Mary the Queen College (Pampanga), Inc.
JASA, San Matias, Guagua, Pampanga
ONLINE MODULE
ACADEMIC/ INSTITUTE OF ARTS AND SCIENCES
Institute/Department
SUBJECT CODE:
ECONDEV
SUBJECT DESCRIPTION:
Economic Development
MODULE NO./ TITLE:
ECONDEV 007 – Poverty and Inequality
PERIOD OF COVERAGE:
Week 7 and 8
INTRODUCTION
No society can surely be flourishing and happy, of which by far the greater part of the
numbers are poor and miserable.
—Adam Smith, 1776
Viewed through the lens of human development, the global village appears deeply
divided between the streets of the haves and those of the have-nots.
—United Nations Development Programme, Human Development Report, 2006
Social protection directly reduces poverty and helps make growth more pro-poor.
—Organization for Economic Cooperation and Development, 2010
The coincidence of severe and persistent poverty and hunger indicates the presence of
poverty traps—conditions from which individuals or groups cannot emerge without
the help of others.
—International Food Policy Research Institute, 2007
The World Bank Group has adopted two new goals: end extreme poverty by 2030 and
boost shared prosperity by maximizing income growth for the poorest 40 percent in
every country.
—Jim Yong Kim, President, World Bank, 2013
That development requires a higher gross national income (GNI), and hence sustained growth, is clear. The basic issue, however, is not only how to make GNI grow but also
who would make it grow: the few or the many. If it were the rich, it would most likely be appropriated by them, and progress against poverty would be slow, and inequality would
worsen. But if it were generated by the many, they would be its principal beneficiaries, and the fruits of economic growth would be shared more evenly. Thus, many developing
countries that had experienced relatively high rates of economic growth by historical standards discovered that such growth often brought little in the way of significant benefits to
their poor. (Todaro, 2015)
OBJECTIVES
1. Define POVERTY AND INEQUALITY.
2. Explore POVERTY AND INEQUALITY.
3. Discuss the significance of POVERTY AND INEQUALITY.
CONTENT
SCENARIO
LESSON PROPER
What is Poverty?
 Poverty refers to the condition of not having the means to afford basic human needs such as clean water, nutrition, health care, clothing and shelter
 Poverty is the world at its worst when people are deprived of basic everyday things that we everyday take for granted like food, water shelter, money, and
clothes
 It indicates a condition in which a person fails to maintain a living standard adequate for a comfortable lifestyle
 Poverty is a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living. Poverty means
that the income level from employment is so low that basic human needs can't be met.
Poverty – According to United Nations
 “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 or a job to earn
one’s living, not having access to credit
 It means insecurity, powerlessness and exclusion of individuals, households and communities
 It means susceptibility to violence, and it often implies living on marginal or fragile environments, without access to clean water or sanitation”
Poverty is often defined as being without enough money to meet basic needs. However, this is only a partial truth. It also includes factors such as poor health,
lack of access to education, and discrimination. As a result, poverty can have a lasting impact on an individual’s life, trapping them in a cycle of hardship. While there
is no single cause of poverty, it is typically the result of a combination of factors. This can include things like natural disasters, conflict, and economic inequality.
Poverty can have far-reaching consequences, damaging physical and mental health, susceptible to violence, and preventing people from achieving their full potential.
Ultimately, poverty is about more than just money – it is about a lack of opportunity and hope for the future. No matter how it is defined, poverty is a serious issue
that affects millions of people around the world every day.
What are the 6 different types of poverty?
(https://richmondvale.org/blog/poverty/)
1. Absolute poverty
- It is defined as a condition in which people lack the basic necessities of life, such as food, clothing, shelter, and healthcare.
- Absolute poverty is often measured by looking at the percentage of people who live below the poverty line, which is set at an income level that is
necessary to meet basic needs.
- There are different poverty lines from country to country, but the international poverty line is usually set at around $2.15 per day.
