Poverty - Types and Causes

Summary: Poverty—Types and Causes

The video explains different definitions of poverty, distinguishes equity from equality, and outlines economic and social factors that can cause people to fall into or remain in poverty.

Types of Poverty

• Absolute poverty occurs when a person’s or household’s income is too low to obtain basic necessities such as food, water, and shelter. The presenter says it is more commonly associated with developing countries, though it can also exist in developed countries. The video cites the World Bank’s benchmark of living on less than $2 a day.
• Relative poverty occurs when a household’s income is below a specified share of the average or median income in its society. It is more commonly discussed in developed countries and reflects how people’s incomes compare with those of others around them.
• The two forms are not exclusive to particular countries: absolute poverty can occur in developed economies, and relative poverty can occur in developing ones.

Equity and Equality

• Equity means fairness in the distribution of income.
• Equality means an equal distribution of income. The concepts are related but not interchangeable.
• Horizontal equity means equal treatment of equals. For example, people earning the same income should be taxed in the same way.
• Vertical equity means people with different incomes are treated differently according to their ability to pay. Under a progressive tax system, higher earners pay higher tax rates than lower earners.

Causes of Poverty

1. Unemployment

   • Cyclical unemployment can rise during a recession when weak aggregate demand leads businesses to cut jobs. Workers lose income and may fall into poverty.
   • Structural unemployment can occur when changes in the economy leave workers without the skills needed for available jobs. The presenter uses the UK’s shift from manufacturing toward services as an example.
   • Without retraining, structural unemployment may become long-term. The video links this to hysteresis: prolonged unemployment can make it harder for people to return to work, potentially trapping them in poverty.

2. Poor education and skills

   • People without suitable qualifications or skills may struggle to access higher-paying jobs.
   • The presenter describes this as a major underlying cause that can contribute to persistent poverty.

3. Poor health and healthcare

   • Poor health can reduce productivity, limit how much someone can work, and restrict the kinds of jobs they can do.
   • This can lower earning potential and contribute to poverty traps.

4. Wage differentials

   • Larger gaps between high-paid and low-paid occupations can increase relative poverty, widening the income divide between richer and poorer households.

5. Circumstances of birth and family background

   • Being born into a low-income household can make it harder to access education and higher-paying careers, increasing the likelihood of remaining in poverty.
   • The presenter also mentions single-parent households as a possible factor associated with lower earning potential, while describing these circumstances broadly as “bad luck.”

6. Tax cuts for higher earners

   • The video argues that reducing taxes on high-income groups can increase their disposable incomes and widen the gap between rich and poor, thereby increasing relative poverty.
   • It gives changes to UK higher-income tax rates as an example.

7. Subsistence agriculture and limited access to education

   • In some developing economies, children may be raised to work on family farms, especially where subsistence agriculture is widespread.
   • The presenter argues that this can limit educational opportunities and access to more productive work in other industries, contributing to poverty traps.

Speakers and Sources

• Speaker: The presenter of the EconplusDal video; no personal name is given in the subtitles.
• Source mentioned: The World Bank, cited for an absolute-poverty threshold.
• The presenter also refers generally to “evidence” on family background and earning potential but does not identify a specific study or source.