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What is
relative income poverty?
Poverty
• This can be thought of as absolute e.g. the number of
people living on less than £1 or $1 a day (or less than
what is needed for a minimum standard of living)
• Or as relative – e.g. a person can be in relative
poverty if their situation is a certain amount below the
average
Relative Income Poverty
• In developed countries the main measure of poverty is
relative income poverty.
• We measure the number of people who are living in a
household where the household income is less than
60% of the median household income in the UK.
• This is an internationally recognised way of measuring
poverty.
What does this mean?
Imagine a simplified world:
• There are 100 households each with 1 person
• There is £10,000 to be earned each week
£10,000100 people
• If everyone earned the same there would be 100
people each earning £100 per week
£10,000 = £100 per person, per week
100
So what would the median be?
• The median income is the middle income, in other
words, if we wrote out all the incomes from smallest to
largest, the median would be the one in the middle.
£ £ £ £ £ £ £ £ £
Median incomeLowest
income
Highest
income
• So in this all equal world, the median weekly income =
£100 because this is what everyone earns.
• 60% of the median income = 60% of £100 = £60
• The number of people earning less than £60 per week
is zero
• No one is living in relative income poverty because
everyone earns the same amount.
Income distribution in this
hypothetical, all-equal world
Weekly income bands
Number of people
0
10
20
30
40
50
60
70
80
90
100
Under
£10
£10 to
£20
£21 to
£30
£31 to
£40
£41 to
£50
£51 to
£60
£61 to
£70
£71 to
£80
£81 to
£90
£91 to
£100
£101 to
£110
£111 to
£120
£121 to
£130
£131 to
£140
£141 to
£150
Relative income
poverty line
No one is in relative income poverty
Everyone is
earning the
same so there is
only one bar
60% of the median income = £60
Imagine a slightly different spread of income in our simplified world:
• There are still 100 households each with 1 person
• There is still £10,000 to be earned each week
£10,000100 people
In reality, people earn different amounts-
does this mean there will always be people in relative income
poverty?
However, this time:
30 people earn £80 per week
40 people earn £100 per week
30 people earn £120 per week
The median income is still £100
(see how the median is calculated at the end of this presentation)
So 60% of the median income is still £60
Nobody is earning below £60 a week – so even though people earn
different amounts there are still no people living in relative income
poverty.
0
10
20
30
40
50
60
70
80
90
100
Under
£10
£10 to
£20
£21 to
£30
£31 to
£40
£41 to
£50
£51 to
£60
£61 to
£70
£71 to
£80
£81 to
£90
£91 to
£100
£101 to
£110
£111 to
£120
£121 to
£130
£131 to
£140
£141 to
£150
Income distribution in this
hypothetical world
Weekly income bands
Number of people
No one is in relative income poverty
Relative income
poverty line
60% of the median income = £60
We are still in our simplified world:
• There are still 100 households each with 1 person
• There is still £10,000 to be earned each week
£10,000100 people
What if the difference in incomes is larger?
However, this time:
• 3 people earn £30 per week
• 7 people earn £50 per week
• 20 earn £80
• 40 earn £100
• 30 earn £130
The median income is still £100 (as 30 people earn below £100 and 30
people earn above £100)
So 60% of the median income is still £60.
But now, because of the way income is distributed, there are 10 people
living in relative income poverty.
0
5
10
15
20
25
30
35
40
45
Under
£10
£10 to
£20
£21 to
£30
£31 to
£40
£41 to
£50
£51 to
£60
£61 to
£70
£71 to
£80
£81 to
£90
£91 to
£100
£101 to
£110
£111 to
£120
£121 to
£130
£131 to
£140
£141 to
£150
Income distribution in this
hypothetical world
Weekly income bands
Number of people
These people are in relative income poverty
Relative income
poverty line
60% of the median income = £60
Conclusion
1. Relative income poverty is a measure of income
inequality - It does not measure whether or not
incomes meet what is needed for a basic standard
of living.
2. If household incomes are very similar, the rate of
relative income poverty will be low, it could even be
zero. This is because it measures how close incomes
are to the average (as given by the median).
Let’s look at the actual income
distribution in the UK . . .
Distribution of UK household income, 2016/17
(before housing costs have been paid)
0 100 200 300 400 500 600 700 800 900 1000
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
60% of median = £296 per week
Number of
individuals
(millions)
Equivalised net household income
(on a per week basis)
Notes:
1. Equivalisation is a statistical process that allows comparisons to be made of individuals of different ages from different sized households.
