ECONDEV 007 – Poverty and Inequality “Fundamentally, poverty is a denial of

choices and opportunities, a violation of

No society can surely be flourishing and happy, human dignity. It means lack of basic
of which by far the greater part of the
capacity to participate effectively in society
numbers are poor and miserable.
It means not having enough to feed and cloth
—Adam Smith, 1776
a family, not having a school or clinic to go
to, not having the land on which to grow
Viewed through the lens of human
development, the global village appears
one’s food or a job to earn one’s living, not
deeply divided between the streets of the having access to credit
haves and those of the have-nots. It means insecurity, powerlessness and
—United Nations Development Programme, exclusion of individuals, households and
Human Development Report, 2006 communities
It means susceptibility to violence, and it
Social protection directly reduces poverty and often implies living on marginal or fragile
helps make growth more pro-poor. environments, without access to clean
—Organization for Economic Cooperation and water or sanitation”
Development, 2010
Poverty is often defined as being without
The coincidence of severe and persistent enough money to meet basic needs.
poverty and hunger indicates the presence of However, this is only a partial truth. It also
poverty traps—conditions from which includes factors such as poor health, lack of
individuals or groups cannot emerge without access to education, and discrimination. As a
the help of others. result, poverty can have a lasting impact on
—International Food Policy Research Institute, an individual’s life, trapping them in a cycle
2007 of hardship. While there is no single cause of
poverty, it is typically the result of a
The World Bank Group has adopted two new
combination of factors. This can include
goals: end extreme poverty by 2030 and
things like natural disasters, conflict, and
boost shared prosperity by maximizing income
economic inequality. Poverty can have far-
growth for the poorest 40 percent in every
country. reaching consequences, damaging physical
—Jim Yong Kim, President, World Bank, 2013 and mental health, susceptible to violence,
and preventing people from achieving their
What is Poverty? full potential. Ultimately, poverty is about
more than just money – it is about a lack of
Poverty refers to the condition of not having opportunity and hope for the future. No
the means to afford basic human needs such matter how it is defined, poverty is a serious
as clean water, nutrition, health care, issue that affects millions of people around
clothing and shelter the world every day
Poverty is the world at its worst when people
are deprived of basic everyday things that What are the 6 different types of poverty?
we everyday take for granted like food,
water shelter, money, and clothes 1. Absolute poverty
It indicates a condition in which a person fails It is defined as a condition in
to maintain a living standard adequate for a which people lack the basic
comfortable lifestyle necessities of life, such as
Poverty is a state or condition in which a food, clothing, shelter, and
person or community lacks the financial healthcare.
resources and essentials for a minimum Absolute poverty is often
standard of living. Poverty means that the measured by looking at the
income level from employment is so low that percentage of people who
basic human needs can't be met. live below the poverty line,
which is set at an income
level that is necessary to
Poverty – According to United Nations
meet basic needs.
 There are different poverty lines from time.
country to country, but the This could be due to an unexpected
international poverty line is usually set event, such as an illness, a job loss, a
at around $2.15 per day. natural disaster, or it could be the
In 2017, the World Bank reported that result of living in a disadvantaged
10 percent of the world’s population community.
lived in absolute poverty. Situational poverty is often temporary,
This means that about 767 million but it can also become chronic if
people were living on less than $1.90 a people are unable to find a way out of
day. it.
Extreme poverty is a more severe form
of absolute poverty and is defined as a
condition in which people lack the 4. Generational poverty
basic necessities of life, such as food, It is a type of poverty that is passed
clothing, shelter, and healthcare, and down from one generation to the
live on less than $1.25 a day. next.
In the same report as in 2017, the Generational poverty often results in a
World Bank said that 3 percent of the cycle of poverty that is difficult to
world’s population was living in escape.
extreme poverty. This is because children who grow up
This means that about 200 million in poverty often lack the resources
people were living on less than $1.25 a and opportunities that are necessary
day. to break out of it.
They may not have access to quality
2. Relative poverty education, healthcare, good jobs, lack
It is defined as a condition in which of access to resources, and
people lack the resources to discrimination.
participate fully in society. As a result, they are more likely to live
Relative poverty is often measured by in poverty as adults.
looking at the gap between the rich Breaking the cycle of poverty requires
and the poor. breaking down these barriers.
In developed countries, the poverty Investing in education, healthcare, and
