TOPIC 3: POVERTY,
INEQUALITY AND
DEVELOPMENT
OUTLINE
Learning objectives
Learning outcomes
Poverty concepts
Characteristics of poverty groups
Causes of poverty
Consequences of poverty
The concept of inequality
Causes of inequality
Consequences of inequality
Welfare policy implications
Learning Objectives
The aims of this topic are to
Discuss the concepts of poverty and explain the
various characteristics of poverty groups
Explain the causes of poverty and the impact on
development
Explain the meaning of inequality
Explain and discuss the causes of inequality
Discuss the impact of inequality on development
Discuss the welfare policy implications of poverty
and inequality
Learning outcomes
At the end of this topic, you should be able to:
Explain the meaning of poverty and inequality
Explain and evaluate the causes and
consequences of poverty
Critically analyse the impact of inequality on
development
Prescribe appropriate development policies
aimed towards alleviating poverty and
inequality in developing countries
Poverty Concepts
Poverty is defined as the lack of, or the inability to achieve,
a socially acceptable standard of living.
Fundamentally, poverty is a denial of choices and
opportunities; a violation of human dignity.
It means lack of basic capacity to participate effectively in
society.
“It means:
not having enough to feed and cloth a family;
not having a school or clinic to go to;
not having the land on which to grow one’s
food;
not having a job to earn one’s living;
not having access to credit.
insecurity, powerlessness and exclusion of individuals,
households and communities.
susceptibility to violence, and it often implies living on
marginal or fragile environments, without access to
clean water or sanitation” (UN Statement, June 1998
–signed by the heads of all UN agencies)
A distinction is made among various types of
poverty:
a. Absolute Poverty: also known as destitution,
extreme poverty, or abject poverty is human
deprivation in its extreme and most obvious
form.
It refers to a lack, or deficient supply of the basic
necessities of human life, such as food, safe
drinking water, housing, clothing, and health care.
Absolute poverty is the most common type of poverty and
can be measured by headcount
Headcount is simply the number of people whose income
falls below the absolute poverty line ($1.90 per day)
In Zambia, the food poverty line is at K152 per month and
the overall poverty line is at K214 as of 2020.
The poverty line is set at a level that remains constant in
real terms so that we can check our progress on an absolute
level over time.
Below this poverty line, individuals are in “absolute human
misery”
b. Relative Poverty: on the other hand,
refers to a state of human suffering which
results from the inability of a person or
group of persons to meet the needs that
other people in society have come to take
for granted.
This is primarily a problem of income
inequality in society which intensifies as
the income gap between the 'haves' and
'have-nots' increases.
c. Generational Poverty: refers to the on-going poverty
that is passed down from parents to children or from
one generation to another
This is sometimes called the cycle of poverty
d. Situational Poverty: occurs due to external
circumstances and is usually temporary
Some of the most common factors that can lead to
situational poverty include: divorce, death of a spouse,
unexpected health expenses, loss of a job, war
Characteristics of poverty Groups
Rural Poverty
Generally, in developing economies, the poor are
disproportionately located in rural areas
This is explained by the fact that the majority of
government expenditures in most developing
countries over the past decades has been directed
toward the urban areas and especially toward the
relatively affluent modern manufacturing and
commercial sectors
Whether in the realm of directly productive economic
investments or in the fields of education, health,
housing, and other social services, this urban modern
sector bias in government expenditures is at the core of
many of the development problems
Women, Children and Poverty
Women make up a substantial majority of the world’s
poor.
If we compared the lives of the inhabitants of the
poorest communities throughout the developing world,
we would discover that virtually everywhere, women
and children experience the harshest deprivation
They are more likely to be poor and malnourished and
less likely to receive medical services, clean water,
sanitation, and other benefits.
The prevalence of female-headed households, the lower
earning capacity of women, and their limited control
over their spouses’ income all contribute to this
disturbing phenomenon.
In addition, women had less access to education,
formal-sector employment, social security, and
government employment programs which contributed
to high levels of poverty [Note that with gender
equality being emphasized in the past few years, this
phenomenon has changed]
These facts combine to ensure that poor
women’s financial resources are meagre and
unstable relative to men’s
However, the world is changing and we’ve
seen an improvement in women’s access to
education and formal sector employment.
This has reduced the number of women living
in poverty
Ethnic Minorities, Indigenous Populations, and
Poverty
Poverty falls especially heavily on minority ethnic
groups and indigenous populations.
About 40% of the world’s nation states have more
than five sizable ethnic populations, one or more
of which faces serious economic, political, and
social discrimination.
In recent years, domestic conflicts and even civil
wars have arisen out of ethnic groups’ perceptions
that they are losing out in the competition for
limited resources and job opportunities.
As a result, such groups are characterised by poverty
Poor Countries
Finally, it should be noted that the poor come from poor
countries.
Although this may seem like a trivial observation, it is
actually a useful note of optimism.
