POVERTY

A2 ECONOMICS

Aims and Objectives

Aim:Understand poverty

Objectives:Define povertyExplain absolute and relative povertyAnalyse poverty trendsEvaluate government intervention methods

Poverty True or False• 13.5 million people live in poverty in the UK.True. 1 in 5 people live in poverty in the UK.

• A quarter of all disabled adults live in poverty in the UK.False: Actually a third live in poverty

• 2 million children are currently living in poverty in the UK.False. 3.5 million children currently live in poverty in the UK.

• The UK has the 6 highest rate of poverty in the Europe.True.

• 3 out of 5 children in Luton live in poverty.True.

Poverty

• Define Poverty

• Absolute and Relative

Absolute and Relative Poverty

Absolute Poverty:When an individual or households’ income is

insufficient for them to afford basic shelter, food, clothing.

Relative Poverty:When households/people are comparatively

poorer to others.Increases as distribution of income gets wider.

Absolute and Relative Poverty

A rise in a country’s income will result in a fall in absolute poverty.

However, relative poverty may rise if those on high incomes benefit more than those on low incomes.

Measuring PovertyNo official measure of poverty.Joseph Rowntree foundation defines a

household as being in poverty if it’s disposable income is less than 60% of the UK median income.

Year < 60% of median income < 50% of median income

1961 12.8 7.4

1981 12.1 4.5

1991 20.1 11.7

2004 16.8 9.4

Measuring PovertyTwo trends

Causes of Poverty Discuss in groups what you feel the main causes of poverty are.

Unemployment

Low Wages

Sickness & Disability

Longer Life Spans

Old Age

Poverty Trap

Imperfect Information

Changing Patterns of Labour Demand

Lack of Education

Single Parenthood

Government InterventionDiscuss in groups appropriate gov intervention

methods to reduce poverty.

National Minimum Wage Analysis

- Creates an incentive to work.- Raises wages of lowest paid workers

- May increase unemployment as business costs rise

NMW EvaluationHowever NMW may not reduce unemployment

if MRP increases.

S

D = MRP1

Q2Q1

W2

W1

Wage Rate/MRP

Quantity of Labour

D = MRP2

Cutting Bottom Rates of Income Tax Analysis

- Making less regressive will reduce extent of poverty trap- Incentivise work

- Government could potentially take less in tax revenues.

Training and Education Analysis

- Should increase productivity of low paid and future prospects- Reduce imperfect information

- Costly- Effects may not be notice in short run.

Trickle Down Effects Analysis

- Creates employment for poor.- Stimulate economy

- Increase income inequalities- Not all living in poverty would benefit.

Spending by rich stimulate economy, eg. Create employment for poor. Cut corp tax or top income tax rates

Increasing Welfare Benefits Analysis

- Stimulates aggregate demand, creating jobs.- Raise standards of living of the poorest and sickest

- Increase voluntary unemployment- Costly to implement

Tax Credits Analysis

- Working tax credit incentivises to work.- Child tax credit reduces child poverty

- Money not paid in tax may be spent on demerit goods or not spent on items for children.

Government Intervention & Poverty

Are these government intervention methods working?

What would you propose to reduce UK poverty?

What methods would you suggest to reduce global poverty?