CHAPTER 1

POVERTY AND INEQUALITY

https://images.app.goo.gl/3kcSyhMo53A7xWFe7

Learning Objectives:

1. Differentiate absolute and relative poverty or inequality;

2. Discuss global poverty and inequality;
3. Understand poverty measures, issues, and variables;
4. Appreciate poverty incidence and the Lorenz curve;
5. Examine the poverty trap and the various effects of work combinations and government
support;
6. Reflect on ways to alleviate poverty;
7. Explain world targets toward poverty alleviation and eradication;
8. Create a short documentary on economic poverty;
9. Recommend steps on how to eradicate poverty; and
10. Understand some poverty eradication measures at work.

INTRODUCTION
According to Amartya Sen, the recipient of the Nobel Prize in Economics, poverty is an
intricate, diverse issue that necessitates a thorough analysis of every single one of its many
dimensions. Among the elements he mentions in his theory are the geographic, biological, and
social aspects that must be taken into account to fully comprehend poverty rather than just
establishing the poverty line that divides those who are above and below it.
The impoverished mostly rely on their own work, which is generally unskilled labor, and
agricultural land to generate their income. Due to their education and ownership of the
majority of the agricultural land, they essentially reduce the occurrence of poverty while
undoubtedly increasing the wealth of the wealthy.

15
ABSOLUTE AND RELATIVE THEORY

Despite major challenges like the Asian Financial Crisis of 1997–1998 and others,
Southeast Asia's economic development has been excellent for a considerable amount of time.
There is an assumption that growth eventually lowers absolute poverty. To clarify this idea, we
define absolute poverty incidence as the percentage of incomes and expenditures below a line
commonly referred to as the "poverty line," whose nominal value is adjusted to hold a fixed
value of its purchasing power. In contrast, relative poverty, also known as inequality, is the
comparison of the incomes and expenditures of the poor with respect to the rich or other
groups.

POVERTY AND THE WORLD

Poorer nations are shown to have certain things in common. The poorest people are
often those who work in agriculture; they are also the least educated, in some cases classified
as illiterate, and are frequently underweight. The gap between the affluent and the poor
countries widened significantly as a result of the Industrial Revolution, which also produced
significant levels of inter-country inequality. Some economists contend that the technological
revolution was skill-biased, benefiting wealthy nations with higher levels of education and
training. As the low-skilled employees who often make up the poor prospered, they flourished
as well.
Some individuals believe that slow economic development, low productivity, and low
consumption of goods and services are the major causes of poverty. It is clear that there is a
population explosion in urbanized areas, where labor-intensive work is in high demand, but the
government is unable to sufficiently supply their basic needs, such as education, health services,
and food security, according to a study conducted by the Asian Development Bank and
published in 2009 in the Philippines. Natural catastrophes that are deemed disastrous to
economic resources and cause individuals to lose all of their capital are another factor that may
contribute to poverty. The influence of unions in business appears to be decreasing, tax policies
are becoming ever more favorable to the wealthy population, upper-level management of
economic organizations receives a sizable amount of salary and income compared to middle
and lower-level management, let alone to the ordinary employees, and the gender and racial
pay gaps are getting worse.
The level of poverty varies depending on the country's style of life. A cutoff point is
established to identify those who fall below it and may be categorized as very or severely
destitute. Extreme poverty is defined as the lack of access to fundamental necessities including
food, clean water, sanitary facilities, shelter, good health, and even knowledge.

16
MEASURING POVERTY
The ratio of the poverty rate to the poverty line is the most used method of measuring
poverty. In most nations, the government determines the poverty line as the point at which a
family is deemed to be in poverty based on the absolute values of its income and its outgoings.
The poverty rate is the percentage of people living in poverty.
Given fluctuating price levels, the poverty line is continually updated to reflect real
buying power. Subsistence incidence is an additional categorization used in the Philippines for
the portion of the population below the poverty line that experiences intense hunger.
Additionally, the government establishes a food threshold for Filipinos whose earnings and costs
fall below it.
Poverty is frequently linked to inequality. Wealth and income disparity are the two main
categories. Income inequality is the unequal distribution of income, whereas wealth inequality
is the uneven distribution of acquired assets after subtracting obligations. Today, China is
estimated to have 20% of the world's population, but only 8% of the world's wealth is enjoyed
by it; India and Africa are roughly estimated to have 30% of the world's population, but only
share 2% of the world's wealth. The USA and the European Union, including the United
Kingdom, together account for less than 20% of the world's population, but they enjoy two-
thirds of it.
As an illustration, consider how P100 is divided across the population as a percentile of
the richest, richest, lowest, and poorest. The most wealthy person will get P80, followed by the
richest person at P12, the rich at P8, the poor at an estimated P5, the poorer at P2, and the
poorest person at P1 out of P100.

