4.2.1 - Absolute and relative poverty
Poverty is not just one thing. Economists distinguish between poverty as a failure to meet basic needs and poverty as falling well behind the normal living standards of your own society. That distinction matters because the two ideas are measured differently, change for different reasons, and can require different policy responses.
Absolute and Relative Poverty
Absolute poverty is about whether people can meet basic needs. Relative poverty is about whether people can participate properly in the society they live in. Both matter, but they answer different questions.
Definition: Absolute poverty
When income is too low to afford the basic necessities needed for survival.
Absolute poverty is judged against a fixed standard of basic human need. The benchmark does not automatically rise just because society as a whole becomes richer. That is why it is mainly about survival and basic functioning: food, safe drinking water, sanitation, shelter, healthcare, education and access to information.
Definition: Relative poverty
When income is significantly below the average or median in a society, so people cannot participate fully in normal living standards.
Relative poverty is judged against what is normal in that society at that time. A household may have enough to avoid hunger, but still be poor in relative terms if it cannot afford the goods, services and social participation that most people take for granted. In the UK, that may include internet access, a mobile phone, adequate heating, having friends round for a meal, or a week's holiday away from home once a year.
The contrast is easiest to see in a simple comparison:
| Aspect | Absolute poverty | Relative poverty |
|---|---|---|
| Main idea | Basic needs are not met | Living standards are far below the norm in that society |
| Benchmark | Fixed real threshold | Moving threshold linked to current incomes |
| Main focus | Survival and basic functioning | Social participation and exclusion |
| Can it disappear? | Yes, in principle, if everyone rises above the threshold | Much harder, because the benchmark moves with median income |
This is why a country can reduce absolute poverty without solving relative poverty. If almost everyone's income rises above a basic-needs threshold, absolute poverty falls. But if top incomes rise much faster than lower incomes, many households can still remain below the relative-poverty line.
Absolute poverty is often the more urgent concern in poorer economies, while relative poverty is especially useful in richer economies such as the UK. But both concepts can exist in the same country.
Measuring Poverty
Economists need a poverty line: an income threshold used to count how many people are poor under a particular measure. The exact threshold depends on whether the measure is absolute or relative.
For global absolute poverty, the World Bank uses an international poverty line adjusted for purchasing power parity so incomes can be compared across countries with different price levels. As of the June 2025 update, the international line for extreme poverty is 4.20 for lower-middle-income countries and $8.30 for upper-middle-income countries. A common summary measure is the headcount ratio: the percentage of the population living below the chosen line.
That monetary approach is useful, but it has limits. One global line may miss local differences in living costs; needs differ between children and adults and between rural and urban households; free public services such as healthcare or education can change living standards even when cash income is low; and income measures alone miss wider deprivation.
That is why multidimensional measures are also used. The Multidimensional Poverty Index, for example, looks across health, education and living standards. In practice that means indicators such as nutrition, child mortality, years of schooling, school attendance, cooking fuel, sanitation, water, electricity, housing and household assets. A household classed as poor on this measure is deprived in at least one-third of those weighted indicators, not just short of cash income.
For relative poverty, the UK usually measures whether equivalised household income is below 60% of the contemporary median. "Equivalised" means adjusted for household size, so a family with children is not treated the same as a single adult on the same cash income. UK data are often reported both before housing costs and after housing costs, because rent or mortgage payments can make a major difference to what families can actually afford.
The UK also publishes an absolute measure, absolute low income: households below 60% of the 2010/11 median, a line held fixed in real terms and adjusted only for inflation. Comparing the two measures shows whether low-income households are better off than in the past, and also whether they are keeping up with the typical household today.
Another way to think about relative poverty is material deprivation: being unable to afford items that society views as normal necessities. That is why two households with similar incomes can experience poverty differently if one faces much higher housing costs or cannot afford the items needed for ordinary social participation.
Application
After-housing-costs measures are especially important in the UK. A renter in London may look above the poverty line before housing costs, but fall below it after paying high rent, while a household with similar earnings in a lower-rent area may not.
Why Poverty Changes
People and households may fall into poverty for several broad reasons. Unemployment cuts earned income directly. Low skills and weak qualifications tend to mean lower wages and a greater risk of joblessness. Ill health or disability can reduce the ability to work and increase costs. Some households also rely heavily on benefits or low-paid work, which may leave income below the poverty line.
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