Core Concepts
Inequality describes the shape of an entire distribution. Poverty describes falling below a specific threshold within it. Social exclusion is a process that cuts individuals off from social participation.
Measuring Poverty
- Absolute poverty counts those unable to afford a fixed basket of basic necessities. In his York study, Seebohm Rowntree identified two forms:
- primary poverty: income is strictly insufficient for physical survival.
- secondary poverty: income is sufficient, but absorbed by other expenditure.
- Relative poverty defines the threshold by the resources needed to participate in society.
The at-risk-of-poverty threshold is 60 per cent of national median equivalised disposable income.
The modified OECD equivalence scale assigns weights:
- 1.0 to the first adult,
- 0.5 to each person aged 14 or over,
- 0.3 to each child under 14.
AROPE is broader: at risk of poverty, severely deprived, or in a very low work-intensity household.
Income Gini coefficients measure overall inequality across the distribution.
Shifting Baselines and Key Theories
A relative threshold moves with the distribution over time.
| Scenario | Median income | Poverty threshold | Measured poverty rate |
|---|---|---|---|
| Incomes fall uniformly by 10 per cent | Falls 10 per cent | Falls 10 per cent | Roughly unchanged |
| Middle loses more than bottom | Falls | Falls | Can fall |
| Only the top gains | Roughly flat | Roughly flat | Roughly unchanged |
In Spain between 2008 and 2013, median income plummeted. As a result, the relative poverty rate hid the real deterioration. An anchored poverty rate fixes the threshold in real terms against a base year to correct for this.
Broader Perspectives
- Social exclusion tracks multidimensional ruptures from employment, institutions, and civic life.
- Amartya Sen's capability approach assesses what people can actually be and do.
- Thomas Piketty showed that wealth is distributed far more unequally than income.
- Wilkinson and Pickett argue that income inequality itself drives poor social and health outcomes.
Common pitfall: assuming relative poverty can never fall. It is fixed to 60 per cent of the median, not a bottom percentile. Compressed distributions reduce poverty rates, as several European nations demonstrate.