The causes of poverty

Let’s explore some causes of poverty.

Wage inequality: people with lower skills and education find it hard to get a job. Even if they do,
they are underpaid or exploited. This is harmful in economies that do not have a minimum wage
level or unemployment benefits as it can add to the relative poverty index. The increase in more
part-time and temporary jobs has decreased the demand and need for full-time jobs with proper
skills. Hence, there is a divide in wages.

Unemployment: the rapid demand for more temporary jobs and part-time jobs has left
individuals underemployed and has created a limit to potential income-earning opportunities.
The changing structure of the UK economy as a result of deindustrialisation has resulted in the
loss of jobs. The Covid-19 pandemic has made things worse: in the past years, the country has
recorded the highest unemployment levels and the number of furloughed workers. This has
resulted in structural unemployment and hysteresis.

Hysteresis occurs when someone is unemployed for a long time. This deteriorates their skills and
makes it difficult for the person to find jobs. Ultimately, it leads to long term unemployment.

Economic inactivity: long term unemployment leads to economic inactivity as people who are
unemployed would seek more government benefits to sustain themselves. In recent years, the
percentage of people relying on state benefits has alarmingly increased, which shows an increase
in the relative poverty index.

Regressive taxes: indirect taxes have potentially put a higher burden on the poor, therefore
causing an increase in income inequality. Although the overall tax burden has remained
unchanged, the indirect tax and VAT charged on certain goods such as petrol, alcohol and others
extract a higher percentage of income from the low-income earners especially when they are
affected by unequal wages.

Pensioners and old age: pensioners are more at risk of relative poverty as they earn significantly
less than the average. However, pension poverty has seen a sharp decline due to the rise in the
real value of state pension.
Inheritance: this allows wealth inequality to be passed on and multiplied from generation to
generation.

Impact and effects of poverty

Poverty is a very dangerous issue in today's society and has effects that impact not only
individuals but may result in destabilising whole economies. Some of the effects of poverty on
individuals and the economy are listed below:

Health: high rates of poverty lead to lower life expectancy, poorer standards of health, and
underdeveloped infants. Malnutrition has been an important issue of increasing poverty that
affects children's cognitive development.

Poor sanitation: people living in poverty are not able to access basic safe sanitation, which makes
them vulnerable to fatal diseases. This may relatively not impact as much but it shows how it
affects their situation.

Education: reports mention people living in poverty often have to choose between eating a meal
or getting an education. In certain economies with high poverty index, children are forced to
work in order to support the family, which leaves them with poor literacy skills. This limits their
ability as adults to escape the vicious poverty cycle.

Economy: without proper education, it is difficult to progress into a higher paying job with good
opportunities. This hinders a country’s economic growth and productivity. Most developing
countries are shown to have a high poverty rate which limits their rate of economic growth.