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In 2017, the World Bank reported that 10 percent of the world’s population lived in absolute poverty.
This means that about 767 million people were living on less than $1.90 a day.
Extreme poverty is a more severe form of absolute poverty and is defined as a condition in which people lack the basic necessities of life, such as food,
clothing, shelter, and healthcare, and live on less than $1.25 a day.
In the same report as in 2017, the World Bank said that 3 percent of the world’s population was living in extreme poverty.
This means that about 200 million people were living on less than $1.25 a day.
2. Relative poverty
- It is defined as a condition in which people lack the resources to participate fully in society.
- Relative poverty is often measured by looking at the gap between the rich and the poor.
- In developed countries, the poverty line is typically set at 50 percent of the median income.
- This means that if the median income in a country is $50,000, then the poverty line would be set at $25,000.
- In 2017, the Organization for Economic Co-operation and Development (OECD) reported that 17.2 percent of the population in its member countries
lived in relative poverty.
- This means that about 1 in 6 people in OECD countries were living on less than half of the median income in their country.
3. Situational poverty
- Situational poverty is usually defined as a lack of resources at a particular time.
- This could be due to an unexpected event, such as an illness, a job loss, a natural disaster, or it could be the result of living in a disadvantaged
community.
- Situational poverty is often temporary, but it can also become chronic if people are unable to find a way out of it.
4. Generational poverty
- It is a type of poverty that is passed down from one generation to the next.
- Generational poverty often results in a cycle of poverty that is difficult to escape.
- This is because children who grow up in poverty often lack the resources and opportunities that are necessary to break out of it.
- They may not have access to quality education, healthcare, good jobs, lack of access to resources, and discrimination.
- As a result, they are more likely to live in poverty as adults.
- Breaking the cycle of poverty requires breaking down these barriers. Investing in education, healthcare, and social services can help to break the cycle
and lift people out of poverty.
5. Urban poverty
- Urban poverty is a type of poverty that is specifically tied to living in an urban area.
-
According to the United Nations Development Programme (UNDP), urban poverty “refers to the condition of people who lack the resources to secure
the minimum necessities of life, including food, clothing and shelter” in an urban area.
There are a number of factors that can contribute to urban poverty, including a lack of access to education and employment opportunities, poor housing
and living conditions, and a lack of access to basic services like healthcare and sanitation.
According to the UNDP, there are an estimated 1.4 billion people living in urban areas that are considered to be impoverished. This represents a
significant increase from the estimated 400 million people who were living in poverty in 1990.
While urban poverty is a global problem, it is particularly prevalent in developing countries. In fact, according to the World Bank, approximately 60% of
the world’s urban poor live in developing countries.
There are several initiatives that have been launched in an effort to address urban poverty. The UN-Habitat’s Programme of Action for Cities Without
Slums is one such initiative that is working to improve the lives of those living in poverty in urban areas.
6. Rural poverty
- Rural poverty is a type of poverty that is specifically tied to living in a rural area.
- Rural poverty is often caused by a lack of access to essential services and opportunities, such as education, healthcare, and employment.
- This can be due to a few factors, including a lack of infrastructure in rural areas, distance from urban areas, and a lack of resources.
- According to the World Bank, an estimated 1.3 billion people live in rural areas that are considered to be impoverished. This represents a significant
increase from the estimated 700 million people who were living in poverty in 1990.
- While rural poverty is a global problem, it is particularly prevalent in developing countries. In fact, according to the World Bank, approximately 70% of
the world’s rural poor live in developing countries.
- There are a number of initiatives that have been launched in an effort to address rural poverty. The World Bank’s Rural Development Strategy is one
such initiative that is working to improve the lives of those living in poverty in rural areas.
- The Community Development Program at Richmond Vale Academy is another initiative that is working to address rural poverty.
- The program provides opportunities for rural residents to access education and training, as well as resources and support.
