Absolute and Relative Poverty

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, the World Bank's poverty line of $2.15 per day (2022 PPP).

Relative poverty exists when household income is below a certain proportion of median income in an economy.

In the UK, for example, relative poverty is defined as having an income below 60% of the median household income.

Causes of Changes in Poverty

Causes of changes in Absolute Poverty

• Economic growth in developing countries can reduce absolute poverty by increasing incomes and employment opportunities.
• Government policies such as welfare benefits, subsidies, and public services can help reduce absolute poverty.
• Global factors such as trade, foreign aid, and investment can influence absolute poverty levels in developing countries.
• Natural disasters and conflicts can increase absolute poverty by destroying livelihoods and infrastructure.

Causes of changes in Relative Poverty

• Education and skills (skills gap) can affect relative poverty by influencing income distribution and social mobility.
• Demographic changes such as ageing populations or changes in household composition can affect relative poverty rates.
• Government policies such as tax and welfare systems can influence relative poverty by redistributing income.
• Labour market changes such as unemployment, underemployment, and low wages can increase relative poverty.