Global poverty in an unequal world: Who is considered poor in a rich country? And what does this mean for our understanding of global poverty? (2023)

Poverty lines in European countries

As mentioned before most European countries set their poverty line at 60% of the median income in the country. In his original proposal Pritchett was relying on this 60% of median cut-off.

Calculating the poverty line for European countries therefore means that we look up their median income and then multiply it by 0.6. This is less straightforward than it might first appear. The reason for that is that there are many different income concepts. You quickly realize that it is not easy to define a person’s income if you ask yourself what your own income is. Do you take government transfers into account or not? Do you take your partner’s income into account and divide it by two? How do you take into account that you have a child for which you need to pay? It is possible to take these and many other aspects into account and arrive at useful statistics, but various sensible ways of addressing such questions lead to many different income metrics. As such, in comparing different poverty thresholds across countries we have to take care to avoid mixing different income concepts as much as possible.

One important difference is how incomes are adjusted for the size of the household: whether the total household income is simply divided by the number of people (including children) – ‘per capita’ income – or whether some adjustment is made to account for the fact that larger households, and particularly households with children, face lower costs per person – known as ‘equivalised’ income. Whereas EU countries, like other rich countries, use equivalised income to measure poverty, the UN’s measurement of global poverty is based on a global dataset of per capita incomes. This dataset is called PovcalNet, and it is this that we must use in order to make comparisons of poverty measures in different countries according to the same income concept.

In this dataset we find the median income for countries around the world and we can take that median income and then apply the logic on which the European poverty lines are based. In the extensive footnote here you find more details and the full calculations.14

As high-income European countries I’m referring to those European countries, which according to the Eurostat statistics had a higher income in 2019 than the European average. These are the following countries: Finland, Netherlands, Belgium, Sweden, Germany, France, Iceland, Switzerland, Norway, Luxembourg, Denmark, Austria, Ireland, and the UK.

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These are the poverty lines for daily income in a number of high-income European countries (based on 60% of the median incomes from PovcalNet):

  • Sweden: $29.40 per da
  • Norway: $37.80 per day
  • Austria: $31 per day
  • UK: $25.04 per day
  • Switzerland: $35.82 per day
  • Germany: $28.35 per day
  • France: $27.28 per day
  • Luxembourg: $43.86 per day
  • Finland: $27.22 per day
  • Iceland: $31.64 per day
  • Ireland: $24.68 per day
  • Netherlands: $28.6 per day
  • Belgium: $26.92 per day
  • Denmark: $29.06 per day

The span of poverty lines in these countries ranges from $25 (for the UK and Ireland) up to $38 (for Norway); in the small country of Luxembourg the poverty line is higher.

The poverty line in the US

UnlikeEuropean countries, the US does not set the poverty line in a relative way. Instead the US poverty line dates back to the work of Mollie Orshansky, an economist working for the Social Security Administration in the early 1960s. Since then it has been of course revised for price changes, but otherwise it remained unchanged.

The US poverty line is very often criticised as being too low. Those that criticize the US poverty line in that way therefore suggest that the severity of poverty in the US is understated in the statistics.

How high is the poverty line in the US? In 2020 the poverty threshold for a single person under 65 was 35 international-$ per day.15

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Now the problem with comparing this poverty line with the global statistics is again that the income concept is different. The US crucially relies on an equivalence scale for adjusting the income cutoff depending on the household size.

An alternative is to apply the same concept that the Europeans are using for their poverty line determination. If the US would use the 60% of median income definition of poverty their poverty line would be int.-$32.8 per day16 Very close to the one-person poverty line based on Orshansky’s work.

A somewhat comparable poverty line based on these two approaches therefore falls into the range of around $33 to $35 per day. Within the range of poverty lines in European countries.

Survey results – Below which income do you consider a person poor?

The UN and Pritchett rely on the existing poverty lines in low-income and high-income countries respectively to derive their poverty lines. We can follow other approaches too.

An obvious one is to ask what people out there believe: Who is considered poor in a high-income country by people in high-income countries?

