Question: Assess the causes of poverty.
One cause of poverty is unemployment. An unemployed person earns no wage, they may not be able to buy necessities (water, food and clothing) and fall into absolute poverty. An unemployed person could receive benefits to take them out of absolute poverty but their income may still be inadequate to afford a TV or radio so they fall into relative poverty.
But, people may be voluntarily unemployed, they may be rich enough to afford luxuries so they are not in poverty. Also, an unemployed person may have savings or other sources of income. For example, they may have an asset earning them an income (a house earning rent).
Another cause of poverty is the education system. A poor education means a person has low human capital, their skills and marginal productivity of labour are low so they are likely to get low paid jobs and fall into absolute poverty. In the UK, someone with a university degree earns on average £100k more in their lifetime than someone without.
However, the type and quality of education will affect how much someone earns. A Palaeontology degree at university may not earn an individual that much money once in a job digging up dinosaur bones.
Poor health is another cause of poverty. AIDS or other health problems mean workers are less productive and they cannot work as hard or as long. They may also need to take many days off work. So the worker receives less income and may fall into absolute or relative poverty.
On the other hand, an ill person could go to hospital and get treatment, cure their illness and return to work.
Lastly, poverty could be caused by capital markets. Most poor people have no access to credit as they have no collateral. A bank will not lend to a poor person with no wealth as they are too risky. Also, in LDCs especially, there may be asymmetric information as banks may not know rural farmers’ credit worthiness so banks do not lend to them. This means the poor may not have access to credit to develop a business or their human capital so they remain on low incomes and are stuck in poverty.
Although, the development of microfinance means it is now easier for the poor to obtain small loans and help themselves out of poverty.