line is typically set at 50 percent of the social services can help to break the
median income. cycle and lift people out of poverty.
This means that if the median income
in a country is $50,000, then the 5. Urban poverty
poverty line would be set at $25,000. Urban poverty is a type of poverty that
In 2017, the Organization for is specifically tied to living in an urban
Economic Co-operation and area.
Development (OECD) reported that According to the United Nations
17.2 percent of the population in its Development Programme (UNDP),
member countries lived in relative urban poverty “refers to the condition
poverty. of people who lack the resources to
This means that about 1 in 6 people in secure the minimum necessities of life,
OECD countries were living on less including food, clothing and shelter” in
than half of the median income in an urban area.
their country. There are a number of factors that can
contribute to urban poverty, including
a lack of access to education and
3. Situational poverty employment opportunities, poor
Situational poverty is usually defined housing and living conditions, and a
as a lack of resources at a particular lack of access to basic services like
 healthcare and sanitation. Bank’s Rural Development Strategy is
According to the UNDP, there are an one such initiative that is working to
estimated 1.4 billion people living in improve the lives of those living in
urban areas that are considered to be poverty in rural areas.
impoverished. This represents a The Community Development
significant increase from the Program at Richmond Vale Academy is
estimated 400 million people who another initiative that is working to
were living in poverty in 1990. address rural poverty.
While urban poverty is a global The program provides opportunities
problem, it is particularly prevalent in for rural residents to access education
developing countries. In fact, and training, as well as resources and
according to the World Bank, support.
approximately 60% of the world’s It also aims to promote economic
urban poor live in developing development in rural communities.
countries.
There are several initiatives that have Poverty Line/ Poverty Threshold
been launched in an effort to address
urban poverty. The UN-Habitat’s The World Bank updated the global
Programme of Action for Cities poverty lines in September 2022. The
Without Slums is one such initiative decision, announced in May, follows
that is working to improve the lives of the release in 2020 of new purchasing
those living in poverty in urban areas. power parities (PPPs)—the main data
used to convert different currencies
into a common, comparable unit and
6. Rural poverty account for price differences across
Rural poverty is a type of poverty that countries. The new extreme poverty
is specifically tied to living in a rural line of $2.15 per person per day, which
area. replaces the $1.90 poverty line, is
Rural poverty is often caused by a lack based on 2017 PPPs
of access to essential services and
opportunities, such as education, Why did the World Bank decide to update the
healthcare, and employment. International Poverty Line, and why now?
This can be due to a few factors,
including a lack of infrastructure in - As differences in price levels across the
rural areas, distance from urban areas, world evolve, the global poverty line has to
and a lack of resources. be periodically updated to reflect these
According to the World Bank, an changes. That’s why in September 2022
estimated 1.3 billion people live in the international poverty line is being
rural areas that are considered to be updated from $1.90 to $2.15 per person
impoverished. This represents a per day.
significant increase from the
estimated 700 million people who What is the new poverty line, and based on this
were living in poverty in 1990. new measure, how many people are living in
While rural poverty is a global
extreme poverty in the world?
problem, it is particularly prevalent in
developing countries. In fact, - The new international poverty line is set at
according to the World Bank, $2.15 using 2017 prices. This means that
approximately 70% of the world’s rural anyone living on less than $2.15 a day is
poor live in developing countries. considered to be living in extreme poverty.
There are a number of initiatives that About 648 million people globally were in
have been launched in an effort to this situation in 2019.
address rural poverty. The World
Why raise the poverty line? What was wrong - The IPL of $1.90, which was used until fall
with the $1.90 a day line that we are all used to? 2022, was derived as the mean of the
national poverty lines of 15 poor countries
- The international poverty line is in the 1990s, expressed in 2011 PPPs. The
periodically updated to reflect changes in selection of these 15 poor countries was
prices across the world. The rise in the based on limited data at the time. With the
international poverty line reflects an gathering and analysis of new data from
increase in the costs of basic food, clothing, other low-income countries, we have
and shelter needs in low-income countries expanded the reference group. The IPL is
between 2011 and 2017, relative to the now derived as the median of the national
rest of the world. In other words, the real poverty lines of 28 of the world’s poorest
value of $2.15 in 2017 prices is the same as countries, expressed in 2017 PPPs.
$1.90 was in 2011 prices.

