The World Bank estimates that in 2015 700 million people were living in extreme poverty under the updated international poverty line of USD 1.90 a day, and that about one billion people rose out of extreme poverty between 1990 and 2015 (World Bank, 2016). There was a decline in global income inequality between 2000 and 2015, with the global Gini decreasing from 75 per cent to 62 per cent (World Bank, 2016). Levels of income inequality have fallen in some countries, especially in Latin America, while in others they have risen, especially in high-income countries (World Bank, 2016). Globally, wealth inequality has also increased: almost half of the world’s wealth is now owned by just one per cent of the population (Hardoon, 2015). Despite progress on reducing health and income inequalities, large inequalities in health, education, and nutrition persist within and across both social groups and different regions within countries (UNDP, 2015). High levels of poverty and inequality have been found to be detrimental to people’s quality of life and life opportunities, and to countries’ growth and security (Ravallion, 2009; Hulme, 2010; CPRC, 2009; Ostry et al., 2014; Stewart, 2010).
This topic guide introduces key readings and debates onpoverty and inequality. Section 1 introduces the different definitions that affect how poverty and inequality are measured and addressed. There are many theoretical and empirical debates about the meaning and measurement of poverty and inequality.
Narrow understandings of poverty see it largely in monetary terms. Absolute poverty is poverty below a set line of what is required to access minimum needs for survival. It is the official measure in many developing countries. The global absolute poverty line is currently USD 1.90 a day, although some argue it should be higher. Relative poverty is set in relation to others and is used in many developed countries. There is increasing acceptance that poverty is multidimensional and that other aspects of people’s well-being ‒ such as health, education, nutrition, or even socio-cultural differences and power relations ‒ need to be measured too. Some people are chronically poor, while others are transiently poor. Poverty is related to, yet distinct from, inequality.
Inequality refers to disparities and discrepancies in areas such as social identity, income, education, health, nutrition, space, politics, outcomes and opportunities. As with poverty, measurement of inequality has tended to focus on income, but efforts to measure non-income inequalities are increasing.
All measures and sources of data on poverty and inequality need to be treated with a degree of caution, particularly data on fragile and conflict-affected countries. In addition, the unit of measurement needs to be considered: for instance, if poverty is measured at the household level, poverty within a household may be hidden ‒ especially that of women and girls.
Section 2 looks at poverty and inequality trends and predictions. There has been considerable progress in global poverty reduction, although the extent of that progress is debated (World Bank, 2016; ADB, 2014). The poorest counties and the very poorest within those countries have tended to be left behind (World Bank, 2016). Increasing numbers of absolutely poor and multidimensionally poor people live in urban areas and in middle-income countries, especially China and India, although most still live in rural areas (Satterthwaite & Mitlin, 2014; World Bank, 2016). The impact of climate change threatens to derail international efforts to eradicate extreme poverty by 2030 (Shepherd et al., 2013).
Progress on inequalities is uneven. In recent years income inequality globally and within many countries has decreased, but in some countries it has risen (World Bank, 2016). Some success in reducing income inequality has come with the expansion of education and public transfers to the poor (UNDESA, 2013). Inequalities between marginalised groups and the rest of the population have persisted (UNDP, 2015). Sustainable Development Goal 10 is to reduce inequality within and among countries.
Poverty and inequality projections are highly speculative. The 2030 poverty target of three per cent is aspirational, but possibly attainable under an optimistic scenario.
Section 3 on understanding and addressing extreme poverty and inequality discusses why poverty and inequality matter; their drivers; the people they affect; and policies for poverty and inequality reduction.
Poverty reduces people’s quality of life, and countries with a higher incidence of poverty tend to face worse growth prospects (Hulme, 2010; Ravallion, 2009). Extreme poverty is concentrated among the most disadvantaged people: those in remote and rural areas, those at most risk from the effects of climate change, the young, the old, ethnic minorities and those with some form of disability (Greenhill et al., 2015). Poverty can be transmitted across generations (Behrman et al., 2013).
Inequality is a challenge to the eradication of extreme poverty and tends to reduce the pace and durability of growth (UNICEF et al., 2014; Ostry et al., 2014). Inequalities have also been found to undermine social cohesion and increase the risk of violent conflict (UNDP, 2013; Stewart, 2010). Inequality undermines social justice and human rights. Inequalities have resulted in the poorest people ‒ including many women, youth, older people, people with disabilities, indigenous peoples and rural populations ‒ making less progress towards development goals (Kabeer, 2010; World Bank, 2013). Economic, political, and social inequalities tend to reproduce themselves over time and across generations (World Bank, 2006).
