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Improving the Evidence Base for Understanding the Links between Inequalities and Poverty

A three-year programme of research on the connections between inequality, and poverty funded by the Joseph Rowntree Foundation is currently led by CASE, in collaboration with the International Inequalities Institute.


International Inequalities Institute Joseph Rowntree Foundation Joseph Rowntree Foundation and International Inequalities Institute

A podcast and slides from The Relationship between Inequality and Poverty: mechanisms and policy options, a public lecture hosted by LSEWorks in February 2017 is now available to play and download.

Below Abigail McKnight, CASE Associate Director and project researcher summarises some of the conceptual issues and existing evidence base on the links between poverty and inequality. The project includes expanding the evidence base through empirical analysis of the relationship between income inequality and poverty using a variety of measures both for the UK over time, and across countries. An understanding of the mechanisms that drive this relationship will be used to help explore policy options.

Societies with low levels of relative income poverty generally also have low levels of income inequality [1], although the strength of the relationship varies and there are cases where inequality and poverty trends have moved in different directions[2]. An understanding that these two phenomena are inextricably linked has given rise to large international organisations (World Bank; UN; WEF; Oxfam) setting joint inequality-poverty reduction targets on the basis that poverty cannot be seriously tackled without addressing inequality[3]. Understanding what drives the strength of the relationship between inequality and poverty and what factors can weaken the relationship involves the study of inequality and poverty measures; theoretical underpinnings[4]; mechanisms that drive the relationship; and, effective policies.
        A good starting point is to consider the relationship between measures of income inequality (such as, Gini coefficient) and relative income poverty (say, 60% median income threshold). Inequality and poverty measured over a given population are summary statistics computed over the same distribution and are therefore fundamentally linked. However, a given level of poverty can be associated with a wide range of inequality levels and vice-versa. This is because poverty rates are affected only by median income and the distribution of income in the lower tail of the distribution, while inequality summarises differences across the whole distribution. Inequality measures which give greater weight to the distribution of income in the lower half (e.g. mean log deviation and 50/10 ratio) will show a stronger relationship between inequality and poverty. Technically speaking it is possible to have very high inequality (say measured by the concentration of wealth among a small elite) and no relative income poverty (all incomes are above 60% median income), and high absolute income poverty with very little or even no inequality but this is not what we observe. The picture becomes more complex when we move from uni-dimensional measures (e.g. income) to multi-dimensional measures incorporating non-economic factors.
        New empirical cross-country evidence does show a positive relationship between income inequality and poverty and between inequality and poverty trends and the strength of this relationship is affected by which measures are adopted. However, not all countries line-up neatly[5]. The labour market doesn’t provide a simple explanation partly because labour market inequalities are mainly measured at an individual level while income inequality and poverty are household based concepts[6].

Aside from any simple ‘mechanical’ relationship between inequality and poverty there are a number of important mechanisms that theory and evidence suggest drive the positive empirical relationship.

  • Economic mechanisms: fundamental drivers such as the distribution of abilities and their economic returns; changes in rates of return to abilities driven by, e.g., technological change or globalisation; the inequality-growth-poverty triangle (higher inequality stifling growth and therefore ability to reduce poverty)[7]
  • Political mechanisms: where command over economic resources is linked to political power inequality can result in resistance against policies that threaten the Rich & Powerful’s economic position such as poverty reduction policies[8]; social gradients in voter turnout can lead governments to favour policies that favour the electorate rather than the population[9].
  • Social and cultural: unequal societies are also often characterised as highly punitive countries with high rates of incarceration[10]. This may be driven by well-off people dominating positions of power including the judiciary. For some groups it appears that poverty acts as a ‘pipeline to prison’ and a vicious cycle ensues[11]

There are also important dynamic mechanisms which help to shape the relationship between inequality and poverty. Higher inequality is often associated with lower mobility (we saw this for earnings over the 1980s[12]) making it harder to escape poverty. Evidence of a positive relationship between inequality and intergenerational mobility (the so-called ‘Great Gatsby Curve’[13]) suggests that poverty risks are more likely to be passed from parents to children where/when inequality is higher. Limited downward mobility driven by the ability of better-off families to hoard the best opportunities for their children can limit the extent to which children growing up in poverty can be upwardly mobile.


Improving the Evidence Base for Understanding the Links between Inequalities and Poverty is funded by the Joseph Rowntree Foundation. The views expressed are those of the authors and not necessarily those of the funder www.jrf.org.uk

[1] Atkinson, A.B. (2015), Inequality: What can be done?. Cambridge, Mass.: Harvard University Press.

[2] Toth, I. (2014) [GINI Vol 2] “Revisiting Grand Narratives of Growing Inequalities: Lessons from 30 Country Studies”, in Salverda et al. (eds) Changing Inequalities and Societal Impacts in Rich Countries: Thirty Countries’ Experiences. Oxford: Oxford University Press; Forster, M. and Vleminckx, K. (2004), International comparisons of income inequality and poverty: Findings from LIS.  Socioeconomic Review 2 (2): 191-212.

[3] World Bank (2014). A Measured Approach to Ending Poverty and Boosting Shared Prosperity: Concepts Data and the Twin Goals, Policy Research Report 2014, WEF (World Economic Forum) (2015). The Inclusive Growth and Development Report 2015, by Samans, R., Blanke, J., Corrigan, G. and Drzeniek, M.

[4] Bucelli, I. (forthcoming) ‘Inequality, poverty and the grounds of our normative concerns’, Working paper from JRF funded programme of research on understanding the link between inequalities and poverty. CASE, LSE.

[5] Karagiannaki, E. (forthcoming) ‘Exploring the poverty and inequality link: new empirical findings’, Working paper from JRF funded programme of research on understanding the link between inequalities and poverty. CASE, LSE.

[6] McKnight, A. (forthcoming) ‘Labour market inequality and the links between income inequality and poverty’, Working paper from JRF funded programme of research on understanding the link between inequalities and poverty. CASE, LSE.

[7] Yang, L. (forthcoming) ‘Reviewing the evidence on mechanisms that drive the relationship between inequality and poverty: part 1’, Working paper from JRF funded programme of research on understanding the link between inequalities and poverty. CASE, LSE.

[8] Stiglitz, J. (2012). The price of inequality: how today’s divided society endangers our future. New York: W.W. Norton and Co.

[9] Bonica, A., McCarty, N., Poole, K.T. and Rosenthal, H. (2013). Why hasn’t democracy slowed rising inequality? Journal of Economic Perspectives 27(3), 103-124.

[10] Lacey, N., and Soskice, D. (2013). “Why Are the Truly Disadvantaged American, When the UK Is Bad Enough? A Political Economy Analysis of Local Autonomy in Criminal Justice, Education, Residential Zoning.” SSRN Electronic Journal.

[11] Duque, M., and McKnight, A. (forthcoming) ‘Reviewing the evidence on mechanisms that drive the relationship between inequality and poverty: part 2’, Working paper from JRF funded programme of research on understanding the link between inequalities and poverty. CASE, LSE.

[12] Dickens, R. and McKnight, A. (2008).  ‘Changes in earnings inequality and mobility in Great Britain 1978/9-2005/6’, CASEpaper 132, London: Centre for Analysis of Social Exclusion.

[13] Alan Krueger referred to the “Great Gatsby Curve” for the first time in a speech. “The Rise and Consequences of Inequality”, to the Center for American Progress on January 12, 2012, in his capacity as the Chairman of the Council of Economic Advisors.  Evidence of this relationship has been noted by others including Andrews and Leigh (2009) and Corak (2013).