Absolute and Relative Poverty - Essay Example

? Economics Answer Poverty is a situation where there is a drop in minimum income which is necessary to achieve basic standard of living in a country. There are different levels for poverty line in different countries. Now the basic level of poverty line is around $1.25 per day as per World Bank standards. The understanding of the poverty line has more seriousness in developed countries than in developing countries. Absolute and relative poverty are two relative and different terms used for defining poverty in economics. Absolute poverty is a concept which measures the number of people living below a certain income threshold. It can also be the number of households which are unable to afford basic goods and services. Relative poverty is another dimension used to define poverty. It measures the extent to which the financial resources of households fall below an average income threshold (Measuring poverty. 2010). In other words absolute poverty can be defined as poverty where people cannot afford basic things that is necessary for living due to fall in income below the prescribed level. Whereas when income falls below the standard limit or average level by a certain amount, the situation is called as relative poverty (Relative and Absolute poverty. 2010). The living standards as well as real incomes of individuals and households have grown substantially due to increased employment chances and sustained economic growth in recent years. However the income that is distributed among the population is totally uneven. This is the reason for both absolute and relative poverty. Even though the British society has become a developed one, recently studies have forecast that Britain has become a more unequal society since the last twenty five years. Inequality started its development from the rule of the labour government in 2001. There are many reasons for absolute and relative poverty in Britain. Main among them are inequality in wages and earnings growth over the years, falling of value in state benefits like pensions etc, higher levels of unemployment, regressive tax structures, inheritance of wealth inequality etc (Causes of Relative Poverty in UK.2010). Relative poverty is truly not just an economic cause. It is always related to social norms rather than economic. It depends on how you can confront them. This is not the case for absolute poverty where the main cause is purely economical. In western society, absolute poverty is not prevailing but there is relative poverty especially among the working class (Measuring poverty. 2010). Answer:2 Introduction: Reduction in inequality and poverty as well as promoting equity is considered as important macro economic objectives. In UK the widening gap between the rich and the poor has highlighted the importance of understanding the causes of relative and absolute poverty. It has also prompted to construct adequate policies for reducing the poverty and narrowing the income gap (Numbers in low income. 2009). One of the best ways to reduce the gap between the rich and poor thereby reducing the effect off poverty is to redistribute the wealth to the needy. For this purpose the government can use the tax and benefits system whereby they can intervene to promote equity as well as reduce inequality and relative poverty. This can be done through the tax and benefits system in which a progressive tax and benefits system is implemented that takes more tax on higher levels of income and redistributes it as welfare benefits to those who are in lower income groups. The original income can be adjusted in different ways so that it increases or decreases the post tax income. One among the benefits that can be provided to the poor is the cash benefits system. This is designed to help those who have zero income. This includes contributory as well as non contributory benefits. Contributory benefits include pensions, job seekers allowance, contributions of employers to national insurance fund and non contributory benefits include housing benefit, income supports, carers’ benefits as well as child support. Moreover as part of reducing the economic gap in UK, the income tax scheme which is mildly progressive also helps. Individuals who have very low income should not pay tax up to a limit, a low tax rate should be determined for those income levels exceeding the low income, this should be closed with a ceiling limit. Middle income groups should be made to pay tax at a higher rate than the lower ones and higher income groups should be given a higher tax rate. Progressive levels of direct taxes simultaneously reduce the effect of indirect taxes on the poor. However the main drawbacks of this method of reducing poverty is that this method creates a disincentive effect because individuals are discouraged from working hard because they pay more of their income as taxes another drawback is that it can create a moral hazard where some people will fail to look to ways to improve their own position because everything is provided to them for free by the state. Reducing poverty through welfare benefits system has its own disadvantages. Although its sounds good, it has very negative future outcomes. Other best alternatives that could use to reduce the income gap between the rich and the poor are sustained economic growth and more employment. Economic growth helps the rich as well as the poor. It gives more income to the rich as well as poor will be able to sustain himself against the basic needs of himself and his family. More employment generations which is an after effect of economic growth helps to maintain stability of income. People will be encouraged to work hard in order to earn more income (Policies to help Reduce the Problem of Poverty UK. 2010). Conclusion: Absolute and relative poverty are terms having somewhat the same meaning, although absolute poverty is relatively less in UK, relative poverty can be found out in the country. This is a social menace whereby people are divided and segregated on the basis of their income. Different methods can be used to solve like redistribution of wealth which is currently used in UK however the best method that seems to be ideal in the future is increased economic growth (Spiker.2007). Reference: Causes of Relative Poverty in UK.(2010). [online]. Available from: http://www.economicshelp.org/macroeconomics/inequality/causes_poverty.html Accessed on March 15, 2011 Measuring poverty. (2010).[online]. Available from:http://tutor2u.net/economics/content/topics/poverty/measuring_poverty.htm. Accessed on March 15, 2011 Numbers in low income. (2009). [online]. Available from: http://www.poverty.org.uk/01/index.shtml. Accessed on March 15, 2011 Policies to help Reduce the Problem of Poverty UK. (2010). [online].Available from: http://www.economicshelp.org/macroeconomics/inequality/policies_reduce_poverty.html. Accessed on March 15, 2011 Policies to reduce inequality and poverty. (2010). [online]. Available from: http://www.economicsonline.co.uk/Managing_the_economy/Policies_to_reduce_inequality_and_poverty.html Accessed on March 15, 2011 Relative and Absolute poverty. (2010). [online]. Available from: http://econ.economicshelp.org/2007/06/relative-and-absolute-poverty.html Accessed on March 15, 2011 Spiker.P. (2007).An introduction to Social Policy. [online]. Available from: http://www2.rgu.ac.uk/publicpolicy/introduction/needf.htm. Accessed on March 15, 2011 Read More