Poverty Rates Are Lower Than Ever — Why Is Income Inequality on the Rise?

You could be forgiven for assuming that the Great Recession of 2008 and recent increases in worldwide food prices would have caused significantly more people around the world to slip into poverty over the past several years. But according to the World Bank, that’s not what’s happened.

Instead, they say that the share of the world population living in extreme poverty declined sharply from 53 percent to 17 percent between the 1980s and 2011. The World Bank is even optimistic that extreme poverty can be eradicated altogether by 2030.

In spite of this encouraging news, income inequality around the world is on the rise. Seventy-one percent of the world’s population lives in countries in which the income gap between rich and poor is growing. In the U.S. alone, the gap between rich and poor is higher than it has been since 1928. If poverty is on the decline, how is it possible that the rich-poor gap is rapidly growing?

The Criteria Used to Measure Poverty May Not Be Accurate

In a 2012 article for the Huffington Post, author and activist Francis Moore Lappe investigates whether or not the criteria that the UN and the World Bank use to measure extreme poverty around the world are even accurate. It’s important to note that when organizations like the World Bank or the UN talk about poverty, they’re talking about the kind of extreme poverty often seen in the Third World. People suffering from extreme poverty live on less than $1.25 a day.

Lappe argues that the threshold for extreme poverty worldwide isn’t high enough, and that it underestimates food prices in Third World nations by as much as 50 percent. By this measurement, people living on as much as $2.50 a day could be considered to be suffering from extreme poverty. If the UN and World Bank raised the extreme poverty level to $2.50, as Lappe believes it should, they would see an eight percent increase in global extreme poverty to three billion people, a situation reflected, Lappe says, by the fact that 13.6 percent of the world’s population still struggles with hunger.

A Larger Lower Class Means More Profits for the Rich

Economist Andreas Bergh has a different theory. He posits that, since a greater percentage of the global population now lives on the bottom rungs of the income ladder, it’s cheaper for the world’s wealthiest to provide consumer goods for them. Poor people may spend 50 to 70 percent of their income on food, but they still need other low-cost goods and services, like mobile phones and education.

Wealth may not trickle down, but influence does; as the world’s wealthier classes purchase iPhones, lower-class demand for Android phones increases. This provides incentive for companies like Google to produce free and low-cost operating systems, and as demand for cheaper products increases, production costs shrink and profit margins increase, allowing the wealthy to become even wealthier as the lower classes continue to struggle.

More of the World’s Poor Benefit From Social Welfare Programs

When you go to school online to earn your Master of Social Work, you’ll be preparing for a career that will enable you to help America’s poorest citizens access the resources they need to survive and improve their lives. One in 15 American families lives in “deep poverty,” subsisting on less than half of what the government considers a poverty-level wage. But Americans in poverty aren’t the only ones around the world who now have recourse to social welfare programs designed to help them. In the more than three decades since the World Bank started tracking global poverty levels in 1981, many Third World countries have instituted social welfare programs that have helped many people escape extreme poverty, without necessarily lifting them into a higher income class.

Economists are careful to point out that just because more of the world’s poor have escaped from extreme poverty does not mean their lives are drastically improving. The extreme poverty threshold of $2.50 a day is still an extremely paltry sum of money with which to meet the needs of a family, even in the world’s poorest countries. And as income inequality worsens, so do the lives of the world’s poorest citizens.

The World Bank estimates that the percentage of the population living in extreme poverty has declined by more than half over the past three decades, and they project that extreme poverty may be a thing of the past by 2030. But the news isn’t all good – income inequality is on the rise, and many fear that’s nothing but bad news for the billions of people at the bottom of the economic ladder.