How is the international poverty line derived?

- We start with the poverty line defined by
each country, which usually reflects the
amount below which a person’s minimum
nutritional, clothing, and shelter needs
cannot be met in that country. Not
surprisingly, richer countries tend to have
higher poverty lines, while poorer
countries have lower poverty lines.

- However, when we want to identify how

many people in the world live in extreme
poverty across countries, we cannot simply
add up the national poverty rates of each
country. This would be the equivalent of
using a different yardstick in each country
to identify who is poor. That’s why we need
a poverty line that measures poverty in all
countries by the same standard.
Proportion of Poor
- In 1990, a group of independent Filipinos was
researchers and the World Bank examined
national poverty lines from some of the Recorded at 18.1
poorest countries in the world and
converted those lines into a common
currency by using purchasing power parity
Percent in 2021
(PPP) exchange rates. The PPP exchange Reference No.: 2022-350
rates are constructed to ensure that the
same quantity of goods and services are Release Date: 15 August 2022
priced equivalently across countries. Once
CLAIRE DENNIS S. MAPA, Ph.D
converted into a common currency, they
found that in six of these very poor Undersecretary
countries around the 1980s the value of
the national poverty line was about $1 per National Statistician and Civil Registrar
day per person (in 1985 prices). This General
formed the basis for the first dollar-a-day
international poverty line.
Based on the Preliminary Results of the Family between countries, with long-term
Income and Expenditure Survey (FIES) in 2021, impacts on access to opportunity and to
poverty incidence among population, defined as social mobility.
the proportion of Filipinos whose per capita ⮚ Although global poverty has more recently
income cannot sufficiently meet the individual resumed its pre-pandemic downward
basic food and non-food needs, was recorded at trajectory, between 75 million and 95
18.1 percent. This translates to around 19.99 million additional people could be living in
extreme poverty in 2022 compared to
million Filipinos who lived below the poverty
pre-COVID-19 projections, due to the
threshold of about PhP 12,030 per month for a
lingering effects of the pandemic, the war
family of five. The subsistence incidence, defined in Ukraine, and rising inflation.
as the proportion of Filipinos whose income is not
⮚ Food inflation can have a particularly
enough to meet even just the basic food needs, devastating impact on poor families. A
slightly increased to 5.9 percent in 2021. It was typical person in a low-income country
estimated that a family of five needs at least PhP spends about two-thirds of their
8,379 per month to meet their basic food resources on food, while the same figure
requirements. for the typical person in a high-income
country is closer to 25%.
THE WORLD BANK ON POVERTY ⮚ Governments often can mitigate the
impact of rising inflation on poor families
through social protection policies.
However, somewhat different from the
previous periods of high food price
inflation, government finances have been
depleted due to various fiscal measures
enacted through the COVID-19 crisis. For
economies still reeling from the
pandemic, the inflationary pressures could
not have come at a worse time.
⮚ Research suggests that the effects of the
⮚ The World Bank Group’s goals are to end current crises will almost certainly be felt
extreme poverty and promote shared in most countries through 2030. Under
prosperity. This mission underpins our these conditions, the goal of bringing the
analytical, operational, and convening global absolute poverty rate to less than 3
work in about 140 client countries. percent by 2030, which was already at risk
⮚ For almost 25 years, the number of people before the pandemic, is now beyond
living in extreme poverty — on less than reach unless countries take swift,
$2.15 per person per day — was steadily significant, and substantial policy action.
declining. But the trend was interrupted in
2020, when poverty rose due to the 12 MAIN CAUSES OF POVERTY
disruption caused by the COVID-19 crisis
combined with the effects of conflict and 1. Lack or inadequate access to clean water and
climate change — which had already been healthy food
slowing poverty reduction. ⮚ Lack or inadequate access to clean water
⮚ Decreased income, job losses, and work and healthy food are among the leading
stoppages during the pandemic were causes of poverty.
especially damaging to poor households. ⮚ Poor families often cannot afford to buy
Women, youth, and low-wage and food that is nutritious and affordable,
informal workers, especially those living in which can lead to chronic health
urban areas, were among the hardest hit. problems.
Inequality rose both within countries and ⮚ Additionally, many people living in
 poverty do not have access to clean ⮚ According to the International Labour
water, which can cause deadly illnesses Organization, around 197 million people
like cholera. worldwide were unemployed in 2019.
⮚ It is estimated that around 1.8 billion ⮚ This can lead to a number of other
people live in water-stressed areas, which problems, such as homelessness, crime,
often leads to poverty. and mental health issues.