- It also aims to promote economic development in rural communities.
Poverty Line/ Poverty Threshold
The World Bank updated the global poverty lines in September 2022. The decision, announced in May, follows the release in 2020 of new purchasing power
parities (PPPs)—the main data used to convert different currencies into a common, comparable unit and account for price differences across countries. The new
extreme poverty line of $2.15 per person per day, which replaces the $1.90 poverty line, is based on 2017 PPPs.
(https://www.worldbank.org/en/news/factsheet/2022/05/02/fact-sheet-an-adjustment-to-global-poverty-lines#9 )
Why did the World Bank decide to update the International Poverty Line, and why now?
- As differences in price levels across the world evolve, the global poverty line has to be periodically updated to reflect these changes. That’s why in
September 2022 the international poverty line is being updated from $1.90 to $2.15 per person per day.
What is the new poverty line, and based on this new measure, how many people are living in extreme poverty in the world?
- The new international poverty line is set at $2.15 using 2017 prices. This means that anyone living on less than $2.15 a day is considered to be living in
extreme poverty. About 648 million people globally were in this situation in 2019.
Why raise the poverty line? What was wrong with the $1.90 a day line that we are all used to?
- The international poverty line is periodically updated to reflect changes in prices across the world. The rise in the international poverty line reflects an
increase in the costs of basic food, clothing, and shelter needs in low-income countries between 2011 and 2017, relative to the rest of the world. In other
words, the real value of $2.15 in 2017 prices is the same as $1.90 was in 2011 prices.
How is the international poverty line derived?
- We start with the poverty line defined by each country, which usually reflects the amount below which a person’s minimum nutritional, clothing, and shelter
needs cannot be met in that country. Not surprisingly, richer countries tend to have higher poverty lines, while poorer countries have lower poverty lines.
- However, when we want to identify how many people in the world live in extreme poverty across countries, we cannot simply add up the national poverty
rates of each country. This would be the equivalent of using a different yardstick in each country to identify who is poor. That’s why we need a poverty line
that measures poverty in all countries by the same standard.
- In 1990, a group of independent researchers and the World Bank examined national poverty lines from some of the poorest countries in the world and
converted those lines into a common currency by using purchasing power parity (PPP) exchange rates. The PPP exchange rates are constructed to ensure that
the same quantity of goods and services are priced equivalently across countries. Once converted into a common currency, they found that in six of these
very poor countries around the 1980s the value of the national poverty line was about $1 per day per person (in 1985 prices). This formed the basis for the
first dollar-a-day international poverty line.
- The IPL of $1.90, which was used until fall 2022, was derived as the mean of the national poverty lines of 15 poor countries in the 1990s, expressed in 2011
PPPs. The selection of these 15 poor countries was based on limited data at the time. With the gathering and analysis of new data from other low-income
countries, we have expanded the reference group. The IPL is now derived as the median of the national poverty lines of 28 of the world’s poorest countries,
expressed in 2017 PPPs.
https://psa.gov.ph/poverty-press-releases/nid/167972
Proportion of Poor Filipinos was Recorded at 18.1 Percent in
2021
Reference No.: 2022-350
Release Date: 15 August 2022
CLAIRE DENNIS S. MAPA, Ph.D
Undersecretary
National Statistician and Civil Registrar General
Based on the Preliminary Results of the Family Income and Expenditure Survey (FIES) in 2021, poverty incidence among population, defined as the proportion of
Filipinos whose per capita income cannot sufficiently meet the individual basic food and non-food needs, was recorded at 18.1 percent. This translates to around
19.99 million Filipinos who lived below the poverty threshold of about PhP 12,030 per month for a family of five. The subsistence incidence, defined as the
proportion of Filipinos whose income is not enough to meet even just the basic food needs, slightly increased to 5.9 percent in 2021. It was estimated that a family
of five needs at least PhP 8,379 per month to meet their basic food requirements.
