Absolute Poverty and Relative Poverty
Absolute Poverty is when people do not have sufficient resources to meet the basic necessities such as food, shelter and clothing that are needed for survival. Such people are said to fall below the poverty line. On the other hand, relative poverty is when people are poor when compared to others around them but may still have sufficient to survive.
Factors That Contribute To Poverty
Poverty can be measured at the aggregate and individual level. In terms of individuals, the key factors that can result in persons being in a state of poverty are as follows:
- unemployment or having a poor quality job – persons who are jobless and do not have the means to obtain sustainable employment are more susceptible to being poor.
- low levels of education and skills – persons with low levels of education are also those who will be more likely to be below the poverty live. Education provides a means of mobility for people to live at a certain decent standard. Low levels of education will therefore place people below the poverty live.
- large size and type of family – large families tend to be more likely to be in a state of poverty particularly if they are not employable. This situation is even worse in the case of single parent families.
- living in a remote or very disadvantaged community – citizens who live in rural areas in a society particularly in areas that are far from the mainstream of a country tend to be poorer that their counterparts in the urban areas of a country.
Measure of Poverty
There are four main ways to measure poverty and inequality: the Lorenz Curve, headcount poverty ratio, the poverty line and the Gini concentration ratio.
The Lorenz Curve
The Lorenz curve is a measure of the distribution of wealth in a society. The Lorenz curve is used in economics to describe inequality in wealth or size and it is a function of the cumulative proportion of ordered individuals mapped onto the corresponding cumulative proportion of their size. As an example, a value (0.8, 0.2) means that the bottom 80 percent of the population owns 20 percent of the total wealth in society.
To interpret the graph above, the point (25,5) represents the hypothetical fact that the bottom 25 percent of people have 5 percent of the income, the point (50,20) shows that the bottom 50 percent of people have 20 percent of the income, and the point (75,40) shows that the bottom 75 percent of people have 40 percent of the income. Because of the way in which the Lorenz curve is constructed, it will always be bowed downwards as in graph below. The dotted line on the diagram is the 45-degree line that represents perfect income equality in an economy. We can conclude that Lorenz curves that are bowed further away from this diagonal correspond to economies with more income inequality.