Relative poverty:

• The condition in which people lack the minimum amount of income needed in order to maintain the average standard of living in the society in which they live is called relative poverty.
• Note that the concept of absolute poverty focuses on the minimum consumption expenditure required for satisfying minimum needs whereas the concept of relative poverty focuses on income inequality existing in different groups of people living in society.
• Income disparity exists in all economies. Those who earn less are considered relatively poor than those who earn more.
• To assess relative poverty, the society is divided in different income groups to study unequal distribution of income. Thus, relative poverty exhibits the level of income inequality among different class of people i.e. different groups. The concept of Relative poverty can be studied with the help of hypothetical example. For example, suppose our country’s population is 125 crores and we divide this population into five groups based on their income as shown in the table.

Division of population in five groups

Analysis:

We can see in the above table that the class in group 2, has more income then the class income of people in group 1. Hence, it can be said that people in group 1 are relatively poor than group 2.

The people of group 2 have lower income than income of people in group 3, 4 and 5. Hence people of group 2 are relatively poor than 3, 4 and 5. Lorenz curve and Gini co-efficient are used to measure relative poverty or income inequality.

Relative poverty is different from absolute poverty because in absolute poverty we only take the consumption expenses behind minimum basic needs as criteria to decide poverty line but in relative poverty we compare one group of society with another group based on their incomes.