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For the regular poverty report of the German government, a survey is conducted that asks Germans below which income level they consider someone as poor. The latest data is from the year 2015.17

The mean answer given by the German population for a cutoff below which a person is considered poor was 947€ per month. In international dollars per day this corresponds to an income of int.-$37.58.18

Universal Basic Income

Universal Basic Income (UBI) is a political idea that is becoming rapidly more popular.

A large UBI study in Germany – called ‘Mein Grundeinkommen’ – sets this income at €1200. In international-$ this corresponds to an income of int.-$48.19 per day.19

Social security in Germany

Germany pays basic social care for its citizens. This social security payment is referred to as ‘Hartz-IV’.

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How much a person receives depends on the particular circumstances of the individual, but we can look at the average payment. In 2018 a single person received on average 783 Euro per month. That corresponds to int.-$30.78 per day.20

The Roslings’ suggest a cutoff of $32 per day

Anna Rosling-Rönnlund, Ola Rosling and Hans Rosling challenged the old dichotomy between developed and developing countries in their bestselling book ‘Factfulness’. They argue that the old dichotomy corresponds to a view of the world that was accurate half a century ago when a few countries were relatively well-off, but most countries were living in very poor conditions.Today, they say, people around the world live on a large spectrum. To reflect this spectrum they proposed 4 income levels.

The first cut-off corresponds to the international poverty line (rounded to int.-$2 per day). The next income cutoff they set at $8 per day, the following one at $16 and the highest one at int.-$32 per day.

Kahneman’s and Deaton’s study of income and emotional well-being

Nobel laureates Daniel Kahneman and Angus Deaton published a famous study on the link between life satisfaction and income.21

The authors find that higher incomes go together with higher self-reported life satisfaction, but for people’s self-reported emotional well-being this is only true up to a certain point: the study finds that above $75,000 further increases in income do not correspond with improvements in people’s emotional well-being – a finding that is often cited to argue that additional economic growth does not improve people’s lives in high-income countries.22

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Again, the income concept is not the same as that in PovcalNet, and so comparisons with the global data are not directly possible. But we can ask what the daily income at which emotional well-being supposedly levels off corresponds to: $75,000 per year are int.-$205 per day.

It is certainly worth considering whether an income up to which emotional well-being increases could be taken as the basis for a definition of poverty. A US company reacted to the research finding of Kahneman and Deaton by using it to set the minimum wage in their company: everyone in that company gets paid that salary.

For the discussion of global poverty however it might be considered as an even higher poverty line, but for any practical purpose in the world today the income cutoff would be too high as only a very small fraction of the world lives on more than $75,000 per year.

FAQs

What is meant by global poverty? ›

Global poverty is defined as the number of people worldwide who live on less than $1.90 a day. A person surviving on less than $1.90 a day lives in extreme poverty, as defined by the World Bank.

Why are some countries throughout the world rich and why are some countries poor? ›

Differences in the economic growth rate of nations often come down to differences in inputs (factors of production) and differences in TFP—the productivity of labor and capital resources. Higher productivity promotes faster economic growth, and faster growth allows a nation to escape poverty.

What is inequality poverty? ›

Inequality is concerned with the full distribution of wellbeing; poverty is focused on the lower end of the distribution only – those who fall below a poverty line (McKay, 2002).

How is poverty and inequality related to each other? ›

Whereas inequality is always a relative concept referring to the differences in quality of life across the distribution of society, poverty can be viewed as an absolute or relative concept depending on how the poverty threshold is defined.

How does global poverty affect people's lives? ›

Issues like hunger, illness, and poor sanitation are all causes and effects of poverty. That is to say, that not having food means being poor, but being poor also means being unable to afford food or clean water. The effects of poverty are often interrelated so that one problem rarely occurs alone.

Why is global poverty an issue? ›

Whether you live in the wealthiest nations in the world or the poorest, you will see high levels of inequality. The poorest people will also have less access to health, education and other services. Problems of hunger, malnutrition and disease afflict the poorest in society.

Why the poor stay poor and the rich stay rich? ›

In a simple explanation: The Rich operates in Abundance mode, while the Poor operates in scarcity mode. Abundance – You give more because you are already in a better position, which in return attracts more returns. And the Rich habit effect is passed on.

