Relative Poverty
What is Relative Poverty?
Relative poverty is having income far below the typical income in your own country, usually below half or sixty percent of the national median.
The line moves with the distribution, so relative poverty measures distance from the middle of your society rather than physical deprivation. Statisticians usually equivalize incomes first, adjusting for household size so a family of four is not compared directly with a single adult. Because the threshold rises when the median rises, uniform growth leaves the relative poverty rate almost unchanged, and a recession that cuts middle incomes can lower it even though everyone got poorer. Rich countries favor this measure because it captures being shut out of ordinary life: no internet at home, no school trips, no way to reach a job interview across town. It is a measure of inequality in the lower half of the distribution more than a measure of hardship.
Relative Poverty: a worked example
Five households earn 10, 20, 30, 40 and 100 thousand a year. The median is 30, so a line at sixty percent of the median sits at 18 thousand and one household, the one on 10, counts as relatively poor: a rate of 20 percent. Now double every income, to 20, 40, 60, 80 and 200. The median becomes 60, the line becomes 36, and the household on 20 is still the only one below it, so the rate is unchanged at 20 percent. Everyone is twice as rich and the relative poverty rate has not moved.
The mistake students make with relative poverty
Students read a relative poverty statistic as a count of people who cannot afford food. It is a count of people far below their country's median income, which in a rich country can still mean having housing and enough to eat. The flip side is assuming the rate must fall when the economy grows. If all incomes rise together the line rises with them and the rate holds steady, and a recession that pulls the median down can even make relative poverty look better.
Relative Poverty questions
Why doesn't economic growth reduce relative poverty?
Growth does not reduce relative poverty when incomes rise roughly in proportion, because the threshold is a fraction of the median and rises too. Only growth that raises low incomes faster than the middle brings the rate down. That makes relative poverty a measure of the shape of the distribution rather than of living standards.
What is the relative poverty line usually set at?
Most rich countries set the line at 50 or 60 percent of median equivalized disposable income. The European Union's at-risk-of-poverty measure uses 60 percent, while several international comparisons use 50 percent. Equivalizing adjusts each household's income for its size and composition before the comparison is made.
Can a country have low absolute poverty and high relative poverty?
Yes, and most high-income countries do. Nearly nobody there falls below a basic-needs threshold, but a sizeable share still lives well under the national median. That combination is the reason rich countries report relative measures and poor countries report absolute ones.
Formula / Example
Related terms
Common comparisons
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