What is the Difference Between Poverty and Income Inequality

The main difference between poverty and income inequality is that poverty means people do not have enough resources or income to provide the basic necessities of life, whereas income inequality means some people of a country have more income and resources than others.

Although poverty is different from income inequality, these two concepts are distinctly related. Both these measures are important to measure the well-being of a population of a country and their standards of living.

Key Areas Covered

1. What is Poverty
– Definition, Features
2. What is Income Inequality
– Definition, Features
3. Difference Between Poverty and Income Inequality
– Comparison of Key Differences

Key Terms

Income Inequality, Poverty

What is Poverty

Poverty is the state of not having resources or income to provide the basic necessities of life, including food, clean water, clothing, and shelter. Poverty also can involve issues relating to access to services like education, health care, transportation, as well as problems such as marginalization and exclusion. Although most of us associate poverty with income and consumption, sometimes money doesn’t give us the whole picture, so it’s important to use additional factors and approaches to measure poverty. Multidimensional Poverty Index (MPI) and Human Development Index (HDI) are two such approaches. They not only measure the income level and consumption but also factor in the quality of life of people.

Sometimes, poverty is further categorized as absolute poverty and relative poverty. Absolute poverty refers to a state where people’s incomes fall below a line set by a given country. If the income is below this line, people cannot meet their basic needs and have no access to social services like education and health care. Relative poverty, on the other hand, refers to a state where people’s total incomes fall below a certain percentage (usually 50%) of the country’s median income. Since the median income of a country can vary with economic growth, the line for relative poverty also varies. Each country has its own measure of poverty. The World Bank is a well-recognized authority on the topic of poverty and uses a metric known as the International Poverty Line.

What is Income Inequality

Income inequality is the disparity in the distribution of income within a population. In other words, it indicates how unevenly income is distributed in a country. Here, income can involve revenue from salaries, wages, interests on savings accounts, dividends from rent, shares of stocks, profits from sales, etc. The less equal the distribution of income, the higher income inequality is.

There are a number of ways to measure income inequality. The traditional method involves comparing the income level of a relatively broad group of wealthy people (for example, the top 10% or 20% of the population) to the national median income. This method is relatively easy to conduct since data can be easily collected from the Census Bureau and other survey-based sources. Gini coefficient or Gini index is another popular method to calculate income inequality. It gives a single number (percentage) to demonstrate the degree of inequality. A Gini coefficient of 0 indicates precise equality while a higher percentage indicates a higher income inequality (see figure 2 above).

Difference Between Poverty and Income Inequality

Definition

Poverty is the state of not having resources or income to provide the basic necessities of life, including food, clean water, clothing, and shelter, whereas income inequality is the disparity in the distribution of income within a population.

Measures

Poverty measures people whether people have enough resources or income to get the basic necessities of life and whether they have access to services like education and health care. Income inequality, on the other hand, measures how unevenly income is distributed in a country.

Factors

Income inequality only considers income from various sources, whereas poverty also considers other factors like basic necessities of life and access to services like healthcare, education, and transportation.

Conclusion

Poverty measures people whether people have enough resources or income to get the basic necessities of life and whether they have access to services like education and health care. Income inequality measures how unevenly income is distributed in a country. Thus, this is the main difference between poverty and income inequality.