There is some overlap between those affected by poverty and those negatively affected by inequality, although it is important to note that certain groups and individuals are disproportionally affected. Deprivation or inequality in one dimension can impact other dimensions: for example, social inequality can lead to economic inequality (Sumner, 2013; Kabeer, 2010).
It is important to understand the drivers of poverty and inequality in order to combat them effectively.
- Drivers of poverty include: shocks; lack of inclusive economic growth and jobs; insecure jobs and low wages; limited opportunities; low capabilities; inequality; poor governance; weak civil society; lack of respect for human rights; climate change; the global recession; violent conflict and displacement; and an individual’s human capital, physical and social assets, and behaviour.
- Drivers of all forms of inequality include: globalisation processes; domestic policies; returns on capital; income inequality; discriminatory attitudes; and structural drivers and barriers.
Poverty and inequality reduction polices need to be tailored to specific contexts. Poverty reduction measures include: pro-poor economic growth; well-designed social transfers; support for human capabilities; action to tackle exclusion and inequality; strategic urbanisation and migration; and good governance.
Responses to inequality need to be match the complexity and many dimensions of its drivers, and require strong consensus at all levels. Inequality reduction measures include: inclusive growth; support for education and job creation to benefit all; effective and fair redistribution; fiscal policies that promote equality; open and responsive governments; action to challenge prejudices and cultural norms that underpin discrimination; the realisation of human rights for all; universal, good quality essential services; well-designed social protection; and investment in all children.
- Behrman, J. R., Schott, W., Mani, S., Crookston, B. T., Dearden, K., &Duc, L. T., … The Young Lives Determinants and Consequences of Child Growth Project Team. (2013). Intergenerational transmission of poverty and inequality: Young lives (Working Paper 117). Young Lives.
- Asian Development Bank. (2014). Key indicators for Asia and the Pacific 2014. Mandaluyong City, Philippines: Asian Development Bank.
- Hardoon, D. (2015). Wealth: Having it all and wanting more. Oxford: Oxfam GB.
- Hulme, D. (2010). Global poverty: How global governance is failing the poor.Abingdon, UK: Routledge.
- Kabeer, N. (2010). Can the MDGs provide a pathway to social justice? The challenge of intersecting inequalities. Brighton: Institute of Development Studies.
- Ostry, J. D., Berg, A., & Tsangarides, C. G. (2014). Redistribution, inequality, and growth. Washington, DC: IMF.
- Ravallion, M. (2009). Why don’t we see poverty convergence? (Policy Research Working Paper Series 4974). Washington, DC: World Bank.
- Satterthwaite, D., & Mitlin, D. (2014). Reducing urban poverty in the global south. Abingdon, UK: Routledge.
- Shepherd, A., Mitchell, T., Lewis, K., Lenhardt, A., Jones, L., Scott, L., & Muir-Wood, R. (2013). The geography of poverty, disasters and climate extremes in 2030. London: ODI.
- Stewart, F. (2010). Horizontal inequalities as a result of conflict: A review of CRISE findings (Overview, No. 1. Oxford: Centre for Research on Inequality, Human Security and Ethnicity.
- Sumner, A. (2013). Who are the poor? New regional estimates of the composition of education and health ‘poverty’ by spatial and social inequalities (Working Paper 378). London: ODI.
- UNDP. (2013). Humanity divided: Confronting inequality in developing countries. New York: UNDP.
- UNDP. (2015). Human development report 2015: Work for human development. New York: UNDP.
- UNDP. (2013). Humanity divided: Confronting inequality in developing countries. New York: UNDP.
- UNICEF, UN Women, UNDP, & OHCHR. (2014). TST issues brief: Promoting equality, including social equity. UNICEF, UN Women, UNDP & OHCHR.
- World Bank. (2006). World development report 2006: Equity and development. New York: Oxford University Press for the World Bank.
- World Bank. (2016). Global monitoring report 2015/2016: Development goals in an era of demographic change. Washington, DC: World Bank.
- Greenhill, R., Carter, P., Hoy, C., & Manuel, M. (2015). Financing the future: How international public finance should fund a global social compact to eradicate poverty. London: ODI.