Figure 2.2. Distribution of Income to the World Population

(SDGS-UN, 2015)

17
POVERTY INCIDENCE
The majority of nations, including Indonesia, Vietnam, Cambodia, and Laos, utilize
expenditure-based poverty indicators, which are thought to be more consistent with economic
theory and better correlated with household well-being. Some nations, like Thailand, Malaysia,
and the Philippines, employ household- and individual-level income-based metrics of poverty
while taking gender and age distribution into account. This is significant because the
government adjusts income in order to deal with the immediate effects of poverty.
Poverty incidence (PI) is the ratio of families or persons with per capita income or
expenditures below the per capita poverty threshold to the total number of families or
individuals; hence, P= (%) x 100. The Philippines' poverty incidence (among families) declined
from 18% to 12.1% between 2015 and 2018 statistics, while poverty incidence overall decreased
from 23.5% to 16.7% over the same period. In 2018, Mindanao, one of the nation's three major
islands, had the greatest poverty incidence (among families), with a 23.8% rate, followed by
Visayas with a 15.2% rate, and Luzon with a 6.6% rate. Incidences of poverty (among the
populace) are 31.6% in Mindanao, 20.2% in the Visayas, and 16.7% in Luzon. The National
Capital Region (NCR) continues to be experiencing the lowest poverty incidence.
Moving up is subject to fluctuate
over time, just as the poverty rate and
poverty line do. Due to technological
advancement, a general increase in the
standard of life, and the introduction of
new consumer products, individuals move
up and down the social ladder. The lower,
middle, and higher classes are not
assumed to remain at their current status
indefinitely. For instance, a lowly class.
When one or more family members pursue
careers as professionals or are successful
entrepreneurs, their income family may
move up to the middle class after securing
a job with a better salary. In a similar way,
a wealthy family's loss of a businessman
breadwinner might hasten the demise of
their social class. https://images.app.goo.gl/MzWct7CjVryNdVmH
Figure 2.3. Lorenz Curve of Inequality

18
 The Lorenz Curve, which depicts the link between the population's percentile ranking
and the national income, was created by American economist Max O. Lorenz in 190511 for his
undergraduate thesis and Ph.D. work in "Economic Theory of Railroad Rates." The portrayal in
the graph may be an imperfect representation of income disparity because the statistics used
are estimates and may be deemed partial, but it would still demonstrate the stark contrast
between the ideal of absolute equality and the actual distribution of income.
The graph below it shows an estimation of the income distribution while the graph
above shows the perfect equality of the income distribution as a 45-degree quality line. The Gini
Coefficient, a scalar measure of inequality created by the Italian statistician and demographer
Corrado Gini, who improved the Lorenz Curve, refers to the inequality gap in a curve line.

POVERTY TRAP
Poverty is a concept that can signify different things in different contexts. It often refers
to earning or surviving on less money than is considered sufficient by a given nation or region.
There are solutions for fighting and reducing poverty, but for the issue to be solved, both
the public and the government must genuinely pay attention. The actions we choose now will
undoubtedly mold who we will become in the long term, even though it won't be simple or
possible in the immediate future. The epidemic that just hit us caused a dramatic reversal in the
course of events. This definitely wasn't anticipated, and when it struck all the countries, the
incidence of poverty shot up so rapidly that several government and social initiatives were put
in place. Let's examine the data for the Philippines before to the outbreak.

Figure 2.4. Poverty among Basic Sectors in the Philippines

https://images.app.goo.gl/MeP66yPaUU1H4PW78

19
 Why is it probable that poverty will remain a problem throughout the world? While
governments and NGOs are collaborating to find a solution to this problem, the measures
already in place are seen to be unsuccessful at eradicating poverty from its basic roots.
Numerous poverty-reduction initiatives, which will be covered in the section after this one, are
probably deterring individuals from working since jobs might not be readily available. In the PSA
report for 2019, in addition to thresholds and incidence, criteria for measuring poverty in the
nation include income inequality, the poverty gap, and severity.

The presence of the poverty trap, which occurs when a family or person loses eligibility
for other benefits due to a little gain in income, is considered unavoidable if there is a system of
means-tested social security payments.

Table 2.1. Earnings at Different Combinations of Work and Government Support

Managing leisure and work hours is

shown on the budget limitation line for an
ordinary Filipino earning 120,000 P50 per
hour without government aid. Given that
there are 50 weeks in a year, working 2,500
hours for P50 means having no free time
and earning P125,000. If we restrict it to 40
hours per week, then P100,000 will be
earned in 2,000 hours of work per year
(point X in the graph) at the rate of P50. As
we spend more time relaxing, fewer hours
would be available for work, which would
reduce our earning potential.

