Absolute and relative poverty

Two definitions

• Absolute poverty: income too low to meet basic needs (food, water, shelter, clothing). Measured against a fixed line. The World Bank's international poverty line was raised in June 2025 to $3.00 a day in 2021 purchasing power parity (PPP) prices, from $2.15 in 2017 PPP. It also uses higher lines for lower-middle-income ($4.20) and upper-middle-income ($8.30) countries.
• Relative poverty: income well below the average in a society, so people cannot take part in normal activities. Commonly measured as household income below 60% of median income (a measure used in the UK and EU).

A country can reduce absolute poverty while relative poverty rises, if incomes at the top grow faster.

Recent data

Using the $3.00 line, the World Bank estimated that about 838 million people lived in extreme poverty in 2022. The update raised the earlier estimate (713 million under the $2.15 line) by about 125 million, because of the new line and new PPP data. It projected that about 9% of the world's population would still be in extreme poverty in 2030.

Source: World Bank, June 2025

Causes of changes in poverty

• Economic growth: creates jobs and raises incomes (trickle down), the main driver of falling absolute poverty; but gains may bypass the poorest.
• Education and training: raise skills and earning power.
• Welfare benefits: transfers lift incomes; cuts raise relative poverty.
• Changes in tax structure: more progressive taxes reduce relative poverty; higher indirect taxes hit the poor hardest.
• Structural change: decline of industries causes unemployment in particular regions.
• Aid: can fund health, education and infrastructure.
• Civil wars and conflict: destroy assets and infrastructure, displace people, and can sharply increase poverty.

Worked example

Median household income is $36,000. Using the 60% of median measure, what is the relative poverty line?

1. 60% of 36,000 = 0.6 x 36,000

Answer: $21,600

Check yourself

1. Median household income is $28,500. Calculate the relative poverty line using 60% of the median.
   Show answer

   $17100. 0.6 x 28,500 = $17,100.

2. Using the World Bank's $3.00 a day line, calculate the annual income at the line (365 days).
   Show answer

   $1095. 3 x 365 = $1,095 a year.

3. The World Bank's estimate of extreme poverty rose from 713 million to 838 million after the June 2025 update. Calculate the percentage increase to 1 decimal place.
   Show answer

   17.5 %. (838 - 713) / 713 x 100 = 17.5%.

4. Which is a measure of absolute poverty?
   • The share of households below 60% of median income
   • The Gini coefficient
   • The ratio of top to bottom income shares
   • The share of people living on less than $3.00 a day (2021 PPP)
   Show answer

   The share of people living on less than $3.00 a day (2021 PPP). A fixed line based on basic needs measures absolute poverty.

5. Real incomes of all households rise, but the incomes of the richest rise fastest. What is most likely to happen?
   • Absolute and relative poverty must rise together
   • Absolute poverty falls while relative poverty may rise
   • Relative poverty must fall
   • Absolute poverty rises
   Show answer

   Absolute poverty falls while relative poverty may rise. Everyone is better off in absolute terms, but the poor fall further behind the median.

6. Explain how civil war can increase absolute poverty.
   Show answer

   Conflict destroys infrastructure, homes and businesses, displaces people from their land and jobs, and disrupts food supplies and services, so incomes fall below the poverty line.. Conflict destroys the means of earning a living.

7. Explain how a shift from income tax to sales taxes could affect relative poverty.
   Show answer

   Sales taxes are regressive, taking a larger share of income from low-income households, while cutting income tax helps higher earners most; so the poor fall further behind the median and relative poverty rises.. Changing the tax mix changes the distribution.

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Sources

• Pearson Edexcel International Advanced Level in Economics specification (issue 2)
• World Bank factsheet: June 2025 update to global poverty lines

Last updated 8 November 2026. Spotted a mistake? Tell us.