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Unlock This CourseGovernments cannot just wish poverty away. They use policies. Some policies aim to alleviate poverty, which means to make poverty less severe or to lift people out of it. Others aim to redistribute income, which means moving income from richer groups towards poorer groups, so that income is shared more fairly. Many policies do both jobs at once.
Key terms:
No policy is perfect. Each one has a cost, and each one has people who lose out. That is why every policy below comes with a drawback as well as a benefit.
How it helps: a growing economy creates more jobs and raises incomes. People who find work can move out of poverty, and the government collects more tax to spend on public services.
Drawback: growth does not automatically reach the poorest. If the new income goes mostly to the richest households, the gap between rich and poor can even widen. Growth can also take many years.
How it helps: better schools and colleges give people skills. Skilled workers can get better-paid jobs, so their income rises and they are less likely to be unemployed.
Drawback: it is expensive, and it takes many years before today's pupils reach the labour market. It only works if jobs exist that use the new skills.
Remember that the different ways a government can aim for growth are covered in the lesson Policies to Promote Economic Growth. Here we only look at how growth can help the poor.
How it helps: healthy people can work more often and earn more. Free or cheap healthcare also stops families falling into poverty because of medical bills.
Drawback: a good health service costs a great deal of government money. That money could have been spent on something else, which is an opportunity cost. Clinics may also be missing in remote areas.
How it helps: households receive extra income at once, so they can afford food, heating and housing. This is a direct form of redistribution, because it is paid for by taxes, and in a progressive tax system more of this comes from higher earners.
Drawback: it costs the government more, which may mean higher taxes or more borrowing. Some people may feel less need to look for work, so it can weaken incentives.
Remember, a progressive tax takes a higher percentage of income from people with higher incomes.
How it helps: richer people pay a bigger share, which reduces the gap between rich and poor after tax. The revenue can pay for benefits, schools and hospitals.
Drawback: high rates may reduce the incentive to work harder or to earn more. Some people may try to avoid tax or move their money abroad.
Remember, the NMW is a legal minimum that employers must pay.
How it helps: low-paid workers earn more for each hour, so household incomes rise and the pay gap narrows.
Drawback: if it is set above the equilibrium wage, firms may hire fewer workers, so some people lose their jobs. Firms may also raise their prices to cover higher wage bills.
| Policy | How quickly it helps | Main cost or risk |
|---|---|---|
| Economic growth | Slow | May not reach the poorest |
| Education | Very slow | High cost, long wait |
| Healthcare | Medium (as clinics are built and used) | High cost to the government |
| State benefits | Fastest (income arrives straight away) | Cost, and possible weaker work incentive |
| Progressive taxation | Fast | May reduce incentives, tax avoidance |
| NMW | Fast | Possible job losses |
So which policy is best? There is no single answer. It depends on the country, on how much the government can afford and on what the causes of poverty are. A country with a lot of unemployment may need growth and training. A country with many elderly people in poverty may need more generous benefits.
The made-up country of Aldovia has a government with $10 billion to spend on fighting poverty. It can raise state benefits for families now, or build technical colleges.
Benefits: families get extra money straight away, so poverty falls this year. But the money is spent once and does not create new skills.
Colleges: the first graduates may take three or four years to arrive, but they can earn higher wages for their whole working lives.
A good answer says that benefits help fastest, colleges help for longest, and the government may choose a mix of the two.
1. Saying a policy "gets rid of" poverty. Policies reduce it, they rarely end it.
2. Giving only the benefit of a policy. Cambridge questions often ask for both sides.
3. Saying progressive tax means everyone pays the same percentage. It does not: higher earners pay a higher percentage.
4. Forgetting that benefits, health and education all need money, and that taxes or borrowing pay for them.
Carnelia is a country where 1 in 5 people live on very low incomes. The government plans to raise its national minimum wage and to give larger payments to the poorest families.
(a) Define state benefits. [2 marks]
(b) Explain how a higher national minimum wage could help people on low incomes. [3 marks]
(c) Discuss whether more generous state benefits would be a good way for Carnelia to reduce poverty. [6 marks]
(a) State benefits are payments made by the government (1) to people who need extra support, such as the unemployed, the sick or the elderly (1).
(b) Workers on the lowest pay would earn more for every hour they work (1). Their household income would rise, so they could afford more food and housing (1). The gap between the lowest-paid and other workers would also narrow (1).
(c) More generous benefits would give poor families extra income straight away (1), so they could afford basic needs and poverty would be reduced quickly (1). The money comes from taxes, and in a progressive system more comes from higher earners, so it also redistributes income (1). However, benefits cost the government a lot, which may mean higher taxes or borrowing (1). Some people may also have less reason to look for work (1). Overall, benefits are a good short-term way to reduce poverty, but they do not solve its causes, so Carnelia may also need education and job creation (1). (Up to 6 marks for a balanced answer with a reasoned conclusion.)
In a "Discuss" question, write one paragraph for the benefits, one for the drawbacks, and finish with a short judgement that refers back to Carnelia.