20
Consider a government initiative that will
ensure a poor Filipino had access to P120,000
per year in income. The combined effect of
work and government assistance is depicted in
Table 2.1. Although it is clear that the marginal
increase is quite small and may have negligible
impact on the worker, it only starts to happen
when the employee works more than 2,000
hours per year or more than 40 hours per
week. However, this employee will also incur
additional costs for things like schooling, child
support, healthcare, transportation, etc. The
employee would defraud F120,000 even if no
work was done, which would. mean
discouraging work, not building substantial
work background, no network, and no
opportunity to work in the future.
To combat this poverty trap, we can reduce P0.50 from every P1 earning; hence a new
budget line is formed. Look at the graph on the previous page. There is a reduction of
government assistance when the individual decides to work; for example, for every P50, an hour
of work will really net at P25 per hour. Table 2.2 shows the summary of the combination of the
work and the new scheme of government assistance. An anti-poverty program like this
guarantees P120,000 income and more incentive to work despite receiving financial aid from
the government. For example, when working for 500 hours, the total income is equal to
25000
P132,500,
25000 that
+ (is,120,000 +
2 .
1,000,000
For every 2,000 work hours, 100,000 + ( 120,000 + 2
) = 170,000and so on.

Somehow, this is more encouraging to do work because the total earning is not fixed to
P120,000 even if one is working less than 2,000 hours, which is the threshold.

Table 2.2. Earnings at Different Combinations of Work and Government

Support Reduced to 50% for every Peso Earned
Work (hours) Earnings Government Support Total Earnings
0 ₱0.00 ₱120,000.00 ₱120,000.00
500 ₱25,000.00 ₱107,500.00 ₱132,500.00
1,000 ₱50,000.00 ₱95,000.00 ₱145,000.00
1,500 ₱75,000.00 ₱82,500.00 ₱157,500.00
2,000 ₱100,000.00 ₱70,000.00 ₱170,000.00
2,500 ₱125,000.00 ₱57,500.00 ₱182,500.00

21
POVERTY REDUCTION
Through its initiatives to enhance public welfare, the government contributes
significantly to the reduction of poverty in the nation. This ultimately benefits the nation in the
long term since it is thought that individuals who are impoverished are more likely to
experience health problems, unemployment, drug use, illiteracy, and homelessness than those
who have sufficient financial means. Furthermore, those who live in poverty are more prone to
become criminals or, even worse, to commit crimes themselves.
Cash Transfers. Conditional cash transfer (CCT) programs exist in certain Latin American
and African nations to help disadvantaged families. In the Philippines, the Pantawid Pamilyang
Pilipino Program (4Ps) has a similar philosophy. By providing financial assistance and social
development initiatives to end the cycle of poverty, it aims to assist the most impoverished
people in improving the health, nutrition, and education of children ages 0–18.
In-Kind Transfers. Another method is to directly provide goods and services as social
safety nets through specialized welfare programs such as social pension for indigent senior
citizens, supplemental feeding programs, temporary shelter for the homeless and those who are
displaced by natural calamities or casualties of battles, and free medicines/vaccines for the
vulnerable and indigent members of the population (for example, free flu vaccines and other
medicines that indigents can have from the Department of Health centers in the communities).
Work Incentives. These frequently occur when a natural catastrophe strikes and
individuals who are forced to leave their jobs are offered an incentive to labor and aid in the
recovery of the affected area in return for a fair income to take home and use to help the
affected.
Minimum Wage Law. To guarantee that a certain set of employees receives an
acceptable amount of money, Congress or the Senate must pass an act imposing a minimum
wage payment to workers in a particular place, for a certain period of time, and in a particular
industry. The idea behind this policy is to improve the lives of the underprivileged at little or no
expense to the government. Some claim that because it allows the option to reduce a deserving
person's payment, this really harms the ones it is meant to punish.
Adjust Tax Code. It is envisaged that those who earn a certain amount or less in one
year, as shown on a progressive income tax, would not be subject to any kind of tax collection.
Since the basis for calculating taxes is net income over a specific time period, the idea is to levy
more taxes on those who generate greater money. Therefore, people whose income is at a
specific level or below will pay no taxes. Additionally, a request for the tax system to be changed
in order to primarily solve the legal ambiguities that the wealthy exploit in order to avoid paying
taxes may result in a more equitable application of taxes.

22
ACTIVITY TIME

SHORT DOCUMENTARY ON POVERTY

The goal of this project is for the students to collaborate in groups to produce a short
documentary or video on poverty. Each team member is given a task that is especially related to
the role of filmmaking. The output that is anticipated is a quick documentary. Students will be
able to learn a variety of abilities necessary for a university graduate, including cooperation,
storytelling, using software and hardware, and relating the issue of poverty to the nation's
economic progress.
Materials:
1. video camera/mobile phone/tablet (with microphone)
2. worksheet for script and timetable
3. a computer for editing and submission

Execution:
1. Group in three to five members, preferably with diverse skills in filmmaking. Roles may include
director, writer, cameraman, editor, and researcher. It is important to note that each team
member is responsible for the whole activity and the role is just managerial in nature.
2. Create a short documentary that is 5-10 minutes long. It may include still images, picture-in-
picture, motion pictures, graphs, diagrams, and statistical information.
3. Include a page for credits and copyright citations when applicable.
4. Prepare a shot list, script, and interview questions for participants in a project proposal.
5. Submit the finished short documentary on Google Drive to be created by the professor. (It may
be uploaded on YouTube, as deemed fit.)

23
24