THE WORLD BANK ON POVERTY
 The World Bank Group’s goals are to end extreme poverty and promote shared prosperity. This mission underpins our analytical, operational, and convening
work in about 140 client countries.
 For almost 25 years, the number of people living in extreme poverty — on less than $2.15 per person per day — was steadily declining. But the trend was
interrupted in 2020, when poverty rose due to the disruption caused by the COVID-19 crisis combined with the effects of conflict and climate change —
which had already been slowing poverty reduction.
 Decreased income, job losses, and work stoppages during the pandemic were especially damaging to poor households. Women, youth, and low-wage and
informal workers, especially those living in urban areas, were among the hardest hit. Inequality rose both within countries and between countries, with longterm impacts on access to opportunity and to social mobility.
 Although global poverty has more recently resumed its pre-pandemic downward trajectory, between 75 million and 95 million additional people could be
living in extreme poverty in 2022 compared to pre-COVID-19 projections, due to the lingering effects of the pandemic, the war in Ukraine, and rising
inflation.
 Food inflation can have a particularly devastating impact on poor families. A typical person in a low-income country spends about two-thirds of their
resources on food, while the same figure for the typical person in a high-income country is closer to 25%.
 Governments often can mitigate the impact of rising inflation on poor families through social protection policies. However, somewhat different from the
previous periods of high food price inflation, government finances have been depleted due to various fiscal measures enacted through the COVID-19 crisis.
For economies still reeling from the pandemic, the inflationary pressures could not have come at a worse time.
 Research suggests that the effects of the current crises will almost certainly be felt in most countries through 2030. Under these conditions, the goal of
bringing the global absolute poverty rate to less than 3 percent by 2030, which was already at risk before the pandemic, is now beyond reach unless countries
take swift, significant, and substantial policy action.
12 MAIN CAUSES OF POVERTY
(https://richmondvale.org/blog/poverty/)
1. Lack or inadequate access to clean water and healthy food
 Lack or inadequate access to clean water and healthy food are among the leading causes of poverty.
 Poor families often cannot afford to buy food that is nutritious and affordable, which can lead to chronic health problems.
 Additionally, many people living in poverty do not have access to clean water, which can cause deadly illnesses like cholera.
 It is estimated that around 1.8 billion people live in water-stressed areas, which often leads to poverty.
2. Lack of access to education
 Many poor families cannot afford to send their children to school, or live in areas where there are no schools.
 As a result, children living in poverty often have little to no education, which limits their future prospects and earnings potential.
 According to UNESCO, around 263 million children and youth worldwide do not attend school.
 This lack of education can perpetuate the cycle of poverty from one generation to the next.
3. Lack of healthcare
 Poor people often cannot afford to see a doctor or buy medication, which can lead to serious health problems.
 In developing countries, many people die from preventable diseases because they do not have access to basic healthcare.
 According to the World Health Organization, around 100 million people are pushed into poverty each year due to healthcare costs.
 This can also make it difficult for people to work, as they may need to take time off work to care for themselves or their families.
4. Lack of employment opportunities
 Many poor people live in areas with little to no employment opportunities.
 This can be due to a number of factors, such as a lack of skills or education, discrimination, or the absence of industries in their area.
 As a result, people living in poverty often cannot find work, which means they are unable to earn an income to support themselves or their families.
 According to the International Labour Organization, around 197 million people worldwide were unemployed in 2019.
 This can lead to a number of other problems, such as homelessness, crime, and mental health issues.
5. Inadequate housing
 Many people living in poverty do not have access to adequate housing.
 This can mean living in overcrowded and unsafe conditions, or being homeless.
 Poor housing can also lead to health problems, as it is often dirty and lacking in basic amenities like running water and electricity.
 According to the UN, around 1.6 billion people live in inadequate housing globally.
 This can have a major impact on people’s quality of life and make it difficult to escape poverty.