2. There are another 5.7 million individuals not shown on this chart because they have a household income above £1,000 per week
3. There is a higher bar at zero due to a mix of factors. These include those who are self-employed reporting a loss whose income is set to zero if it is negative
and those temporarily without an income at the point of interview. It may also include households who have misreported their income.
Everyone below this threshold is in
relative income poverty – this is around 10.4 million people
or 16% of the UK population.
Relative income
poverty line
Median income = £494 per week
Finally, what happens to relative income
poverty if the average income falls?
• 3 people earn £30 per week
• 7 people earn £50 per week
• 20 earn £80
• 40 earn £100
• 30 earn £130
• Median income = £100
• 60% of median = £60
• There are 10 people in relative
income poverty (the 7 people
earning £50 a week and the 3 people
earning £30 a week).
• 3 people earn £30 per week
• 7 people earn £50 per week
• 20 earn £80
• 40 earn £83
• 30 earn £130
• Median income = £83
• 60% of median = £49.8
• Now there are only 3 people in
relative income poverty (the 3
people earning £30 a week)
Scenario 1 Scenario 2
Imagine the average income falls but all else remains the same:
The percentage of people in relative income poverty falls, but no one is better off in
terms of living standards – in fact those on average incomes are worse off. This
situation can happen during a recession.
This is why it is important to consider other measures of poverty alongside relative
income poverty . . .
Would you like more information?
The Department for Work and Pensions publish analysis of
the UK income distribution and other measures of poverty
such as absolute income poverty, material deprivation and
persistent poverty.
They also publish this helpful infographic.
Poverty statistics for Wales can be viewed on the Welsh
Government website. This page includes relative income
poverty rates broken down by various characteristics.
It also includes other measures of poverty such as material
deprivation and persistent poverty.
If you would like more information or have any feedback,
please email: stats.inclusion@gov.wales
Calculating the median of 100 values
The median is the middle value when all the values are written in order
80 80 80 80 80 80 80 80 80 80
80 80 80 80 80 80 80 80 80 80
80 80 80 80 80 80 80 80 80 80
100 100 100 100 100 100 100 100 100 100
100 100 100 100 100 100 100 100 100 100
<THIS IS THE MIDDLE>
100 100 100 100 100 100 100 100 100 100
100 100 100 100 100 100 100 100 100 100
120 120 120 120 120 120 120 120 120 120
120 120 120 120 120 120 120 120 120 120
120 120 120 120 120 120 120 120 120 120
There is no single income in the middle because there 100 values.
To get the median we take the 50th and the 51st value, add them together and divide by 2.
In this case the 50th and 51st value both = £100
£100 + £100 = £200.
£200 divided by 2 = £100
Back

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What is relative income poverty?

  • 2. Poverty • This can be thought of as absolute e.g. the number of people living on less than £1 or $1 a day (or less than what is needed for a minimum standard of living) • Or as relative – e.g. a person can be in relative poverty if their situation is a certain amount below the average
  • 3. Relative Income Poverty • In developed countries the main measure of poverty is relative income poverty. • We measure the number of people who are living in a household where the household income is less than 60% of the median household income in the UK. • This is an internationally recognised way of measuring poverty.
  • 5. Imagine a simplified world: • There are 100 households each with 1 person • There is £10,000 to be earned each week £10,000100 people
  • 6. • If everyone earned the same there would be 100 people each earning £100 per week £10,000 = £100 per person, per week 100
  • 7. So what would the median be? • The median income is the middle income, in other words, if we wrote out all the incomes from smallest to largest, the median would be the one in the middle. £ £ £ £ £ £ £ £ £ Median incomeLowest income Highest income
  • 8. • So in this all equal world, the median weekly income = £100 because this is what everyone earns. • 60% of the median income = 60% of £100 = £60 • The number of people earning less than £60 per week is zero • No one is living in relative income poverty because everyone earns the same amount.
  • 9. Income distribution in this hypothetical, all-equal world Weekly income bands Number of people 0 10 20 30 40 50 60 70 80 90 100 Under £10 £10 to £20 £21 to £30 £31 to £40 £41 to £50 £51 to £60 £61 to £70 £71 to £80 £81 to £90 £91 to £100 £101 to £110 £111 to £120 £121 to £130 £131 to £140 £141 to £150 Relative income poverty line No one is in relative income poverty Everyone is earning the same so there is only one bar 60% of the median income = £60
  • 10. Imagine a slightly different spread of income in our simplified world: • There are still 100 households each with 1 person • There is still £10,000 to be earned each week £10,000100 people In reality, people earn different amounts- does this mean there will always be people in relative income poverty?
