Poverty and Inequality

How much do you live on per day? Lunch Bus/Train Fare Breakfast/Dinner Phone contract / month / 30 Going out evenings/weekends? Clothes, Birthdays? Housing ….? (Mortgage / rent costs ~ £15/day) Sky/TV, Heating, Landline, Gas, Electricity….. Annual Holiday cost / 365……..still too low? (£40/day for SHS) -> Virtually no-one in the UK exists on income below £10/day ($15/day)

Poverty According to the World Bank, “poverty is pronounced deprivation in wellbeing.” Poverty defined by World Bank as income of $2 per day (2005 prices PPP), and extreme poverty as $1.25 per day. Absolute poverty is defined by the UN as “a condition characterised by severe deprivation of basic human needs”…what are these? ”, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services.”

World Poverty Of the 6.4bn in the world, how many are illiterate? How many of the 6.4bn live without electricity? World bank has 2.4bn people living in low income countries – what % of world exports come from these countries?

Poverty – a big problem Nearly a billion people entered the 21st century unable to read a book or sign their names (Unicef) The world’s low income countries (2.4 billion people) account for just 2.4% of world exports (WB) 1.6 billion people — a quarter of humanity — live without electricity (WEF) BUT its getting better 

Includes India Includes China

Absolute poverty Notes: Extreme poverty has “decreased considerably” in the past 30 years, from 52% of the developing world in 1981 to 21% in 2010 (World Bank) Extreme poverty has fallen in all regions, except Sub-Saharan Africa. SSA has not improved due to: High Pop Growth (Av. 2.6% pa) – Income growth is higher but high pop growth dilutes the effect SSA poverty starts from a lower base than other regions, so many people are well below the $1.25/day and growth won’t get them over the threshold Income inequality is worse in SSA so Income can flow disproportionately to the higher income groups Poverty in China has fallen from 84% to 12% (also of use in questions on globalisation)

Relative Poverty (UK & Developing World) Relative poverty defines income or resources in relation to the average. It is concerned with the absence of the material needs to participate fully in accepted daily life. How is it measured? Relative poverty is generally defined as when household income is less than 60% of median household income (EU definition) https://www.theguardian.com/commentisfree/video/2013/oct/08/inequality-how-wealth-distributed-uk-animated-video

What are the factors driving Absolute and Relative Poverty? Changes in the rate of economic growth FDI Policies which result in increased trade Government tax and benefits policies Changes in asset prices A: Debt / Corruption saps growth R: Ed/skill, unemploymt, underempl, discrimination, agric cycles, civil war, nat disasters, environmental degred FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprise development. Hook up to WE Growth Tax / benefits – relative in UK; absolute challenging in 3W Asset prices – A: Commods in 3W R: Housing in SE Eng

Relative Poverty in the UK   Ways to get around Inheritance Tax (The rich stay richer – Govt has to tax others more) Falling Relative value of State Benefits Inequality in Wages and Earnings Growth Workers with high levels of skills and qualifications will be in demand and therefore will be able to gain higher wages. However those with low skills will find themselves in low paid jobs or even unemployed. In recent years wage differentials have increased due to: De-industrialisation… Public Sector… Growth in part time and temporary jobs… Decline of trades unions … Increased demand for ?? workers => Structural and LT Unemployment amongst the low paid (Higher competition for low paid jobs = lower pay; minimum wage may reduce number of lowest paid jobs?) In recent years wage differentials have increased due to: De-industrialisation leading to more service sector jobs which tend to be lower paid Public Sector jobs have had low increases in wages Growth in part time and temporary jobs which tend to be low paid Decline of trades unions leaving many workers unable to bargain for higher wages. Increased demand for highly skilled workers => Structural and LT Unemployment amongst the low paid (Higher competition for low paid jobs = lower pay; minimum wage may reduce lowest paid jobs?)

It’s a good time to be qualified! (Source Rowntree Foundation) Figures are in percentages ie in 2000 14.2% employed had no qualification; estimates are that by 2020 only 5.7% of UK workforce will have no qualification. Result: the uneducated will find it much harder to get jobs, hence will be more likely to be in Poverty (GCSE A*- C is level 2, A levels are level 3)

Wealth & Inequality Wealth relates to differences in people’s stock of assets. Income is a flow concept; therefore, income inequality relates to differences in people’s income flows from wages, dividends, rents, etc.

