from Credit Suisse from October for the report, which urges leaders
meeting in Davos this week to take action on inequality.
Oxfam also calculated that the richest 62 people in the world had as much wealth as
the poorest half of the global population.
It criticised the work of lobbyists and the amount of money kept in tax havens.
Oxfam predicted that the 1% would overtake the rest of the world this time last
year.
It takes cash and assets worth $68,800 (£48,300) to get into the top 10%, and
$760,000 (£533,000) to be in the 1%. That means that if you own an average house
in London without a mortgage, you are probably in the 1%.
BBC News: 18 January 2016
Measurement of Income (and
sometimes Wealth) distribution
Lorenz Curve shows the
distribution by percentile (ie
the top 1% of population
have 20% of the UK’s
income)
The relative sizes of area
within Lorenz curve ratio’d
to total area under 45
degree line is the Gini
coefficient – may have
come across it in
Geography? Allows us to
compare countries.
Gini Coefficient =
(area) A
--------A+B
Where is the UK? (Axis is Gini)
Income and Wealth Inequality - Causes
Causes of income and wealth inequality within and between countries
include:
• education, training and skills
• wage rate including minimum wage rates
• strength of trade unions
• degree of employment protection
• social benefits
• the tax system (e.g. how progressive it is)
• pension entitlements
• ownership of assets (e.g. houses and shares) and inheritance.
Inequality and Development
As a country develops and its GDP grows from a subsistence
economy, inequality initially increases and then decreases.
(Kuznet’s curve)
Industrialisation ->  inequality as workers move from the lower
productivity and lower paid agricultural sector into the higher
productivity manufacturing sector.
However, at some point, inequality starts to decrease. This may be
because governments have more ability to redistribute income
through a more developed tax and benefit system.
Inequality and Capitalism
Capitalism?
“an economic and political system in which a country's trade and
industry are controlled by private owners for profit, rather than by the
state.”
Inequality in a free market economy is inevitable?
people with higher skills and abilities will attract higher wages, whereas
those with poor skill levels will earn little. (MRP?)
private ownership of resources means that some people will acquire
considerably more assets than others which, in turn, may generate an
income.
Some argue that inequality is essential in a capitalist system to provide
an incentive for individuals to take risks in the knowledge that they,
personally, will benefit from any profits made.
Kuznets Curve
The Kuznets curve is a hypothetical curve that graphs economic
inequality against income per capita over the course of economic
development
Discuss the causes of relative poverty in a
developed country of your choice (15)
Unemployment, particularly long term
Lack of education and skills, which leads to
◦ unemployment (see above), particularly with changing
structure of the economy from manufacturing to services
◦ Lower income than high skilled workers (who have higher
MRP, ie produce more)
Single parenthood
Ageing population
◦ People may not have saved enough for a longer
retirement
Government policy to alleviate
poverty (and inequality) in the UK
Remember poverty is defined as relative
◦ very difficult to see it being eliminated without a very equal
distribution of income. Would this be desirable?
Main policies
◦ Redistribution of income
◦ Progressive taxes (higher top rate, raise personal allowance so
fewer pay tax)
◦ Means tested benefits – tax credits for poorer households, job
seekers allowance for unemployed
◦ Universal benefits – education and health free for all, state pensions
◦ Minimum wage