Key Definitions

Absolute poverty exists when individuals cannot afford the basic necessities for survival, such as food, water, shelter, and healthcare.

It is measured against a fixed international threshold, for example living on less than a given dollar amount per day, and is mainly associated with developing countries.

Relative poverty exists when household income is below a certain proportion of median income in a society, for example below 60% of median household income in the UK.

Relative poverty is therefore a measure of inequality and social exclusion and is especially relevant in developed countries.

Causes of Changes in Poverty

Factors Reducing Absolute Poverty

• Sustained economic growth: Higher average incomes can lift households above subsistence levels.
• Effective government intervention: Targeted welfare benefits and better access to education and healthcare can reduce absolute poverty.
• Globalisation and trade: These can create jobs and raise incomes in developing economies.

Factors Influencing Relative Poverty

• Changes in income distribution: Relative poverty worsens if the incomes of the rich rise faster than those of the poor.
• Changes in asset prices: Rising house prices may reduce relative poverty for homeowners but increase it for renters.
• Government tax and benefit policies: Progressive systems can reduce relative poverty, while austerity or benefit cuts may increase it.
• Labour market changes: Growth of low-paid and insecure work, sometimes described as the precariat, can increase relative poverty.

The Relationship Between Growth and Poverty

Absolute poverty: There is strong evidence that economic growth is the most powerful driver of reducing absolute poverty around the world.

Relative poverty: Economic growth alone does not guarantee a fall in relative poverty. If the gains from growth are unequally distributed, relative poverty may rise even while absolute poverty falls.

Evaluation and Application

A strong answer must make the crucial distinction between absolute poverty, which is based on a fixed subsistence line, and relative poverty, which is based on living standards within a society.

Reducing absolute poverty is widely seen as a priority, but the methods used to achieve it, such as rapid industrialisation, may create environmental or social costs.

Reducing relative poverty often requires redistributive policies such as taxes and benefits, but these can create trade-offs with incentives and economic efficiency.

In the UK context, relative poverty is the more relevant measure, so analysis should consider issues such as wage stagnation, benefit changes, and regional disparities.

Exam Preparation