Poverty: causes, consequences and policies

Last time

Before we start: last time, in Population, you learned these points. Here they are again on one card. Keep them in mind, because today builds on them.

Not enough to live on

Some families cannot afford enough food, clean water or a safe home. Others can afford the basics, but far less than most people around them. Both are poverty, of two different kinds. In this lesson: what causes poverty, why it lasts, and what governments can do.

Absolute and relative poverty

Absolute poverty is when people cannot afford the basic necessities of life: enough food, clean water, shelter and clothing. It is often measured by an international poverty line, an income per person per day set by the World Bank. Relative poverty is when people's income is well below the average in their own country, so they cannot share the normal standard of living there.

Causes of poverty: income

Unemployment: with no job, there is no wage. Low wages: workers with few skills or little education earn little, even with a job. Old age, illness and disability can stop people working, and there may be little support from the state.

Causes of poverty: other

Large families: the same income must be shared among more people. Unequal ownership of land and wealth, and discrimination that keeps some groups out of good jobs. Rising prices of food and fuel, and natural disasters such as floods, can push families into poverty.

The poverty cycle

Poverty tends to last. A family on a low income cannot afford good education or health care for its children. So the children have low productivity when they grow up, and earn low incomes themselves. The cycle repeats unless something breaks it.

Consequences of poverty

For people: poor health, lower life expectancy, children taken out of school to work, and poor housing. For the economy: lower productivity, lower spending, and lower tax revenue, so slower growth. For society: more crime and social unrest, and greater inequality.

Policy 1: economic growth

Growth creates jobs and raises incomes, and gives the government more tax revenue to spend on the poor. But the gains may go mostly to the rich and skilled, so the poorest may not benefit, and inequality can rise. So growth helps most when it creates jobs that poor people can do.

Policy 2: redistribution

Progressive taxes take a higher share of income from the rich. Transfer payments give money to the poor, such as pensions and cash support for poor families. In Pakistan, the Benazir Income Support Programme does this. A national minimum wage raises the pay of the lowest-paid workers, though it may cost some jobs.

Policy 3: opportunity

Free or subsidised education and training give poor children the skills to earn more later. Free health care, clean water and sanitation keep people healthy enough to work. Small loans, called microfinance, help poor people start small businesses.

Policies to reduce poverty

Here are the main policies, how each helps, and its drawback. A discuss answer needs both columns.

Does growth reduce poverty?

It may: more jobs, higher wages, and more tax revenue for health and schools. It may not: if growth comes from industries that employ few people, if gains go to the rich, or if prices rise faster than wages. Conclude that it depends on what kind of growth, and whether the government shares out its gains.

Mistakes that lose marks

Mistake one: mixing up absolute and relative poverty. Mistake two: listing causes without explaining how each lowers income. Mistake three: saying growth always reduces poverty. The fix: define the kind, link each cause to income, and weigh both sides.

The full-marks tip

The full-marks tip: define absolute poverty by necessities, and relative poverty by the national average. For each cause, explain how it lowers income or raises costs.

On one card

So, on one card: poverty. Keep it for revision.