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Economics of inequality and poverty 3 - Coggle Diagram
Economics of inequality and poverty 3
8 Causes of inequalities and poverty
Different levels of ownership resources, particularly the unequal ownership of capital
the higher the person's income, the more physical and financial capital they will own
value of share prices have risen at much higher rate than average wages & salaries = even higher incomes for wealthy people with financial assets
increased concentration of wealth among the rich
Globalisation and technological progress have affected different types of labour differently
outsourcing to different countries mean less demand for manufacturing workers in developed countries
machinery and computerised technologies are able to do repetitive work that skilled workers used to do
increasing structural unemployement
skilled labour of people with higher education are still high in demand, and so incomes have risen for those professions
"hollowing out of the middle class"
relatively small percentage of people earn high incomes
larger percentage earning low incomes
shrinking percentage of middle income earners
Differences in human capital
income may be determined in supply and demand for their particular type of labour
justification: higher-skilled person should be rewarded for the investment in their own human capital
reduction in trade-union power = low-skilled jobs have much less job security & protection from falling real wages
Market-oriented, supply-side policies
deregulation
increased the opportunity for wealthy people to earn more income from their investments
labour market reforms
reduce power of trade union & make labour markets more flexible
workers have less power to use collective bargaining power with employees to protect their wages & working conditions
firms can offer non-standard employment
Non-standard employment: temporary workers, part-time workers, zero hour contracts & self-employed workers. Less security & lower incomes
standard employment: has a permanent and secure contract to work full-time
1980s, UK Margaret Tatcher, US Ronald Reagen
Discrimination
factors: gender, race, ethnicity, age, religion, sexual orientation, socio-economic status
manifests in opportunities & outcomes
wage discrimination: when workers in similar positions receive different wages on the basis of their gender, race, ethnicity, age, sexual orientation or any other characteristics that are not related to their skills/productivity
Government tax benefit policies
"progressive taxes"
higher percentage of tax at higher levels of income
top rate of income tax has fallen in many countries
corporate profits are taxed lower than income tax, benefitting rich people with assets
"austerity" policies
governments reduce spending to reduce national debt
affects areas aimed at income redistribution - social welfare benefits
housing allowances
child benefits
unemployment insurance
tend to worsen the incomes and standards of living among lower-income people
Inequality of opportunities
people born in middle- or high-income families are more likely to have access to better opportunities
people born in poor families face fewer opportunities& may struggle to reach their potential, regardless of their effort and initiative
poverty trap/cycle
both economic advantages & disadvantages tend to reinforce themselves through the life cycle
the issue of "social mobility"
the ability of people/households to move up/down the socio-economic "ladder"
Intragenerational social mobility
ability of an individual to move from one income level to a higher income level within their own lifetime
Intergenerational social mobility
ability of a person to move to a higher level of income than their parents
those at the top of the ladder have the tools to pass on their advantages to their children, therefore reinforcing income and wealth inequalities
Unequal status and power
wealthier people may have a disproportionate say in the development of government policies
they may finance the campaigns of politicians running for office
when elected, those politicians are more likely to develop policies that interest the wealthy
tax cuts for the wealthy
reduced business regulations
reduced minimum wages
lower income people are less likely to be involved in the political process
How is poverty measured?
World Bank's international poverty line: $US 1.90 PPP
national poverty line
usually set at an arbitrary percentage of the median income
set the poverty line at the minimum amount of income that households need to meet their basic needs for G&S
normative issue
Canada's "market-based measure"
measures the cost of a basket of G&S needed to live a "modest, basic standard of living"
based on a family of 4 with 2 children
poverty line is different in different provinces to account for the different costs
What is MPI?
UN developed the Multidimensional Poverty Index (MPI)
composite indicator
attempts to measure the many specific dimensions of poverty, rather than simply looking at income as a single indicator
3 key basic needs
education
years of schooling 1/6
school attendance 1/6
standard of living
sanitation 1/18
drinking water 1/18
electricity 1/18
cooking fuel 1/18
housing 1/18
assets 1/18
health
nutrition 1/6
child mortality 1/6
a person is considered to be multidimensionally poor if they experience at 1/3 of these weighted indicators
Deprivations
People lack basic necessities and exist in poor conditions
clean water, sanitation, adequate nutrition, primary education, poor health
multidimensionally poor
understanding the particular nature of poverty in a particular country
implement policies targeted specifically at the deprivations in that country
different strategies to tackle different causes of poverty
"one-size-fits-all" approach to poverty reduction is inappropriate
Difficulties in measuring poverty
some elements of poverty are difficult or impossible to measure
feelings of uncertainty, vulnerability & fear
measures are often based on household surveys
requires enormous amounts of resources
results may be of poor quality
difficult to define poverty
many types of poverty; absolute, relative, acute, extreme, income and multidimensional poverty
in the interest of governments to adjust their national poverty lines to reduce the extent of official poverty in the country
defining the term differently will affect poverty statistics