Session Three: POVERTY AND INCOME INEQUALITY
3.1 Objectives
By the end of this lecture, you should be able to:
i. Define poverty and income inequality
ii. Explain the measures of poverty
iii. Explain challenges of hunger
iv. Identify factors contributing to income inequality
3.2 Lecture Overview
Poverty in the world is increasing rather than decreasing. This is the same in Kenya. In Kenya, the
increase in poverty is associated with the decrease of social services by the government, skewed
allocation of resources, poor performance in national examinations, unequal education
opportunities, that has led to income inequalities. The gap between the poor and the rich is
increasing rather than decreasing, leading to skewed development in the country.
3.3 Difference between poverty and income inequality
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.
Income inequality is often associated with the idea of income "fairness." Most people consider it
"unfair" if the rich have a disproportionally larger portion of a country's income compared to the
general population. The causes of income inequality can vary significantly by region, gender,
education and social status. Economists are divided on the implications of income disparity and
whether it is ultimately positive or negative. Income inequality has become increasingly evident
since the 1980s when 30 to 35% of national income went to the top 10% of earners. Since then,
the percent of income going to the top 10% has increased to 50% creating a huge disparity between
high earners and low earners. The issue has become politically and economically divisive
concerning its causes and acceptable solutions. While most economists agree that the growth in
disparity is attributable to unequal education, environment and social interactions, economists do
not fully agree on the specific mechanisms that are driving the increase.
3.4 Measures of poverty
i. Absolute poverty
Absolute poverty is defined as the number of people who are unable to command sufficient
resources to satisfy basic needs. They are counted as the total number living below a
specified minimum level of real income, an international line, which is living below a
dollar a day.
ii. Relative poverty
Relative poverty refers to a standard which is defined in terms of the society in which an
individual lives, and which therefore differs between countries and over time.
3.5 Vicious circle of poverty
This refers to a self-reinforcing situation whereby certain factors exist that tends to perpetuate an
undesirable phenomenon. In developing countries, the vicious circle of poverty can be viewed
from the demand side and the supply side. The demand side implies that low levels of income lead
to low level of demand, which in turn lead to low rate of rates of investment and a corresponding
deficiency of capital, low productivity and low income. From a supply side perspective, low
productivity implies low real income, which in turn implies low savings and low level of
investment that contributes to deficiency of capital. The deficiency of capital contributes to a low
level of productivity and low income.
Lack of capital contributes to a low level of productivity which in turn leads to a low income and
a low capacity to save. Low savings results in low investments or capital formation which
perpetuates the lack of capital.
3.6 Poverty and hunger
World population is estimated to be 7 billion.
795 million people or one in nine people in the world, do not have enough to eat.
90% of the world’s undernourished people live in developing countries.
Where is hunger the worst?
Asia 525.6 million.
Sub-Saharan Africa 214 million.
Latin America and the Caribbean 37 million.
Aiming at the very heart of hunger, the Hunger Project launched in 2003, is currently committed
to work in Bangladesh, Benin, Ghana, Malawi, Mexico, Burkina Faso, Ethiopia, India,
Mozambique, Peru, Senegal and Uganda.
Women and children
60% of the world’s hungry are women.
50% of pregnant women in developing countries lack proper maternal care, resulting in
240,000 maternal deaths annually from child birth.
1 out of 6 infants are born with a low birth weight in developing countries.
Poor nutrition causes nearly half (45%) of deaths in children under five (3.1 million
children each year, which is 8,500 children per day.
A third of all children death in Sub-Saharan Africa is caused by hunger.
66 million primary school age children attend classes hungry across the developing world,
with 23 million in Africa alone.
Every 10 seconds, a child dies from hunger related diseases.
The Hunger Project firmly believes that empowering women to be key change agents is an
essential element to achieving the end of hunger and poverty. Wherever the Hunger Project works,
their programmes aim to support women and build their capacity.
HIV/AIDS and other diseases
35 million people are living with HIV and AIDS.
52% of people living with HIV and AIDS are women.
88% of all children and 60% of all women living with HIV are in Sub-Saharan Africa.
6.9 million children died in 2011, each year 19,000 a day, mostly from preventable health
issues, such as malaria, diarrhea and pneumonia.
The Hunger Project’s HIV/AIDS and gender inequality campaign works at the grassroots level to
provide education about preventive and treatment measures.
Poverty
1.4 billion people in developing countries live on $1.25 a day or less.
Rural areas account for three out of every four people living on less than $1.25 a day.
22,000 children die each day due to condition of poverty.
Rural Hunger Project partners have access to income-generating workshops, empowering their
self-reliance. Their Micro-finance programme in Africa provides access to credit, adequate
training and instilling in their partners the importance of saving.
Agriculture
75% of the world’s poorest, 1.4 billion women, children and men, live in rural areas and
depend on agriculture and related activities for their livelihood.
50% of hungry people are farming families.
In each region in which the Hunger Project works, the project provides tools and training to
increase farming production at the local level in Africa. Their epicenter partners run community
farms where they implement new techniques while producing food for the epicenter food bank.
Water
1.7 billion people lack access to clean water.
2.3 billion people suffer from water-borne diseases each year.
12% of the world’s population uses 85% of its water and none of the 12% lives in
developing countries.
The Hunger Project works with communities to develop new water resources, ensure clean water
and improved sanitation, and implement water conservation techniques.
3.7 Challenge of hunger
Besides acute famine, there is a much bigger problem of chronic hunger in developing countries.
Hunger has been described as a condition in which people lack the basic food intake to provide
them with the energy and nutrients for fully productive lives. Effects of this are: -
High mortality rate
Susceptibility to diseases
Less schooling
3.8 Contributing Factors to Income Inequality
i. Education is known to affect societal equality. Certain social-economic groups do not have
access to quality education in the United States, particularly at the secondary school level.
In countries that provide higher-quality secondary education across the economic
spectrum, there is much less income disparity.
ii. Competition for talent creates a salary divide. There is much more competition for high
quality executive talent, which has driven salaries for executives higher relative to the level
of generated productivity. Big bonuses and other incentives have led to inflated executive
salaries.
iii. Stagnant wages also play a big role in inequality. The median income for low- to middle
income workers has been mostly stagnant since 2007 while executive compensation has
increased. The diminished influence of labor unions has also led to flat or declining wages
among workers.
iv. Family and social interactions impact earning potential. Social and emotional skills critical
to leading a quality life are not sufficiently developed in economically distressed areas with
a high percentage of low-income families.
v. Increased demand for high-skilled workers adds to a widening wage gap. Companies are
investing heavily to develop a highly skilled workforce, which is driving wages up for
high-skilled workers. This leads to the de-emphasis or automation of low-skilled functions
pushing down wages for low-skilled workers.
3.9 Summary
In summary, the lecture aimed at defining Define poverty and income inequality, identifying
measures of poverty, Vicious circle of poverty, Poverty and hunger, challenges of hunger and
discussing factors contributing to income inequality
3.10 Self-Assessment Questions
i. Explain five groups that are mostly affected by poverty in developing countries.
ii. Discuss issues that brings about income inequality?
3.11 Further Reading
Sowell, T. (2015). Wealth, Poverty and Politics: An International Perspective. New York: Basic
Books. ISBN-13: 978-0465082933.