Why are rich countries getting richer and poor countries getting poorer? ›

It is commonly believed that the rich states are becoming rich, whereas the poor countries are getting worse with each passing day. The main reason behind this disequilibrium is the unequal distribution and use of resources.

What is the difference between the rich and poor countries? ›

Rich countries often have high GDP and income per capita compared to the poor ones. 2. Rich countries have bigger employment opportunities and mostly have citizens with a positive outlook in life. 3.

How does inequality and poverty affect the economy? ›

Economic stability

A number of economists have argued that inequality leads to economic instability. One mechanism by which this happens is that the rich consume a smaller proportion of their income than the poor. They save money which people on lower incomes would spend.

How does poverty affect the economy? ›

When people are poor, they need their income for subsistence. Due to this, they are unable to invest in human capital, physical capital and their own health. As a result, investments in the economy are reduced, resulting in a less productive workforce.

Why is inequality important for poverty? ›

Inequality is important to poverty because the relative position of individuals or households in society is considered an important aspect of their welfare (Coudouel et al., 2002).

Why is the poor poor How does poverty and inequality effect you? ›

The poor are deprived not just because they lack money but because they are disadvantaged in a range of ways that might include poor access to education and health, little sense of participation in social and political life, low self-worth, and so on.

What are the impact of global inequality and global poverty on Global conflict? ›

Countries in which there is great inequality between rich and poor do not experience more violent conflict than countries with less economic inequality. In contrast, inequalities between groups defined by religion, ethnicity, or regional identities are linked to a significantly higher risk of armed conflict.

What is the difference between poverty and poor? ›

A person can be called poor when they earn an income that does not fully cover all their necessities. A person in poverty is someone who is merely trying to survive. People in poverty may not even have the very basic necessities in life, including food, clothing and shelter.

Who does poverty affect the most in the world? ›

Children and youth account for two-thirds of the world's poor, and women represent a majority in most regions. Extreme poverty is increasingly concentrated in sub-Saharan Africa. About 40% of the region's people live on less than $1.90 a day.

What is poverty and its causes and effects? ›

poverty, the state of one who lacks a usual or socially acceptable amount of money or material possessions. Poverty is said to exist when people lack the means to satisfy their basic needs. In this context, the identification of poor people first requires a determination of what constitutes basic needs.

What are the effects of poverty essay? ›

Ill Effects of Poverty

Poverty affects the life of a poor family. A poor person is not able to take proper food & nutrition &his capacity to work reduces. Reduced capacity to work further reduces his income, making him poorer. Children from poor family never get proper schooling & proper nutrition.

What is poverty and why is it important? ›

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.

How does poverty affect society? ›

Poverty is linked with negative conditions such as substandard housing, homelessness, inadequate nutrition and food insecurity, inadequate child care, lack of access to health care, unsafe neighborhoods, and underresourced schools which adversely impact our nation's children.

What is impact of poverty? ›

Poverty has negative impacts on children's health, social, emotional and cognitive development, behaviour and educational outcomes. Children born into poverty are more likely to experience a wide range of health problems, including poor nutrition, chronic disease and mental health problems.

Who said you don't make the poor richer by making the rich poorer? ›

“Does making the rich poorer make the poor richer?” – a new concept or just a misuse of Sir Winston Churchill's quote “You don't make the poor richer by making the rich poorer”.

Do you agree that in capitalism the rich become richer the poor become poorer Why? ›

No, it is not true. For many decades, the myth that in a capitalist country the rich become richer while the poor become poorer has been spreading all over the world – despite the fact that a quick glance over the facts would show that the economically freer the country, the less poor it is.

Who said The rich get richer and the poor get poorer quote? ›

"The rich get richer and the poor get poorer" is an aphorism due to Percy Bysshe Shelley.

Why are there poor people in a rich country? ›

Economic policies such as low interest rates, used to stimulate the economy through hard times, have led to asset inflation and intergenerational inequality with younger people now making up one of the largest groups of people living in poverty.

