4.2.1 Absolute & Relative Poverty

• Absolute poverty is a situation where individuals cannot afford to acquire the basic necessities for a healthy & safe existence
  • These necessities include shelter, water, nutrition, clothing & healthcare
  • In 2022, the World Bank defined absolute poverty as anyone who was living on less than $1.90 a day
    
  • Absolute poverty is more prevalent in developing countries than developed ones
    
    
• Relative poverty is a situation where household income is a certain percentage less than the median household income in the economy
  • Poverty in a household is considered relative to income levels in other households
  • The UK defines relative poverty as households that are living with less than 60% of the median household income
  • In May 2022, the median UK monthly household income was £2072/month
    • This meant that the relative poverty line was any household earning less than £1243,20/month
  • In early 2022, 22% of the UK population was in relative poverty
  • Relative poverty is the main form of poverty that occurs in developed countries
    
    

• There has been a significant decrease in absolute poverty since 1990
  • There were 1.9 billion people in absolute poverty in 1990. By 2022 it had fallen to 750 million
    
    
• Absolute poverty can decrease even while income inequality increases
  • This means that the income of wealthier households is rising faster than the income of the poorer households
    
    
• A reduction in absolute & relative poverty requires the benefits of both the workings of the free market & government intervention
  
  

Causes of changes in absolute poverty

• There is a strong correlation between economic growth & a decrease in absolute poverty
  • Economic growth increases household incomes
    
    
• Government tax & benefit policies can support the most vulnerable groups in society e.g. children, pensioners, people stuck in long-term unemployment
  • In developed economies, benefit policies can ensure that no household is living in absolute poverty

Causes of changes in relative poverty

• Rising asset prices can decrease relative poverty in households which own their own properties
  • Asset prices often increase faster than wages or income
    
    
• Trade liberalisation increases potential market size & output in an economy
  • This leads to an increase in the demand for labour & a wage rise
  • This creates additional income which has a multiplier effect & pulls households out of relative poverty
    
    
• Decreased levels of government benefits can lower household income & increase relative poverty