  • 11. However, this time: 30 people earn £80 per week 40 people earn £100 per week 30 people earn £120 per week The median income is still £100 (see how the median is calculated at the end of this presentation) So 60% of the median income is still £60 Nobody is earning below £60 a week – so even though people earn different amounts there are still no people living in relative income poverty.
  • 12. 0 10 20 30 40 50 60 70 80 90 100 Under £10 £10 to £20 £21 to £30 £31 to £40 £41 to £50 £51 to £60 £61 to £70 £71 to £80 £81 to £90 £91 to £100 £101 to £110 £111 to £120 £121 to £130 £131 to £140 £141 to £150 Income distribution in this hypothetical world Weekly income bands Number of people No one is in relative income poverty Relative income poverty line 60% of the median income = £60
  • 13. We are still in our simplified world: • There are still 100 households each with 1 person • There is still £10,000 to be earned each week £10,000100 people What if the difference in incomes is larger?
  • 14. However, this time: • 3 people earn £30 per week • 7 people earn £50 per week • 20 earn £80 • 40 earn £100 • 30 earn £130 The median income is still £100 (as 30 people earn below £100 and 30 people earn above £100) So 60% of the median income is still £60. But now, because of the way income is distributed, there are 10 people living in relative income poverty.
  • 15. 0 5 10 15 20 25 30 35 40 45 Under £10 £10 to £20 £21 to £30 £31 to £40 £41 to £50 £51 to £60 £61 to £70 £71 to £80 £81 to £90 £91 to £100 £101 to £110 £111 to £120 £121 to £130 £131 to £140 £141 to £150 Income distribution in this hypothetical world Weekly income bands Number of people These people are in relative income poverty Relative income poverty line 60% of the median income = £60
  • 16. Conclusion 1. Relative income poverty is a measure of income inequality - It does not measure whether or not incomes meet what is needed for a basic standard of living. 2. If household incomes are very similar, the rate of relative income poverty will be low, it could even be zero. This is because it measures how close incomes are to the average (as given by the median). Let’s look at the actual income distribution in the UK . . .
  • 17. Distribution of UK household income, 2016/17 (before housing costs have been paid) 0 100 200 300 400 500 600 700 800 900 1000 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 60% of median = £296 per week Number of individuals (millions) Equivalised net household income (on a per week basis) Notes: 1. Equivalisation is a statistical process that allows comparisons to be made of individuals of different ages from different sized households. 2. There are another 5.7 million individuals not shown on this chart because they have a household income above £1,000 per week 3. There is a higher bar at zero due to a mix of factors. These include those who are self-employed reporting a loss whose income is set to zero if it is negative and those temporarily without an income at the point of interview. It may also include households who have misreported their income. Everyone below this threshold is in relative income poverty – this is around 10.4 million people or 16% of the UK population. Relative income poverty line Median income = £494 per week
  • 18. Finally, what happens to relative income poverty if the average income falls? • 3 people earn £30 per week • 7 people earn £50 per week • 20 earn £80 • 40 earn £100 • 30 earn £130 • Median income = £100 • 60% of median = £60 • There are 10 people in relative income poverty (the 7 people earning £50 a week and the 3 people earning £30 a week). • 3 people earn £30 per week • 7 people earn £50 per week • 20 earn £80 • 40 earn £83 • 30 earn £130 • Median income = £83 • 60% of median = £49.8 • Now there are only 3 people in relative income poverty (the 3 people earning £30 a week) Scenario 1 Scenario 2 Imagine the average income falls but all else remains the same: The percentage of people in relative income poverty falls, but no one is better off in terms of living standards – in fact those on average incomes are worse off. This situation can happen during a recession. This is why it is important to consider other measures of poverty alongside relative income poverty . . .
  • 19. Would you like more information? The Department for Work and Pensions publish analysis of the UK income distribution and other measures of poverty such as absolute income poverty, material deprivation and persistent poverty. They also publish this helpful infographic. Poverty statistics for Wales can be viewed on the Welsh Government website. This page includes relative income poverty rates broken down by various characteristics. It also includes other measures of poverty such as material deprivation and persistent poverty. If you would like more information or have any feedback, please email: stats.inclusion@gov.wales
  • 20. Calculating the median of 100 values The median is the middle value when all the values are written in order 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 <THIS IS THE MIDDLE> 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 120 There is no single income in the middle because there 100 values. To get the median we take the 50th and the 51st value, add them together and divide by 2. In this case the 50th and 51st value both = £100 £100 + £100 = £200. £200 divided by 2 = £100 Back

Editor's Notes

  1. I don’t think its necessarily finaicial situation – that’s realtive income poverty but couldn’t you have other types relative social poverty/ relative health poverty?