Inequality and Poverty NOTES

Income and Wealth Inequality

Income

Wealth

What  influences income? -          Skills -          Qualifications -          Full time/Part time -          State benefits Why is income unevenly distributed between households? -          Uneven holdings of wealth -          Differences in the composition of households -          Differences in the ability to learn

Wealth is a stock of assets which have a financial value. Such as shares and government bonds, give rise to income. Why is wealth unevenly distributed between households? -          Assets inherited -          Their savings -          Entrepreneurial skills Inheritance is a major reason for some people being wealthy. The more a person can save, the wealthier they become. Thus Wealth creates wealth.

Influence of government on the distribution of income and wealth

Why would the government decide to influence the distribution of income and wealth?

• -          - If a situation arises where a very uneven distribution may be socially divisive.
• -          - To make sure that everyone has access to a certain standard of living

Ways of influencing the distribution :

·         Taxation : Progressive taxes make the distribution of income and wealth more homogenous

·         Provision of cash benefits(unemployment) :  helps maintain a reasonable standard of living

·         Provision of free state education and health care : ensures that everyone has access to these essential services and it may also offer the people an opportunity to improve their living standards

·         Using labour and macroeconomic policies

·         Minimum wage legislation

·         Regional Policy

·         Measures to reduce unemployment

The Nature and Causes of Poverty

§  Absolute poverty: occurs when people do not have access to basic food, clothing and shelter

§  Relative poverty: occurs when people are poor relative to other people in the country. They are unable to participate fully in the normal activities of the society they live in

§  Causes of poverty :

-          Being unemployed

-          Being low paid

-          Falling ill

-          Growing old

Possible Government Policy Measures to reduce Poverty

Ø  Improving the quantity and quality of education : Can increase job prospects and earning potential of the poor and their children

Ø  Increasing aggregate demand : It increases employment. Since demand of products is more, there will be more demand of workers to supply the products

Ø  Introducing or raising national minimum wage : To tackle the problems of people facing low living standards due to low wages

Ø  Encouraging more MNCs to set up in the country : Creates more employment opportunities

Ø  Providing benefits or more generous state benefits : The elderly, sick and disabled may not be able to earn and may not have any savings to support them. Giving them benefits that help them eschew absolute poverty

Measures to Raise Living Standards

Ø  Improving education and training will enhance their knowledge

Ø  Reducing unemployment

Ø  Improving health care

Ø  Increasing and improving the house stock

Ø  Improving the working conditions

Ø  Reducing pollution