Inequality, in this context refers to an unequal and imbalanced distribution of income and
wealth in an economy
Absolute poverty: when an individual is unable to afford basic necessities to survive (food,
clothing, shelter, healthcare, education) as they earn below $2.15 a day PPP
Relative poverty: UK & EU household income earning below 60% of the median income
- relatively poor compared to the rest of your country
Causes of poverty
1. Unemployment (structural/cyclical)
- lack of human capital
- increase in zero hour contracts
2. Fiscal drag
- increased regressive tax (e,g ad valorem VAT)
- cost of living crisis: cost push inflation increases price of necessity goods
- wage freezes
3. Poverty trap
- lack of financial capital
- lack of access to quality health/education
- dependency on others
- e,g likelihood of individual born in Tanzania in poverty is greater than
individual born in the UK
Causes of changes in poverty
- FDI
- level of education / healthcare / infrastructure
- government tax and benefit policies
- corruption, political instability (poor governance)
- civil war, natural disasters
Lorenz curve (line of equality + bend of inequality)
Gini coefficient = commonly used measure of income inequality (a/a+b)
- higher Gini coefficient = greater unequal distribution of income
- further away bend of inequality is from line of perfect equality = more unequal
😉
distribution of income in country
- a Gini coefficient less than 0.4 (0-1) is good good good, yeah yeah yeah
palmer ratioooo (income of 10% richest / income of 40% poorest)
Income inequality causes in developed countries
1. Government policies/austerity = progressive nature of direct taxation + cuts in
transfer payments and welfare benefits such as JSA
1. Level of education: workforce less skilled = lower MRP = receive lower average pay
and earned income BUT education levels improve through provision of T Levels =
wealth in an economy
Absolute poverty: when an individual is unable to afford basic necessities to survive (food,
clothing, shelter, healthcare, education) as they earn below $2.15 a day PPP
Relative poverty: UK & EU household income earning below 60% of the median income
- relatively poor compared to the rest of your country
Causes of poverty
1. Unemployment (structural/cyclical)
- lack of human capital
- increase in zero hour contracts
2. Fiscal drag
- increased regressive tax (e,g ad valorem VAT)
- cost of living crisis: cost push inflation increases price of necessity goods
- wage freezes
3. Poverty trap
- lack of financial capital
- lack of access to quality health/education
- dependency on others
- e,g likelihood of individual born in Tanzania in poverty is greater than
individual born in the UK
Causes of changes in poverty
- FDI
- level of education / healthcare / infrastructure
- government tax and benefit policies
- corruption, political instability (poor governance)
- civil war, natural disasters
Lorenz curve (line of equality + bend of inequality)
Gini coefficient = commonly used measure of income inequality (a/a+b)
- higher Gini coefficient = greater unequal distribution of income
- further away bend of inequality is from line of perfect equality = more unequal
😉
distribution of income in country
- a Gini coefficient less than 0.4 (0-1) is good good good, yeah yeah yeah
palmer ratioooo (income of 10% richest / income of 40% poorest)
Income inequality causes in developed countries
1. Government policies/austerity = progressive nature of direct taxation + cuts in
transfer payments and welfare benefits such as JSA
1. Level of education: workforce less skilled = lower MRP = receive lower average pay
and earned income BUT education levels improve through provision of T Levels =
