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4.2.1 Absolute and relative poverty

Absolute and relative poverty 

Absolute poverty - the inability of a household to afford a basic standard of living/meet basic needs.  

Threshold irrespective of the economy being looked at, so few people in the UK are in absolute poverty due to the support systems in place (e.g benefits) 

WB defines extreme poverty as the % of population living off of less than $1.90 a day (PPP adjusted) 



Relative poverty - when a household has an income considerably lower than that of others in their country. In the UK the threshold for this is when income is 2/3 lower than the median income. 

This means that if you are in relative poverty you aren't necessarily in absolute poverty. People in the UK who are in relative poverty are not in absolute poverty as if they were in Zambia for example they would not be in poverty at all with their current income. 


Poverty is usually measured by looking at incomes. It could also be measured by seeing what basic household items are owned (e.g % of households that own a fridge)

Causes of changes in absolute and relative poverty 

NMW being put in place or changed - if set at a reasonable level, the NMW will reduce poverty among those who used to be paid less. In a monopsony, can also mean more people are being paid as employment increases. Relative and absolute poverty reduced. 

Economic growth - reduces absolute poverty by increasing employment, wages and tax revenue that can be used to provide services, but may actually increase relative poverty as inequality rises. Also may deplete finite resources, increasing poverty further down the line (global warming) 

Progressive taxation - those who earn more are taxed at higher rates, and this money can be redistributed to those earning less through benefits and state-provided services. This reduces relative poverty. 
However, if taxes are set too high, high income earners may move abroad, leading to a loss in revenue and labour for the country. 

Benefits/state provision - state-provided healthcare, education, transport, etc. all reduce inequality and relative poverty as those on lower incomes can receive the same quality of service as those on higher incomes. Better living standards. 

 These services, as well as benefits, redistribute income as they are funded by money collected through taxation, which those that are richer pay more of. 

 The issue with these is they reduce the incentive to work, especially if there are steep withdrawal rates, meaning that as one begins to earn more, the benefits that are removed from them may actually make them worse off. 
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