Poverty

Absolute and relative poverty

Poverty - a condition in which a person has insufficient resources to achieve an accepted minimum standard of living.

Absolute poverty - a condition in which income is insufficient to meet basic physical needs such as food, clean water, shelter and essential healthcare.

Relative poverty - a condition in which income is low compared with the normal standard of living in that society.

Absolute poverty	Relative poverty
Focuses on whether basic needs can be met	Focuses on inequality and ability to participate in normal society. Frequently cited as living on less than 60% of median household income.
Can exist in any country but is more common where average income and services are low	Can remain even in a high-income country
A fixed real poverty line is often used and adjusted for price changes	The line usually moves with typical or median income

Causes of poverty

Named cause	Cause-and-effect explanation
Unemployment	No wage income -> household relies on savings or benefits -> essential consumption and opportunities fall, especially if unemployment lasts.
Low wages	Full-time work may still provide insufficient income when productivity, bargaining power or hours are low and living costs are high.
Illness	A person may be unable to work while medical and care costs rise; family members may also reduce work to provide care.
Age	Children cannot earn and some elderly people have low pensions or savings; households with many dependents divide income among more people.
Environmental factors	Drought, floods, disease, pollution or depleted land destroy assets and livelihoods and can raise food, water and health costs.

The poverty cycle

Poverty can reproduce itself across time: low income limits nutritious food, healthcare and education -> health and skills remain weak -> productivity and employability stay low -> income remains low. A shock such as illness or crop failure can make the cycle worse when households lack savings or insurance.

Analysis point: A cause can also be a consequence. Illness may cause poverty by reducing work, while poverty may cause illness through poor nutrition and healthcare.

Policies to alleviate poverty and redistribute income

Redistribution of income - government action that changes the distribution of income, usually by collecting taxes and providing benefits or services.

Policy	How it may reduce poverty	Possible limitation / trade-off
Promote economic growth	Higher output can create jobs, wages, profit and tax revenue for services.	Benefits may not reach low-income groups; growth may be uneven or environmentally damaging.
Improve education	Skills and qualifications raise productivity, employment chances and future wages.	Long time lag; children may still face cost, distance or pressure to work.
Improve healthcare	Prevents illness, reduces medical costs and allows adults to work and children to attend school.	Expensive; access and quality matter, especially in remote areas.
More generous state benefits	Raises the disposable income of unemployed, sick, elderly or low-income households immediately.	Budget cost; poor targeting or claiming benefits may weaken incentive to find work
Progressive taxation	Higher-income groups pay a larger share; revenue funds benefits and services.	Very high rates may reduce work, saving, investment or encourage avoidance.
National minimum wage	Raises earnings of covered low-paid workers and may strengthen incentives and productivity.	If set above worker productivity, firms may reduce hiring, hours or raise prices; uncovered people do not gain.

The strongest strategy normally combines immediate support with long-run opportunity. Benefits and healthcare can protect people now, while education, growth and job creation reduce future dependence. Effectiveness depends on targeting, administration, finance and the cause of poverty.