2. Lack of access to education 5. Inadequate housing

⮚ Many poor families cannot afford to send ⮚ Many people living in poverty do not have
their children to school, or live in areas access to adequate housing.
where there are no schools. ⮚ This can mean living in overcrowded and
⮚ As a result, children living in poverty often unsafe conditions, or being homeless.
have little to no education, which limits ⮚ Poor housing can also lead to health
their future prospects and earnings problems, as it is often dirty and lacking in
potential. basic amenities like running water and
⮚ According to UNESCO, around 263 million electricity.
children and youth worldwide do not ⮚ According to the UN, around 1.6 billion
attend school. people live in inadequate housing globally.
⮚ This lack of education can perpetuate the ⮚ This can have a major impact on people’s
cycle of poverty from one generation to quality of life and make it difficult to
the next. escape poverty.

3. Lack of healthcare 6. Discrimination

⮚ Poor people often cannot afford to see a ⮚ Discrimination is another factor that can
doctor or buy medication, which can lead lead to poverty.
to serious health problems. ⮚ Marginalized groups, such as ethnic
⮚ In developing countries, many people die minorities, women, and people with
from preventable diseases because they disabilities, are often more likely to live in
do not have access to basic healthcare. poverty.
⮚ According to the World Health ⮚ This is because they often face
Organization, around 100 million people discrimination in areas like education,
are pushed into poverty each year due to employment, and healthcare.
healthcare costs. ⮚ As a result, they have less opportunity to
⮚ This can also make it difficult for people to improve their situation and escape
work, as they may need to take time off poverty.
work to care for themselves or their ⮚ Discrimination can also make it difficult for
families. people to access basic services, such as
housing and education
4. Lack of employment opportunities 7. Climate change
⮚ Many poor people live in areas with little ⮚ Climate change consequences
to no employment opportunities. ⮚ Climate change is another major factor
⮚ This can be due to a number of factors, that can lead to poverty.
such as a lack of skills or education, ⮚ Poor communities are often the most
discrimination, or the absence of affected by climate change, as they often
industries in their area. live in areas that are vulnerable to
⮚ As a result, people living in poverty often extreme weather events like floods and
cannot find work, which means they are droughts.
unable to earn an income to support ⮚ These events can destroy homes, crops,
themselves or their families. and livelihoods, leaving people struggling
 to survive. ⮚ War and conflict can have a devastating
⮚ According to the World Bank, around half effect on communities.
of the world’s population will be living in ⮚ It can destroy infrastructure, homes, and
water-stressed areas by 2025. livelihoods.
⮚ This is due to the fact that climate change ⮚ It can also lead to displacement, as people
is causing our water supplies to dwindle. are forced to flee their homes in search of
⮚ Also, according to the United Nations, safety.
around 26 million people were displaced ⮚ According to the UN, there are around 70
by natural disasters in 2017. million displaced people globally.
⮚ This is the highest number of people ⮚ This is the highest number of displaced
displaced by natural disasters ever people ever recorded due to war.
recorded. ⮚ War and conflict can also have a
psychological impact on people, which can
make it difficult for them to rebuild their
8. Inadequate social protection systems
lives.
⮚ Social protection systems are a form of
government support that help people who
are unable to support themselves. 11. Population growth
⮚ Examples of social safety nets include ⮚ As the population increases, there is more
welfare, unemployment benefits, and competition for resources like land, water,
food stamps. and food.
⮚ Inadequate social safety nets can ⮚ This can lead to higher prices for basic
contribute to poverty because they may necessities, as well as social problems like
not provide enough support for people overcrowding.
who are struggling to make ends meet. ⮚ According to the UN, the world’s
⮚ There is also the cases when the population is expected to reach 9.8 billion
governmental support is out of hands, as by 2050.
it is in some latin countries, in which ⮚ This means that we need to find ways to
people prefer to live under the umbrella sustainably manage our resources so that
of these systems and don’t feel the need everyone has enough to live on.
to work to get out of poverty.

12. Corruption
9. Poor health and nutrition ⮚ When officials are corrupt, they may
⮚ Illness and disease can prevent people misuse public funds or resources.
from working, which means they are ⮚ This can mean that vital services, like
unable to earn an income. healthcare and education, are not
⮚ It can also lead to high healthcare costs, provided properly.
which can further strain people’s finances. ⮚ It can also mean that people have to pay
⮚ According to the World Health bribes to access basic services, which can
Organization, around half of the world’s further strain their finances.
population does not have access to ⮚ Corruption can also lead to social
essential health services. problems, like clan violence and nepotism.
⮚ This includes basic services like ⮚ These were some of the main causes of
vaccinations, maternal care, and HIV/AIDS poverty.
treatment.
⮚ Poor nutrition can also lead to health
problems and make it difficult for people WHAT ARE SOME OF THE EFFECTS OF POVERTY?
to work or learn.
Poverty is a global problem that affects millions of
people and the effects can be devastating. The
10. War and conflict causes and effects of this problem act as loop, as
many of them are one but the same. For example, 6. Poor mental health
one of the main causes of poverty is poor health Poverty can have a negative impact on mental
and nutrition. This is also one of the main effects, health.
as people who are malnourished are more
This is due to the stress of living in poverty, as
susceptible to illness and disease.
well as the lack of resources that can lead to
feelings of hopelessness and despair.