Are rich countries getting richer and poor countries poorer? ›

The good news is that inequality seems to be slowing down; the bad news is that innovation-driven economic growth in poorer countries tends to increase competitiveness, but also inequality. So in many ways and in many places the rich are getting richer, while the poor are getting poorer.

Why do we consider a country to be poor? ›

It is widely accepted that countries are poor because their economies don't manage to grow sufficiently. But, perhaps surprisingly, the ability to create growth is not what most poor countries are lacking. In fact, all countries actually have this ability.

How do you think can inequality between rich and poor countries be reduced? ›

Income inequality can be reduced directly by decreasing the incomes of the richest or by increasing the incomes of the poorest. Policies focusing on the latter include increasing employment or wages and transferring income.

How can inequality between rich and poor countries be reduced? ›

Ensure that the wealthiest people and profitable corporations that benefit the most from our political and economic system contribute their fair share: reform “upside-down” tax expenditures (spending through the tax code that disproportionately benefits those with higher incomes), limit corporate welfare, and enact a ...

What is the difference between the rate of consumption of goods in poor and rich countries? ›

Answer. Consumers in the lowest income countries consume about 77% less food than consumers in the highest income countries. So, compared to richer consumers, poorer consumers are not only consuming a larger share of their income on food, they're eating less food.

Why is inequality a problem for society? ›

Inequality is a drag on economic growth and fosters political dysfunction, experts say. Concentrated income and wealth reduces the level of demand in the economy because rich households tend to spend less of their income than poorer ones. Reduced opportunities for low-income households can also hurt the economy.

How does income inequality affect our lives? ›

Effects of income inequality, researchers have found, include higher rates of health and social problems, and lower rates of social goods, a lower population-wide satisfaction and happiness and even a lower level of economic growth when human capital is neglected for high-end consumption.

How does income inequality affect economic growth? ›

In economies characterized by intergenerational rigidities, an increase in income inequality has persistent effects—for example by hindering human capital accumulation— thereby retarding future growth disproportionately.

Why is poverty important issue? ›

Poverty costs our economy billions of dollars annually

Child poverty alone is estimated to cost the U.S. economy more than $500 billion annually in lost productivity, increased health care costs, and higher criminal-justice expenditures.

How poverty affects people's decision-making processes? ›

Childhood poverty: Experiencing or growing up in poverty affects people's lifelong decision-making style. People living in poverty make decisions focused on coping with present stressful circumstances, often at the expense of future goals.

How does poverty influence the development of a nation? ›

Answer: Global poverty has a devastating impact. Poor nations suffer tremendously on human development indicators such as health, education, and mortality. ... Children in poor nations are much more likely than those in wealthy nations to die before age 5 and to suffer from malnutrition and disease.

Why does inequality and poverty matter globally? ›

Inequalities between countries influence poverty levels because countries do not exist in isolation; since the colonial era they have become increasingly connected through various economic, political and social ties, which have a significant effect on development in the developing world.

Why is there a lot of inequality in global cities explain you answer? ›

Answer and Explanation:

There is a lot of inequality in global cities largely because they are much bigger, thus drawing from more diverse sources while sustaining a wider range of economic or political activity. A large global city would attract wealth unlike what other cities can attract.

How important is global inequality? ›

Inequality drives status competition, which drives personal debt and consumerism. More equal societies promote the common good – they recycle more, spend more on foreign aid, score higher on the Global Peace Index. Business leaders in more equal countries rate international environmental agreements more highly.

How does poverty and inequality affect society? ›

Their research found that inequality causes a wide range of health and social problems, from reduced life expectancy and higher infant mortality to poor educational attainment, lower social mobility and increased levels of violence and mental illness.

How do the inequalities of income and wealth contribute towards poverty? ›

Inequalities of income and wealth contribute towards poverty in the following manner: a. Due to income disparities poor are not able to manage their basic necessities of life and become victims of poverty.

What are three consequences of poverty on the community? ›

The direct consequences of poverty are well-known — limited access to food, water, health care or education are a few examples.

What is the relationship between global inequality and global poverty? ›

Results from cross-sectional regression analysis show that there is a significant relationship between globalisation and poverty and income inequality. Globalisation leads to poverty reduction and it reduces income inequality.

