Poverty gap

From CEOpedia | Management online

The poverty gap is a measure of economic inequality used to describe the difference between a population's average income and the income of the poorest members of that population. In other words, it is the difference between the average income of the wealthiest people in a population and that of the poorest. It is a way of measuring the relative poverty of a group of people and is used to measure the extent of economic inequality. It is an important tool in management for understanding the dynamics of inequality and formulating strategies to address it.

Example of poverty gap

  • In the United States, the poverty gap between the richest and poorest households was estimated at $30,397 in 2018. This means that the average household income of the wealthiest 20 percent of households was $131,186, while the average household income of the poorest 20 percent of households was only $100,789.
  • In the United Kingdom, the poverty gap between the top and bottom 10 percent of households is estimated at £15,000 in 2020. This means that the average household income of the wealthiest 10 percent of households was £57,300, while the average household income of the poorest 10 percent of households was only £42,300.
  • In India, the poverty gap between the richest and poorest states was estimated at Rs. 1,00,000 in 2018. This means that the average household income of the wealthiest states was Rs. 6,00,000, while the average household income of the poorest states was only Rs. 5,00,000.
  • In China, the poverty gap between urban and rural areas is estimated at around 15,000 yuan in 2020. This means that the average household income of urban areas was 59,000 yuan, while the average household income of rural areas was only 44,000 yuan.

When to use poverty gap

The poverty gap is an important tool for understanding the dynamics of economic inequality and formulating strategies to address it. It can be used in a variety of situations, such as:

  • In policymaking, to measure the effectiveness of government policies in reducing the gap between the wealthy and the poor.
  • In assessing economic development initiatives, to evaluate their impact in improving the standard of living of the least advantaged.
  • In poverty reduction programmes, to measure how much progress has been made in reducing economic inequality.
  • In measuring the impacts of economic shocks, to gauge the extent of the impact on the poorest people in a society.
  • In evaluating the impacts of taxation and public spending, to assess how progressive these measures are in addressing economic inequality.
  • In designing social safety nets, to understand the extent to which these programmes can reduce poverty.

Types of poverty gap

The poverty gap is a measure of economic inequality used to describe the difference between a population's average income and the income of the poorest members of that population. There are several types of poverty gaps that can be used to measure the relative poverty of a group of people and the extent of economic inequality. These include:

  • Relative Poverty Gap - This measures the difference between the mean income of the poorest 20% of a population and the average income of the population as a whole.
  • Absolute Poverty Gap - This measures the difference between the average income of the poorest 20% of the population and a poverty line set by the government or other institution.
  • Intergenerational Poverty Gap - This measures the difference between the average income of the poorest 20% of a population across generations. This type of poverty gap is used to understand how poverty is perpetuated from generation to generation.
  • Gender Poverty Gap - This measures the difference between the average incomes of men and women in a given population. This type of poverty gap is used to understand the gender-based disparities in incomes.
  • Regional Poverty Gap - This measures the difference between the average incomes of different regions in a given population. This type of poverty gap is used to understand regional disparities in incomes.

Advantages of poverty gap

The poverty gap is an important tool in understanding the dynamics of inequality and formulating strategies to address it. The advantages of using the poverty gap as a measure of economic inequality include:

  • It provides a comprehensive measurement of inequality, which can be used to compare different countries or regions.
  • It can be used to track the progress of poverty-reduction policies and can be used to measure the effectiveness of such policies.
  • It can help to identify causes of economic inequality and can be used to inform public policy decisions.
  • It can also be used to assess the impact of globalisation on poverty levels.
  • It provides a metric for comparison between countries, allowing governments to identify which countries have higher levels of inequality and which countries have lower levels.
  • It can help to identify the most suitable policies for reducing poverty and inequality in a given region.

Limitations of poverty gap

The poverty gap is an important tool for understanding economic inequality, but it has its limitations. These include:

  • It does not take into account the total wealth of a society. It only looks at the average income of the wealthiest and poorest members of a population, and does not consider how much wealth is held by those in the middle.
  • It does not account for regional variations in income and wealth. For example, the poverty gap in a city may be different from that in a rural area.
  • It does not take into account the differences in access to resources, such as education and health care, that can contribute to poverty.
  • It does not consider the different social and economic circumstances of different population groups, such as racial or ethnic minorities.
  • It does not measure the depth of poverty, or the number of people in poverty. It only measures the distance between the average income of the wealthiest and poorest members of a population.
  • It does not take into account non-monetary forms of wealth, such as access to safe housing, clean water, and healthcare.

Overall, while the poverty gap is a useful tool for understanding economic inequality, it is important to consider its limitations when using it to evaluate the success of poverty reduction efforts.


Poverty gap — recommended articles
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References

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