Oxfam says wealth of richest 1% equal to other 99% The richest 1% now has as much wealth as the rest of the world combined, according to Oxfam. It uses data from Credit Suisse from October for the report, which urges leaders meeting in Davos this week to take action on inequality. Oxfam also calculated that the richest 62 people in the world had as much wealth as the poorest half of the global population. It criticised the work of lobbyists and the amount of money kept in tax havens. Oxfam predicted that the 1% would overtake the rest of the world this time last year. It takes cash and assets worth $68,800 (£48,300) to get into the top 10%, and $760,000 (£533,000) to be in the 1%. That means that if you own an average house in London without a mortgage, you are probably in the 1%. BBC News: 18 January 2016

Measurement of Income (and sometimes Wealth) distribution Lorenz Curve shows the distribution by percentile (ie the top 1% of population have 20% of the UK’s income) The relative sizes of area within Lorenz curve ratio’d to total area under 45 degree line is the Gini coefficient – may have come across it in Geography? Allows us to compare countries. Gini Coefficient = (area) A --------- A + B

Where is the UK? (Axis is Gini)

Causes of Inequality Earned income Non workers Physical and financial wealth

Causes of Inequality Household composition Government policy The degree of competition in product markets

Kuznets Curve The Kuznets curve is a hypothetical curve that graphs economic inequality against income per capita over the course of economic development

News of the day http://www.bbc.co.uk/news/business-38219881 http://www.bbc.co.uk/news/business-38228822 https://www.jrf.org.uk/ What does the Joseph Rowntree organisation do? What are there recent findings? What do they argue causes poverty in the UK? What are the costs? Discuss the causes of relative poverty in a developed country of your choice (15)

200 years in 4 minutes Changing your view on poverty The washing machine World Bank – living in poverty

Inequality Measure using Lorenz curves and Gini coefficient Can measure inequality in income, or in wealth Any difference between UK and US?

Causes of income inequality (UK) Unemployment Wage differentials: More qualified earn more because productivity is higher so MRP is higher Older workers (but not ancient!) tend to earn more because they have more experience and thus higher productivity/MRP. Can certainly think of this in terms of career progression within an organisation Because some skills are in short supply Can apply in professions like actuaries, medicine, but also with eg top footballers

Causes of income inequality Wage differentials. Other reasons: Discrimination (though illegal in the UK) Net returns from work Some jobs are so rewarding that workers accept lower wages. Examples…. Regional differences Different jobs (eg financial services London) but also different cost of living

Causes of income inequality Changing structure of economy Advances in technology mean higher skills are needed Shifting demand means those with IT skills/transferable skills can earn more Wealth One of the biggest causes of inequality since wealth is a source of income

Causes of wealth inequality (eg UK) Inheritance Biggest factor (Inheritance tax is 40% on the value of an estate over £325,000 or over £650,000 from a couple) Income Assets tend to build up during a person’s working life as people buy property and build assets for retirement Hard to redistribute assets No asset taxes in the UK (aside from inheritance tax and arguably stamp duty) Even with an asset tax it is hard to give assets to the poorer

Causes of (relative) poverty Unemployment, particularly long term Lack of education and skills, which leads to unemployment (see above), particularly with changing structure of the economy from manufacturing to services Lower income than high skilled workers (who have higher MRP, ie produce more) Single parenthood Ageing population People may not have saved enough for a longer retirement

Government policy to alleviate poverty (and inequality) in the UK Remember poverty is defined as relative very difficult to see it being eliminated without a very equal distribution of income. Would this be desirable? Main policies Redistribution of income Progressive taxes (higher top rate, raise personal allowance so fewer pay tax) Means tested benefits – tax credits for poorer households, job seekers allowance for unemployed Universal benefits – education and health free for all, state pensions Minimum wage

200 years in 4 minutes Changing your view on poverty The washing machine World Bank – living in poverty

Ageing http://www.bbc.co.uk/learningzone/clips/why-is-the-uks-population- ageing/537.html http://www.neighbourhood.statistics.gov.uk/HTMLDocs/dvc3/projectio ns.html