How does poverty cause global conflict? ›

Poverty and conflict are widely understood to be closely interconnected; with poverty making countries more prone to civil war, and armed conflict weakening governance and economic performance, thus increasing the risk of conflict relapse (Goodhand 2001).

How does inequality affect countries? ›

Less equal societies have less stable economies. High levels of income inequality are linked to economic instability, financial crisis, debt and inflation.

What is the difference between the rich and the poor? ›

Rich people see money as an opportunity, poor people see it as something to be earned. Rich people are said to make money work for them. Instead of just working and relying on income, a rich person would take a proportion of their income and invest it. Compounded interest works in favour of the rich.

What is the difference between poor and broke? ›

Being poor shapes someone's entire life, and changing that takes a lot more than cutting back or making small changes. But for broke people, financial hardship is temporary – and quick solutions make it possible to overcome that hardship.

What defines poverty? ›

Poverty is measured in the United States by comparing a person's or family's income to a set poverty threshold or minimum amount of income needed to cover basic needs. People whose income falls under their threshold are considered poor. The U.S. Census Bureau is the government agency in charge of measuring poverty.

What do you mean by global poverty class 9? ›

The World Bank standard of poverty line states that all people living under $1 per day live in poverty. Poverty has declined in most regions of the world like China, East Asia and Pacific, South Asia, Latin America and the Caribbean.

What do you mean by global poverty class 12? ›

Answer.: Global poverty refers to low economic growth, low national income and low standard of living of developing or least developed countries.

What is global poverty Wikipedia? ›

This set standard usually refers to "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services."

What is the global poverty rate? ›

Global poverty rates at these higher lines remain very high: 25% of the world lives on less than $3.65 per day – a poverty line broadly reflective of the lines adopted in lower-middle income countries.

What are the causes of poverty explain? ›

Some of the major causes of poverty, with historical perspective, were noted as follows: the inability of poor households to invest in property ownership. limited/poor education leading to fewer opportunities. limited access to credit, in some cases—creating more poverty via inherited poverty.

What is poverty essay? ›

We can define poverty as the condition where the basic needs of a family, like food, shelter, clothing, and education are not fulfilled. It can lead to other problems like poor literacy, unemployment, malnutrition, etc. A poor person is not able to get education due to lack of money and therefore remains unemployed.

What do you understand by the poorest of the poor? ›

A poor is an individual who does not have the minimum essential necessities of life. Women, infants and elderly are considered as the poorest of the poor. This is because, in a poor household, these people suffer the most and are deprived of the maximum necessities in life.

Which poverty is defined with respect to minimum requirements of life? ›

Absolute poverty is when household income is below a certain level. This makes it impossible for the person or family to meet basic needs of life including food, shelter, safe drinking water, education, healthcare, etc.

What is poverty write in your own words? ›

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.

Who does poverty affect the most in the world? ›

Children and youth account for two-thirds of the world's poor, and women represent a majority in most regions. Extreme poverty is increasingly concentrated in sub-Saharan Africa. About 40% of the region's people live on less than $1.90 a day.

What is poverty What are the characteristics of the people living below poverty line? ›

Meanwhile, the characteristics of poverty are: (1) most of them are living in rural areas; (2) their family size are bigger than the average; (3) their main source of income is agricultural sector; (4) lack of resources; (5) low quality of human resource; (6) low income; (7) most of income is used for basic needs; (8) ...

What are the effects of poverty? ›

Poverty is linked with negative conditions such as substandard housing, homelessness, inadequate nutrition and food insecurity, inadequate child care, lack of access to health care, unsafe neighborhoods, and underresourced schools which adversely impact our nation's children.

Should poverty be reduced first or inequality? ›

The message is clear: to end poverty, we must make growth work for the poorest, and one of the surest ways to do that is to reduce high inequality, especially in those countries where many poor people live.”

Is poverty a global issue? ›

For most of us, living on less than $2 a day seems far removed from reality. But it is the reality for roughly 800 million people around the globe. Approximately 10% of the global population lives in extreme poverty, meaning that they're living below the poverty line of $1.90 per day.

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