Absolute & Relative Poverty Video Lecture | Business Economics for CA Foundation

hi everybody one of the biggest
criticisms of free labor markets is that
the end result could be significant
income inequality and poverty many would
argue that those outcomes are unfair and
in itself those outcomes are sources of
labour market failure in this video
we're going to cover the poverty side in
real detail understanding the different
types of poverty and what can cause
poverty big exam questions we can look
at poverty in two ways in absolute terms
and in relative terms absolute poverty
generally more confined to developing
countries but still can occur in
developed countries is when incomes
earned or below a certain threshold
whereby individuals or families can't
even access the most basic
life-sustaining goods and services like
food like water like shelter the World
Bank often defines those are living in
absolute poverty to be those who are
living on less than $2 a day right now
so often that threshold will actually
have a quantifiable figure
whereas relative poverty is when incomes
earned by a household is less than a
given average or a given median in
society so a key difference relative
poverty generally is more for a
household in developed countries to
suffer from whereas absolute poverty
suffered mainly by those households
living in developing countries but the
two are not confined just to developed
and developing countries this whole
topic area we have one fundamental
concept underpinning everything the
notion of equity versus equality another
very common example
you know you know the difference between
the two equity in economics just means
fairness fairness in the distribution of
income in this sense whereas equality is
the equal distribution of income all
right the two different concepts the two
words mean different things
equity fairness equality means equal
distribution we can dissect equity bit
further and again certain exams facts
are required to know the difference
between horizontal equity and vertical
equity
so quite important concepts think of
horizontal equity of equal treatment of
equals ie if you've got two individuals
who are earning the same income they
will be taxed exactly the same
all right so equal treatment of equals
whereas vertical equity think of this as
the higher income earners in society
have to pay the highest tax rates
whereas those on lower incomes pay lower
tax rates that's vertical equity so
progressive tax systems proportionate
tax systems tax the rich more than the
poor that is an example of vertical
equity let's now move in to the
different causes of poverty having
understood all these very important key
terms one of the biggest causes of
poverty is unemployment in recession
through cyclical unemployment and
through a mismatch of skills I
structural unemployment in a recession
when there is a lack of aggregate demand
in the economy lots of workers may lose
their jobs and lose their incomes
significant source of poverty right
there but also we take the UK economy
for example the UK has gone through
significant restructuring of its economy
since the 1970s are moving away from
heavy industry in manufacturing related
industries towards more service sector
industry and more service sector growth
in that sense those who used to work in
the manufacturing industries may not
have the transferable skills to take
these service sector jobs so as they
lose their jobs in those industries can
they actually access other jobs in the
economy maybe not in which case they'll
be unemployed they lose their incomes
they maybe go into poverty but the
problem is structural employment is that
there is no training of these workers if
there is no way of these works that are
getting the skills they need to take the
jobs that are available in society they
may be unemployed for a long period of
time long term unemployed the hysteresis
argument becomes strong here and these
guys remain trapped in poverty so
unemployment can be horrible especially
if it's long term structural in nature
at the same time a major source of
poverty perhaps right at the heart of
the issue is poor education
or skills those who lack the
qualifications to have an MRP high
enough to access jobs out there in the
economy that really is at the heart of
the problem and if it's not solved can
lead to a huge amount of poverty and
potentially long-term poverty in society
poor health and healthcare can actually
limit productivity can limit earning
potential and can limit the amount that
people work and the kind of jobs that
people can work in as well
so both number two and number three
linked to low productivity low wages and
thus poverty traps the same time wage
differentials we've learnt earlier in
this playlist that wage differentials do
occur in economies that bigger the wage
differentials between the high pay
professions and developing professions
the greater the relative poverty is
likely to be we can't ignore number five
bad luck essentially being born into a
poverty-stricken household or being born
into a household where there is only one
single parent evidence proves that if
you're raised by single parent your
earning potential is likely to be lower
but it's only been born into poverty
chances are good evidence proves this
that you are yourself going to be living
in poverty you're going to struggle to
access those higher wage professions so
number five essentially it is bad luck
but one of the biggest causes of poverty
right there tax cuts for the run off of
course we can expect that to increase
relative poverty and we've seen that in
the UK over the last 15 years or so the
higher income tax bracket has generally
been coming down currently standing at
only forty five percent tax rates for
those earning more than 150 thousand
pounds it's much lower than what it used
to be and what all that means is those
that are earning such high incomes get
an automatic benefit they're going to
automatic boost to their incomes and
that is just going to increase the
divide between the rich and the poor and
simply increase relative poverty in
society in developing countries this
argument is quite significant still the
culture there which is to raise children
to work on farms subsist
agriculture dominating societies
dominating economies is only ever going
to lead to significant poverty because
these parents that raise children will
simply raise children to work on farms
to keep these farm these farmers going
to keep subsistence agriculture going
instead of realizing the value of
education the value of productivity
gains and they're working in different
industries so where economy still have a
dominant agricultural based industry and
especially subsistence agriculture based
industries that could be a significant
cause of poverty and a poverty trap
hopefully now you understand is very
very important topic some key terms at
the top here key notions of equity
versus equality but also substantial
causes of poverty right there thank you
so much for watching guys I'll see you
all in the next video