The negative relationship between poverty and per
capita income suggests that if higher incomes can be
achieved, poverty will be reduced in developing nations
Causes of Poverty
Unemployment
Lack of access to education and health services
and skilled labour
Technological changes
HIV/AIDS
Policy reforms
Individual traits: laziness, ignorance, attitude,
behaviour, values and beliefs, drinking,
betting, gambling
Rapid population growth
Inequitable distribution of land, income and
productive assets
Incapability of chief wage-earner through illness,
accident and old age
Size of the family
Natural calamities
Lack of mass people’s participation in local
government
Political instability
Culture
Religion
Impact of Poverty on Development
Poverty has a negative impact on the process of
development
It reduces the productivity levels and hence, the ability
of a nation to produce the maximum possible output
In addition, poverty reduces the ability of people to
effectively participate in the political and social
processes in the economy, thereby deteriorating the
process of development
Poverty also leads to social crimes
The Concept of Inequality
Income inequality is the gap between the rich
and the poor i.e. the differences in the
distribution of economic assets (wealth) and
income within or between populations or
individuals
It also refers to the state of an economy in
which the shares of total income earned by the
rich and the poor are highly unequal
Causes of Income Inequality
Principal causes:
Technological changes
Globalization
Secondary Causes
Regressive Tax policy
Declining unionization
Labour Markets Outcomes: Nepotism, Gender
pay gap, wealth concentration, inadequate
employment creation
Monopoly power
Lack of access to education
Consequences of Income Inequality
It is a source of social and political unrest: as it can lead
to social discontent and higher crime rates, in turn
undermining investor confidence and adversely
affecting the business environment and a country's
economic growth.
For example, across a number of Arab states, high
unemployment and growing inequality has fuelled
political and social unrest from early 2011
Higher income inequality can also result in non-
income disparities such as health and education, thus
hindering a government's effort to reduce poverty.
High incidence of poverty remains a severe
problem in some Sub-Saharan African and South
Asian countries;
A widening income gap can impede the
development of a country's consumer markets as
purchasing power becomes concentrated among a
small elite.
In Kenya, for example, the richest 10.0% of
households spent on average 14.3 times more than
the poorest 10.0% of households in 2011.
High inequality reduces the pool of people with access to
the resources such as land or education needed to unleash
their full productive potential.
Thus, a country deprives itself of the contributions the poor
could make to its economic and social development
High inequality limits the use of important market
instruments such as changes in prices and fines.
For example, higher rates for electricity might promote
energy efficiency, but in the face of serious inequality,
governments introducing even slightly higher rates risk
causing extreme deprivation among the poorest citizens.
Growing income disparities impede the growth of
the middle class, an important consumer segment
for discretionary (non-essential) goods.
Inequality is necessary to encourage entrepreneurs
to take risks and set up new business.
Without the prospect of substantial rewards, there
would be little incentive to take risks and invest in
new business opportunities
Advancement through education: it improves
standard of living of people and brings prosperity.
It rewards actors of the economy for increased
investment in future
Income has a diminishing marginal utility.
Therefore increasing income equality can lead to
an overall net gain because the poor see a bigger
increase in utility than the loss faced by high
earners.
Rising income disparities around
the globe split consumers into two primary
groups, the rich and the poor, thus providing
more opportunities for both luxury and budget
goods.
Countries such as China and Russia, for
example, are now among the fastest growing
markets for luxury goods in the world
Measuring Income Inequality
The commonly used measure of income
inequality is the Gini-coefficent
Gini-coefficient is a measure of inequality of a
distribution of income among different groups in
society
It is a ratio with values between 0 and 1
The value of 0 implies perfect income equality
(everyone has the same income
The value of 1 implies perfect income inequality
(one person has all the income while everyone
else has zero income
Welfare Policy Implications for Poverty and
Inequality
Economic policy makers can face a tradeoff
between promoting equity and economic growth.
As income shares become more equal, the
incentive for individuals to accumulate skills,
work hard, and take risks might become smaller,
thus shrinking the size of the economy.
This however, does not imply that the status quo
must be maintained
Developing countries that aim to reduce
poverty and excessive inequalities in their
distribution of income need to know how best
to achieve their aim.
What kinds of economic and other policies
might governments in developing countries
adopt to reduce poverty and inequality
while maintaining or even accelerating
economic growth rates?
Increasing assets to the poor
Progressive income and wealth taxes
Direct transfer payments and the public provision of
goods and services - subsidy
Public Education: increasing the supply of skilled
labour and reducing income inequality due to education
differentials.
Minimum wage legislation: raising the income of the
poorest workers (for the ones that don't lose their jobs
due to the minimum wage).
Unionization: organizations may reduce
inequality by negotiating standard pay rates
(though probably increasing unemployment).
As union power has declined, and performance
related pay has become more widespread,
economic inequality has mirrored productive
inequality, etc
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