6. Discrimination
 Discrimination is another factor that can lead to poverty.
 Marginalized groups, such as ethnic minorities, women, and people with disabilities, are often more likely to live in poverty.
 This is because they often face discrimination in areas like education, employment, and healthcare.
 As a result, they have less opportunity to improve their situation and escape poverty.
 Discrimination can also make it difficult for people to access basic services, such as housing and education.
7. Climate change
 Climate change consequences
 Climate change is another major factor that can lead to poverty.
 Poor communities are often the most affected by climate change, as they often live in areas that are vulnerable to extreme weather events like floods and
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droughts.
These events can destroy homes, crops, and livelihoods, leaving people struggling to survive.
According to the World Bank, around half of the world’s population will be living in water-stressed areas by 2025.
This is due to the fact that climate change is causing our water supplies to dwindle.
Also, according to the United Nations, around 26 million people were displaced by natural disasters in 2017.
This is the highest number of people displaced by natural disasters ever recorded.
8. Inadequate social protection systems
 Social protection systems are a form of government support that help people who are unable to support themselves.
 Examples of social safety nets include welfare, unemployment benefits, and food stamps.
 Inadequate social safety nets can contribute to poverty because they may not provide enough support for people who are struggling to make ends meet.
 There is also the cases when the governmental support is out of hands, as it is in some latin countries, in which people prefer to live under the umbrella of
these systems and don’t feel the need to work to get out of poverty.
9. Poor health and nutrition
 Illness and disease can prevent people from working, which means they are unable to earn an income.
 It can also lead to high healthcare costs, which can further strain people’s finances.
 According to the World Health Organization, around half of the world’s population does not have access to essential health services.
 This includes basic services like vaccinations, maternal care, and HIV/AIDS treatment.
 Poor nutrition can also lead to health problems and make it difficult for people to work or learn.
10. War and conflict
 War and conflict can have a devastating effect on communities.
 It can destroy infrastructure, homes, and livelihoods.
 It can also lead to displacement, as people are forced to flee their homes in search of safety.
 According to the UN, there are around 70 million displaced people globally.
 This is the highest number of displaced people ever recorded due to war.
 War and conflict can also have a psychological impact on people, which can make it difficult for them to rebuild their lives.
11. Population growth
 As the population increases, there is more competition for resources like land, water, and food.
 This can lead to higher prices for basic necessities, as well as social problems like overcrowding.
 According to the UN, the world’s population is expected to reach 9.8 billion by 2050.
 This means that we need to find ways to sustainably manage our resources so that everyone has enough to live on.
12. Corruption
 When officials are corrupt, they may misuse public funds or resources.
 This can mean that vital services, like healthcare and education, are not provided properly.
 It can also mean that people have to pay bribes to access basic services, which can further strain their finances.
 Corruption can also lead to social problems, like clan violence and nepotism.
 These were some of the main causes of poverty.
WHAT ARE SOME OF THE EFFECTS OF POVERTY?
Poverty is a global problem that affects millions of people and the effects can be devastating. The causes and effects of this problem act as loop, as many of
them are one but the same. For example, one of the main causes of poverty is poor health and nutrition. This is also one of the main effects, as people who are
malnourished are more susceptible to illness and disease.
1. Poor health and nutrition
As we mentioned before, poor health and nutrition can lead to a variety of problems and can make it difficult for people to work or learn.
Poor health and nutrition can also lead to a shortened life expectancy.
2. Lack of access to basic needs
One of the most obvious effects of poverty is the lack of access to basic needs, such as food, water, shelter, and healthcare.
This can lead to hunger, disease, and homelessness.
3. Complications of getting proper education
Lack of education can prevent people from getting good jobs and escaping poverty.
It can also lead to a lack of understanding about important issues like health and nutrition.
4. Violence
Poverty can lead to violence as people compete for resources.
It can also create an environment of desperation that can make people more likely to turn to crime.
