Poverty, Nutrition

and
Income Inequality
PART 2
Poverty and Nutrition
“Public action to combat hunger has to take note of the
causal links and of the gaps in those links”, Dreze and
Sen (1991, Hunger and Public Action).
Poverty at the individual and/or household level
represents a serious constraint on economic
activity.
A lack of economic opportunities feeds into
poverty.
These lack of opportunities can be reenforced
by income inequality.
Poverty and Nutrition

Income inequality though represents one (very

important) component of economic inequality defined by
Ray (1998, p.p170) as:

“…the fundamental disparity that permits one

individual certain material choices, while denying
another individual those very same choices.” (emphasis
added).

What Ray is really saying is that those factors that

determine material choices are of importance here such
household wealth, income.
Poverty and Nutrition

Questions to be addressed:

How do we measure poverty?

Who are the poor?

What determines poverty?

Poverty and Nutrition
How do we measure poverty?
Poverty can be both absolute and relative. See Martin Ravallion,
(1994) Poverty Comparisons.

Absolute Poverty: Those people who do not have adequate

nutritional intake per day, or do not have adequate shelter or
clothing in order to survive are deemed to be in absolute poverty.

Is traditionally measured by introducing largely ad hoc poverty

lines. E.g. the World Bank reports the number of people in
countries below a $1 or $2 a day as a proportion of the total
population.

Better but more expensive method is to calculate nutritionally

based poverty lines – World Health Organisation.
 Poverty and Nutrition
(Q) Is it simply that more income means better life
expectancy?

Life
Expectancy
at birth

Income per capita

Diminishing returns to income – think obesity and other
‘rich world’ diseases. Known as the Preston Curve.
Poverty and Nutrition

Chronic Poverty – those who never get

out of absolute poverty.

See Chronic Poverty Research Centre,

www.chronicpoverty.org

for more information on this type of

poverty.
Poverty and Nutrition
Relative Poverty: The relative position of some
economic unit (e.g. individual, household, racial
group) compared to another economic unit. A
person can be relatively poor but not absolutely
poor – is really to do with distribution of income in
a country.
E.g. Economic growth will generally result in a
reduction of absolute poverty but will only change
relative poverty if there is a change in distribution
of income. (Woolard and Leibbrandt, 2001, pp. 47).
Poverty and Nutrition
Absolute Poverty Lines
Poverty line measures signal to researchers where poverty is
and becomes the first place to start in analyzing poverty in a
certain country, within a certain economic group etc…..

Examples of Poverty Lines:

(1) $1 a day and $2 a day lines that the World Bank and
United Nations Development Programme (UNDP) use.
(2) Calories per capita or per household
Both measures are absolute in that people can be lifted out
of poverty if they can increase income or calories and
poverty can be eradicated.
Poverty and Nutrition
Relative Poverty Lines

Calculate a poverty line that is based on the income level of the

population. Relative poverty cannot be eradicated unless
income inequality is addressed.

(1) Standard percentage of people earnings below 50% of the

median or mean wage: can vary the 50% figure down to 10%
or 25%.

Note: If income increases for all then relative poverty will still
be apparent since you will always have some who fall below
50% of the new (higher) median income level.
Poverty and Nutrition
Critique of Poverty Lines

Generally, ad hoc shares of the average income per person are

taken to locate a poverty line. For example, taking a poverty
line as 50% of the mean/median income level.

One weakness with such an approach is that the number of

people in ‘poverty’ is determined solely by where the poverty
line is placed (Deaton, 1997). Hence a number of poverty lines
must be estimated to give a clearer idea of what really is going
on. Another weakness is that such poverty lines DO NOT
measure the depth of poverty.
Poverty and Nutrition

Critique of Poverty Lines cont…

Poverty lines are static, capturing a position of

poverty at a certain point in time. However, it is
highly likely that poverty is dynamic in nature with
people moving in and out of poverty.

For a more realistic understanding of the nature of

poverty and who the poor are in a society the
researcher must delve much deeper.
 Poverty and Nutrition
Poverty: A Different Methodology
But poverty clearly has a more ‘human’ face and
one which many economists often overlook or
choose to skip over because it is very hard to
quantify. No surprise that the methodology used is
then qualitative in nature.

McKay (2002, pp. 5) refers to participatory

investigations into poverty and inequality which
necessarily involves the researcher NOT sitting in
his/her ivory tower but actually living for a time in
villages/households and understanding the dynamics
of these micro-economies.
Poverty and Nutrition

The role of children in the family, of gender

differences, of who works for money income
and who does not, of access to any public
services that exist, of the dynamics of villages
and tribes, of who gets what when an elder
dies…….the list is long and interesting from a
micro-economic perspective.
Poverty and Nutrition
Who are the Poor?
The poor of any country share similar characteristics.
In developing countries the poor tend to be Black,
female, young, rural, unskilled and perhaps semi-
skilled (this is determined by the nature of economic
growth, trade liberalization policy, subsidies etc…).
The factors that determine who is poor include socio-
economic institutions, e.g. Indian caste system,
apartheid, racism (still in Malaysia).
 Poverty and Nutrition
What Determines Poverty?
Research indicates that the quality and quantity of
education, urban-rural location, racial group, gender,
health and employment status all impact on whether
somebody is poor or not.
Other factors include socio-economic factors, the
historical legacy of a country, social customs, property
rights, economic dependence, political system/
affiliations etc. This is where much debate lies.
There is a large, positive correlation between
unemployment and poverty.
However the direction of causality is not
straightforward.
 Poverty and Nutrition
Indeed one of the problems in researching poverty and the
linkages between poverty and the labor market is that an
endogeneity (happening at the same time) concern is raised
immediately, i.e. Does employment status determine
poverty, or does poverty cause employment status?
Certainly you would expect that if somebody is employed in
the formal sector as a salaried worker with job security (e.g.
public sector civil servant) then they are less likely to either
report being poor themselves and/or less likely to be
categorized as being poor by some poverty line.
However the importance too of the history of the individual is
vital in determining whether he/she is in poverty. Of
particular importance here are the institutional structure of a
country, social customs and the household structure and
dynamics.
Poverty and Nutrition

