Absolute and Relative Poverty

Poverty and inequality are central issues within the study of economics, shaping the lived experiences of billions of people worldwide. The concepts of absolute and relative poverty underpin much of the analysis in this field, both in practical policy-making and in theoretical debate. Understanding the distinction between absolute and relative poverty, how they are measured, and the causes behind changes in each is essential for students studying Economics. This section provides a comprehensive overview of these key issues from a global perspective.

Distinction between Absolute Poverty and Relative Poverty

Absolute Poverty

Absolute poverty refers to a condition where individuals lack the means to secure the most basic necessities required for survival. This concept is universally applied, regardless of societal context. People experiencing absolute poverty do not have access to essentials such as adequate food, safe drinking water, shelter, clothing, and basic healthcare. The focus here is on meeting a minimum standard of living.

A commonly cited international benchmark for absolute poverty is the World Bank’s threshold, currently set at living on less than $2.15 per day (2022 PPP – Purchasing Power Parity). Those below this line are deemed unable to meet the minimum requirements for a healthy and productive life.

Relative Poverty

Relative poverty, by contrast, is defined in terms of the economic status of individuals or households compared to the broader society in which they live. It is a measure of inequality within a specific country or region. Rather than focusing on an absolute standard, relative poverty is about whether people can afford to participate fully in ordinary economic and social life.

For example, in the UK, relative poverty is often defined as living in a household with a disposable income less than 60% of the national median after housing costs. Someone may not be in absolute poverty, but if they are significantly worse off than the average person in their society, they are considered to be in relative poverty.

Summary of the Distinction

• Scope: Absolute poverty is a fixed, universal measure; relative poverty is variable and context-dependent.
• Focus: Absolute poverty is concerned with survival; relative poverty is concerned with equality and social inclusion.
• Measurement: Absolute poverty is measured against a set threshold; relative poverty is measured against social norms or median income levels.

Measures of Absolute Poverty and Relative Poverty

Measures of Absolute Poverty

The primary measure of absolute poverty is the international poverty line set by organisations such as the World Bank. As stated above, this currently stands at $2.15 per person per day. This threshold takes into account basic human needs and is adjusted for purchasing power parity to reflect differences in cost of living across countries.

Other measures include:

• National poverty lines: Many countries have their own poverty lines, often higher than the international benchmark, reflecting local expectations and living costs.
• Minimum calorie intake: Some measures use nutritional requirements (e.g., 2,100 calories per adult per day) as a basis for defining poverty.
• Basic needs approach: This considers access to essential services such as health, education, clean water, and sanitation.

Measures of Relative Poverty

Relative poverty is typically measured using income-based thresholds related to the median income of a particular society. Common methods include:

• Relative income threshold: The most widely used measure in developed countries, such as the UK, is 60% of median household income.
• Living standards indicators: These include the ability to afford certain goods and services considered normal, such as a telephone, heating, or social participation.
• Gini coefficient: While technically a measure of income inequality, a high Gini coefficient often correlates with high levels of relative poverty.
• Material deprivation indicators: These assess the extent to which people lack items or activities that are typical in society.

Causes of Changes in Absolute Poverty and Relative Poverty

Causes of Changes in Absolute Poverty

Absolute poverty can decline or intensify owing to several factors, including:

• Economic growth: Sustained increases in GDP per capita can lift large sections of the population above the absolute poverty line, especially in developing countries.
• Employment opportunities: Greater availability of productive, well-paid jobs enables more people to afford basic necessities.
• Investment in health and education: Improved access to healthcare and educational opportunities increases the productive capacity of individuals, supporting their escape from poverty.
• Government policies: Social safety nets, cash transfer programmes, and targeted assistance can reduce the depth and incidence of absolute poverty.
• International aid: Development aid, when effectively distributed, can support infrastructure, healthcare, and education, helping to reduce absolute poverty.
• Technological advancement: Innovations in agriculture, health, and communication can dramatically enhance living standards in low-income countries.
• Natural disasters and conflict: Conversely, war, political instability, climate-related disasters, and pandemics can increase absolute poverty by destroying livelihoods and infrastructure.

Causes of Changes in Relative Poverty

Relative poverty is dynamic and influenced by a broad range of economic, social, and political factors. Changes can be driven by:

• Changes in income distribution: If incomes at the top grow faster than those at the bottom, relative poverty is likely to rise, even if absolute poverty is falling.
• Unemployment and underemployment: Lack of access to stable, well-paid work increases the risk of relative poverty, as affected individuals fall behind the median income.
• Education and skills gaps: Lower educational attainment often leads to lower incomes, perpetuating cycles of relative poverty.
• Taxation and welfare policies: Progressive taxation and generous welfare systems tend to reduce relative poverty, while regressive taxation and cuts to benefits can have the opposite effect.
• Demographic changes: An ageing population, changes in family structure (e.g., single-parent households), and migration can affect relative poverty levels through shifting patterns of income and need.
• Technological change: Automation and digitalisation can lead to job losses or polarisation in the labour market, increasing relative poverty among the low skilled.
• Discrimination and social exclusion: Marginalised groups (e.g., based on ethnicity, gender, or disability) may face barriers to employment and advancement, increasing their risk of relative poverty.

Summary

While absolute poverty refers to meeting basic survival needs, relative poverty concerns the ability to participate fully in society and avoid social exclusion. Both concepts are critical for understanding economic well-being and informing policy responses. The measures used to assess each type of poverty differ, as do the causes behind changes in their prevalence. Recognising these distinctions enables policymakers and economists to design more effective strategies to combat poverty and reduce inequality, improving the quality of life for those most in need both in the UK and globally.