5. Displacement
Conflict and natural disasters can often lead to displacement as people are forced to flee their homes in search of safety.
This can be a traumatic experience and can make it difficult for people to rebuild their lives.
6. Poor mental health
Poverty can have a negative impact on mental health.
This is due to the stress of living in poverty, as well as the lack of resources that can lead to feelings of hopelessness and despair.
7. Social exclusion
Poverty can lead to social exclusion as people are often treated differently because of their economic resources.
This can make it difficult for people to find housing, education, and jobs.
8. Limited opportunities
Poverty can limit opportunities and make it difficult for people to escape the cycle of poverty.
It can also prevent people from being able to participate in society and have a voice in decisions that affect their lives.
9. Environmental degradation
Poverty can lead to environmental degradation as people are forced to overuse resources in order to survive.
This can lead to deforestation, soil erosion, and water pollution.
10. Death
Poverty is often fatal as people lack the resources to live a healthy life.
According to the World Bank, around 60% of deaths globally are due to poverty-related causes.
WHAT ARE THE ROLES OF GOVERNMENTS AND PRIVATE COMPANIES IN POVERTY REDUCTION?
There is no one-size-fits-all solution to eliminating poverty, but there are a number of poverty reduction strategies that can help to reduce its prevalence.
1. Investing in education
This is one of the most effective poverty reduction strategies that governments and private companies can have.
When people have access to quality education, they are more likely to find good jobs that can support them and their families.
Education also helps break the cycle of poverty, as children who receive an education are more likely to succeed than those who do not.
2. Providing access to healthcare
Another way to reduce poverty is by providing access to healthcare.
When people are healthy, they are more likely to be able to work and support themselves and their families.
Healthcare also helps prevent the spread of disease, which can have a devastating impact on communities.
3. Creating jobs
One of the best ways to reduce poverty is by creating jobs.
When people have jobs, they are more likely to be able to support themselves and their families.
Creating jobs also helps to boost the economy, which can have a positive impact on communities.
4. Improving access to essential services
Another way to reduce poverty is by improving access to essential services such as water, electricity, and sanitation.
When people have access to these services, they are more likely to be able to lead healthier and more productive lives.
5. Reducing corruption
Corruption can have a devastating impact on communities, preventing them from accessing essential services and preventing economic growth.
By reducing corruption, we can help reduce poverty.
There are many other ways to reduce poverty, but these are five of the most effective.
Non-governmental organizations and their role in reducing poverty
In addition to governments and private companies, non-governmental organizations (NGOs) also play an important role in reducing poverty.
NGOs are often more agile and better equipped to respond to the needs of specific communities.
They also have a deep understanding of the issues that communities face and can tailor their approach to meet the specific needs of each community.
WHAT IS THE ROLE OF THE INDIVIDUAL IN REDUCING POVERTY?
 While governments and organizations play an important role in reducing poverty, it is also important for individuals to do their part.
 Each of us can make a difference by supporting organizations that are working to reduce poverty, by volunteering our time and talents to help those in need,
and by donating money to support poverty-reduction initiatives.
INTERNATIONAL COOPERATION IS NEEDED TO REDUCE GLOBAL POVERTY
 Global poverty reduction requires international cooperation.
 Governments, organizations, and individuals must work together to find effective solutions that can be implemented on a global scale.
 One way to do this is through foreign aid.
 Foreign aid is money that is given by one country to another to support economic growth or humanitarian assistance.
 According to the Organization for Economic Cooperation and Development (OECD), foreign aid can be an important tool in reducing poverty.
WHAT IS ECONOMIC INEQUALITY?