How does individual poverty impact on the individual’s

participation in the labour market?
Given poverty does exist in a country there are several ways
this can impact on participants’ behavior in the labor market.
(1) Liebenstein (1963) first made the direct link between
poverty in the form of being under-nourished and
productivity in the labor market. He found that if a person
was under-nourished then this impacted negatively on
productivity and assuming a wage labor market would mean
a low wage, with MRP=W. Hence poverty can result in a
negative nutritional impact on the worker which can result in
lower productivity.
Poverty and Nutrition
 Itis unclear what the minimal calorie intake is and
what the appropriate nutritional levels for workers
should be in developing or indeed any country.

 There is an issue here involving the type of job

somebody has (is it highly physical, and therefore
requires far higher levels of foods) – see Strauss and
Thomas (1988).

 What is NOT beyond doubt is that poverty can result

in a lack of food, which can impact negatively on
productivity and output that can be self-perpetuating.
Poverty and Nutrition
(2) Poverty can result in potential workers not being able to
actively take part in the wage labour market because:
- physically cannot go where the jobs are
- the opportunity cost of searching for work is too high (e.g.
not able to subsistence farm and therefore could increase the
risk of hunger).
(3) Poverty within a household or within a community means
less means by which to invest in
- human capital and
- physical capital. This means little chance of escaping
poverty and indeed could result in a poverty trap emerging.
Poverty and Nutrition

(4) Ray (1998, pp.273) postulates that access to

food is the same as access to income and if
one of these factors is owned by an
individual, he/she is likely NOT to be caught
in a poverty trap.
(5) As well as the physical side effects of being
poor and lacking nutrition, there are also
negative mental impacts that are related to
increasing the likelihood of depression,
mental apathy, and de-motivation.
 Poverty Measures and Nutrition
What should be emerging for the reader is the causal duality of
poverty and employment.

“Not only do labour markets generate income and therefore create

the principal potential source of nutrition and good health, but good
nutrition in turn affects the capacity of the body to perform tasks that
generate income” Ray (1998, pp.274).

The nature of the labour market, in particular the level of

unemployment, has a large impact on the relationship between
poverty and employment and hence the poverty trap.

If a country suffers from poverty and high unemployment (e.g. South

Africa) then there is massive ‘slack’ in the labour market, meaning
demand is low and supply is high for (certain kinds of?) labour.
Factors Influencing Income Distribution
• A high portion of annual income inequality
is due to differences in:
• age,
• education,
• family size,
• marital status,
• number of earners in the family, and,
• time worked.
• Young, inexperienced workers, students,
single-parent families, and retirees are
over-represented among those with low
incomes.
Why Has
Income Inequality Increased?
• Income inequality has increased due to the
growth of:
• both single-parent and dual-earner families
as a share of the total,
• earnings differentials on the basis of
skill and education,
• the number of “winner-take-all” markets, and,
• lower marginal tax rates inducing high earners
to report more income.
Income Mobility

• Annual income data hide the movement of

people up and down the income
distribution over time.
• Tracking of household income over time
shows there is considerable movement
both up and down the income spectrum.
Income Inequality:
Some Concluding Thoughts
 Income Inequality

• Positive economics cannot determine how

much inequality should be present.
• Income inequality reflects differences
between individuals and influences their
incentive to develop resources and engage in
productive activities.
• The nature of the process, as well as the
pattern of income distribution, is relevant
to the issue of fairness.
References and Useful Websites
Websites:

United Nations Development Programme, www.undp.org

World Bank, www.worldbank.org

Department for International Development, www.dfid.gov.uk

Chronic Poverty Research Centre, www.chronicpoverty.org

Brooks World Poverty Institute, www.bwpi.manchester.ac.uk

References:

Deaton, A., (1997), THE ANALYSIS OF HOUSEHOLD SURVEYS: A Microeconomic Approach to Development Policy, John Hopkins University Press.

Dreze, J., and Sen, A., (1991), Hunger and Public Action, WIDER Studies in Economics, Clarendon Press.

Foster, Greer and Thorbecke (1984), “A class of decomposable poverty measures”, Econometrica, Vol 52(3), pp. 761-6.

Foster and Shorrocks (1988), “Poverty Orderings”, Econometrica, Vol 56, pp. 173-7.

Atkinson (1987), “On the Measurement of Poverty”, Econometrica, Vol 55(4), pp. 749-64.

Ravallion, M., (1994) Poverty Comparisons, Routledge.

Ray, D., (1998), Development Economics, Princeton University Press.

Strauss, J., and Thomas, D., (1998), “Health, Nutrition and Economic Developmentre, ent”, Journal of Economic Literature 36:766-817.