🔍 Causes of Inequality and Poverty
- Unequal access to education — those with less education earn lower wages and have fewer opportunities.
- Labour market discrimination — gender, race, and other biases reduce earnings for marginalised groups.
- Unequal ownership of assets — wealth (land, capital, shares) is distributed even more unequally than income.
- Tax and transfer systems — weak or regressive tax systems fail to redistribute effectively.
- Globalisation and technology — skilled workers benefit; low-skilled face wage stagnation or displacement.
- Institutional factors — corruption, weak rule of law, and poor governance trap people in poverty.
- Geography and conflict — landlocked countries, resource-poor regions, and war-torn areas face structural disadvantages.
For essays, distinguish between domestic causes (education, tax policy, discrimination) and global/structural causes (trade patterns, colonial legacies, climate vulnerability). This shows deeper analysis.
⚠️ Consequences of Inequality and Poverty
Economic consequences
- Lower economic growth — inequality can reduce aggregate demand (the poor have a higher marginal propensity to consume).
- Wasted human potential — talented people trapped in poverty can't develop their skills → lower productivity.
- Health and education gaps — the poor have worse health and education outcomes → reduces future workforce quality.
- Social instability — extreme inequality can lead to protests, crime, and political instability → deters investment.
Social consequences
- Reduced social cohesion and trust.
- Worse physical and mental health outcomes across society (not just for the poor).
- Intergenerational poverty — children born into poverty are more likely to stay poor.
- Democratic erosion — extreme wealth concentration can distort political power.
The IB syllabus emphasises that inequality matters for economic outcomes, not just fairness. High inequality can slow growth, reduce efficiency, and undermine stability.
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🛠️ Policy Responses
- Progressive taxation and transfers — tax higher incomes more, redistribute through benefits and pensions (Lorenz curve shifts toward equality).
- Investment in education and healthcare — equalises opportunity, raises productivity of the poor.
- Minimum wages — raise pay for the lowest earners (but may cause unemployment if set too high).
- Anti-discrimination legislation — ensures equal pay for equal work.
- Land reform and asset redistribution — addresses wealth inequality directly (politically difficult).
- Social safety nets — unemployment benefits, food programmes, and conditional cash transfers protect the most vulnerable.
Every redistribution policy has trade-offs. High taxes may reduce incentives; generous welfare may create dependency; minimum wages may cause job losses. Always evaluate both sides.
Real-world example: Brazil's Bolsa Família programme provides cash transfers to poor families conditional on children attending school and getting vaccinated. It has reduced extreme poverty and improved educational outcomes — a widely studied success story.