Economic inequality refers to disparities among individuals' incomes and wealth. And those differences can be great. Forbes counted 2,095 billionaires in the
world as of March 18, 2020, when it finalized its most recent rankings—and that was after 226 people dropped off over 12 days due to pandemic-induced market
turmoil. Meanwhile, the most recent data from the World Bank tell us that, in 2015, about 736 million people globally were living on less than $1.90 per day. That's
actually a big improvement from 1990, when 1.9 billion people lived in extreme poverty2 and the world had only 269 billionaires. (Izza,2020)
Economic inequality is the unequal distribution of income and opportunity between different groups in society. It is a concern in almost all countries around
the world and often people are trapped in poverty with little chance to climb up the social ladder. But, being born into poverty does not automatically mean you stay
poor. Education, at all levels, enhancing skills, and training policies can be used alongside social assistance programs to help people out of poverty and to reduce
inequality. (Fontinelle,2020)
Economic inequalities are most obviously shown by people’s different positions within the economic distribution - income, pay, wealth. However, people’s
economic positions are also related to other characteristics, such as whether or not they have a disability, their ethnic background, or whether they are a man or a
woman. (https://www.equalitytrust.org.uk)
There are three main types of economic inequality:
1. Income Inequality
Income inequality is the extent to which income is distributed unevenly in a group of people.
Income is not just the money received through pay, but all the money received from employment (wages, salaries, bonuses etc.), investments, such as
interest on savings accounts and dividends from shares of stock, savings, state benefits, pensions (state, personal, company) and rent.
Measurement of income can be on an individual or household basis – the incomes of all the people sharing a particular household. Household income
before tax that includes money received from the social security system is known as gross income. Household income including all taxes and benefits is known
as net income.
2. Pay Inequality
A person’s pay is different to their income. Pay refers to payment from employment only. This can be on an hourly, monthly or annual basis, is
typically paid weekly or monthly and may also include bonuses. Pay inequality therefore describes the difference between people’s pay and this may be
within one company.
3. Wealth Inequality
Wealth refers to the total amount of assets of an individual or household. This may include financial assets, such as bonds and stocks, property and
private pension rights. Wealth inequality therefore refers to the unequal distribution of assets in a group of people.
How is Economic Inequality Measured?
There are various ways of measuring economic inequality. The choice of measure does not change what inequality looks like dramatically. However,
changes in inequality over time within individual countries can look different if different measures are used.
Commonly used measures of economic inequality:
1. Gini Coefficient
The Gini coefficient measures inequality across the whole of society rather than simply comparing different income groups.
If all the income went to a single person (maximum inequality) and everyone else got nothing, the Gini coefficient would be equal to 1. If income was
shared equally, and everyone got exactly the same, the Gini would equal 0. The lower the Gini value, the more equal a society.
Most OECD countries have a coefficient lower than 0.32 with the lowest being 0.24. The UK, a fairly unequal society, scores 0.35 and the US, an
even more unequal society, 0.38. In contrast, Denmark, a much more equal society, scores 0.25.
The Gini coefficient can measure inequality before or after tax and before or after housing costs. The Gini will change depending on what is measured.
2. Ratio Measures
Ratio measures compare how much people at one level of the income distribution have compared to people at another. For instance, the 20:20 ratio
compares how much richer the top 20% of people are, compared to the bottom 20%.
Common examples:
50/10 ratio – describes inequality between the middle and the bottom of the income distribution
90/10 – describes inequality between the top and the bottom
90/50 – describes inequality between the top and the middle
99/90 – describes inequality between the very top and the top
3. Palma Ratio
The Palma ratio is the ratio of the income share of the top 10% to that of the bottom 40%. In more equal societies this ratio will be one or below,
meaning that the top 10% does not receive a larger share of national income than the bottom 40%. In very unequal societies, the ratio may be as
large as 7.
The Palma ratio addresses the Gini index's over-sensitivity to changes in the middle of the distribution and insensitivity to changes at the top and
bottom.
The UK Palma ratio is 1.40.
The Palma ratio is commonly used in international development discourse. The ratio for Brazil, for example, is 2.23.
