What Is the Meaning of Relative Poverty?

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Relative poverty is used to measure wealth in relationship to other members of a distinct population. Relative poverty measurements contrast with absolute poverty measurements, which measure poverty levels based on a set standard encompassing the entire population.

Relative poverty is frequently used to measure wealth disparities in wealthier nations. Such countries adjust the poverty line to reflect factors such as economic growth, changes in income distribution, and the price and accessibility of necessary goods and services. It can also change based on local social perceptions of what is needed to maintain a certain living standard. Conversely, the absolute poverty level, as set by organizations such as the World Bank, is considered independent of a society's growth or changes in income distribution levels. While organizations such as the World Bank may adjust the absolute poverty level overtime, such adjustments rely solely on the worldwide cost of accessing the goods and services necessary for survival. To determine the poverty line based on relative poverty, statisticians use income inequality metrics, such as the Gini index, Palma ratio, 20:20 ratio, Hoover index and Theil index to calculate appropriate levels. For example, the Palma ratio can be used to set poverty levels based on the distribution of gross domestic product among the richest 10 percent and the poorest 40 percent of people in a given country.