1. Poor health and nutrition

As we mentioned before, poor health and
7. Social exclusion
nutrition can lead to a variety of problems and
Poverty can lead to social exclusion as people are
can make it difficult for people to work or learn.
often treated differently because of their
Poor health and nutrition can also lead to a economic resources.
shortened life expectancy.
This can make it difficult for people to find
housing, education, and jobs.

2. Lack of access to basic needs

One of the most obvious effects of poverty is the
8. Limited opportunities
lack of access to basic needs, such as food, water,
Poverty can limit opportunities and make it
shelter, and healthcare.
difficult for people to escape the cycle of poverty.
This can lead to hunger, disease, and
It can also prevent people from being able to
homelessness.
participate in society and have a voice in
decisions that affect their lives.

3. Complications of getting proper

education
9. Environmental degradation
Lack of education can prevent people from
Poverty can lead to environmental degradation as
getting good jobs and escaping poverty.
people are forced to overuse resources in order
It can also lead to a lack of understanding about to survive.
important issues like health and nutrition.
This can lead to deforestation, soil erosion, and
water pollution.
4. Violence
Poverty can lead to violence as people compete
10. Death
for resources.
Poverty is often fatal as people lack the resources
It can also create an environment of desperation to live a healthy life.
that can make people more likely to turn to
According to the World Bank, around 60% of
crime.
deaths globally are due to poverty-related causes.

5. Displacement
Conflict and natural disasters can often lead to WHAT IS ECONOMIC
displacement as people are forced to flee their
homes in search of safety.
INEQUALITY?
This can be a traumatic experience and can make
it difficult for people to rebuild their lives. Economic inequality refers to disparities
among individuals' incomes and wealth. And those
differences can be great. Forbes counted 2,095 salaries, bonuses etc.), investments, such
billionaires in the world as of March 18, 2020, as interest on savings accounts and
when it finalized its most recent rankings—and dividends from shares of stock, savings,
that was after 226 people dropped off over 12 state benefits, pensions (state, personal,
days due to pandemic-induced market company) and rent.
turmoil. Meanwhile, the most recent data from
the World Bank tell us that, in 2015, about 736
million people globally were living on less than Measurement of income can be on
$1.90 per day. That's actually a big improvement an individual or household basis – the
from 1990, when 1.9 billion people lived in incomes of all the people sharing a
extreme poverty2 and the world had only 269 particular household. Household income
billionaires. (Izza,2020) before tax that includes money received
from the social security system is known as
gross income. Household income including
Economic inequality is the unequal all taxes and benefits is known as net
distribution of income and opportunity between income.
different groups in society. It is a concern in almost
all countries around the world and often people
are trapped in poverty with little chance to climb 2. Pay Inequality
up the social ladder. But, being born into poverty A person’s pay is different to their
does not automatically mean you stay poor. income. Pay refers to payment from
Education, at all levels, enhancing skills, and employment only. This can be on an
training policies can be used alongside social hourly, monthly or annual basis, is typically
assistance programs to help people out of poverty paid weekly or monthly and may also
and to reduce inequality. (Fontinelle,2020) include bonuses. Pay inequality therefore
describes the difference between people’s
pay and this may be within one company.
Economic inequalities are most obviously
shown by people’s different positions within the
economic distribution - income, pay, wealth.
However, people’s economic positions are also
3. Wealth Inequality
related to other characteristics, such as whether
or not they have a disability, their ethnic
background, or whether they are a man or a Wealth refers to the total amount
woman. (https://www.equalitytrust.org.uk) of assets of an individual or household. This
may include financial assets, such as bonds
and stocks, property and private pension
There are three main types of economic rights. Wealth inequality therefore refers
inequality: to the unequal distribution of assets in a
group of people.
1. Income Inequality
Income inequality is the extent to
which income is distributed unevenly in a
group of people.

Income is not just the money

received through pay, but all the money
received from employment (wages,