SUMMARY/ GENERALIZATION
What is Poverty and How is it Different to Inequality?
People in poverty are those who are considerably worse-off than the majority of the population. Their level of deprivation means they are unable to access
goods and services that most people consider necessary to an acceptable standard of living.
It can be an absolute term, referring to a level of deprivation that does not change over time, or a relative term in which the definition fluctuates in line with
changes in the general living standard.
The most commonly used definition of poverty is a relative measure: poverty is defined as having a household income (adjusted for family size) which is
less than 60% of median income. This is one of the agreed international measures used throughout the European Union.
Inequality, by contrast, is always a relative term: it refers to the difference between levels of living standards, income etc. across the whole economic
distribution. In practice, poverty and inequality often rise and fall together but this need not necessarily be the case. Inequality can be high in a society without high
levels of poverty due to a large difference between the top and the middle of the income spectrum.
Poverty is about not having enough money to meet basic needs including food, clothing and shelter. However, poverty is more, much more than just not
having enough money.
The World Bank Organization describes poverty in this way:
“Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not
knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time.
Poverty has many faces, changing from place to place and across time, and has been described in many ways. Most often, poverty is a situation people
want to escape. So poverty is a call to action -- for the poor and the wealthy alike -- a call to change the world so that many more may have enough to
eat, adequate shelter, access to education and health, protection from violence, and a voice in what happens in their communities.”
In addition to a lack of money, poverty is about not being able to participate in recreational activities; not being able to send children on a day trip with their
schoolmates or to a birthday party; not being able to pay for medications for an illness. These are all costs of being poor. Those people who are barely able to pay for
food and shelter simply can’t consider these other expenses. When people are excluded within a society, when they are not well educated and when they have a higher
incidence of illness, there are negative consequences for society. We all pay the price for poverty. The increased cost on the health system, the justice system and
other systems that provide supports to those living in poverty has an impact on our economy.
While much progress has been made in measuring and analyzing poverty, the World Bank Organization is doing more work to identify indicators for the other
dimensions of poverty. This work includes identifying social indicators to track education, health, access to services, vulnerability, and social exclusion.
There is no one cause of poverty, and the results of it are different in every case. Poverty varies considerably depending on the situation. Feeling poor in
Canada is different from living in poverty in Russia or Zimbabwe. The differences between rich and poor within the borders of a country can also be great.
Despite the many definitions, one thing is certain; poverty is a complex societal issue. No matter how poverty is defined, it can be agreed that it is an issue that
requires everyone’s attention. It is important that all members of our society work together to provide the opportunities for all our members to reach their full potential.
It helps all of us to help one another .
LEARNING RESOURCES
1. Slide/PowerPoint Presentation: See MSTeams
2. Online Videos:
a. https://wol.iza.org/videos/inequality-and-informality-in-transition-and-emerging-countries
3. Online Resources:
a. https://www.equalitytrust.org.uk/how-economic-inequality-defined
b. https://www.ecnmy.org/learn/your-society/the-question-of-equality/whats-economic-inequality/
c. https://wol.iza.org/articles/inequality-and-informality-in-transition-and-emerging-countries
d. https://www.investopedia.com/economic-inequality-4845459
EVALUATION
1. If you are to solve Economic Inequality in the Philippines, how?
REFERENCES
BOOKS
Archer, M. 1987. Economics: A Canadian Analysis(3rd Ed.).Macmillan
Todaro and Smith. 2015. Economic Development
Villegas, B. 1977. Economics. Manila: Sinag-Tala Publishers, Inc.
NEXT LESSON:
Population Growth and Economic Development
Prepared by: (Teacher /Dept.)
MICHELIN G. DANAN
Instructor
Checked by: (Coordinator/Dean/Institute/Dept.)
DONEZZA G. MARIANO, MAED
Social Science Coordinator
Approved by:
LANNIE D. GALVAN, DBA, AFBE
VPAA