Exploring the Hidden Connection between inequality and poverty in 2025

July 28, 2025 by [email protected]

Introduction

Inequality is the unequal distribution of resources and opportunities among individuals, groups or countries.

Poverty of its part is due to low income relative to needs. It is measured using a monetary poverty line, which is based on “a basic food basket” that covers specific calorific needs, this line is imposed either by the World Bank or by governments.

So what is the link between inequality and poverty ?

I- Understanding inequalities

Inequality refers to differences that generate phenomena of social hierarchy. These differences may relate to the allocation of a resource that is unequally distributed or refer to unequal access to certain goods or services.

1- Definition and types of inequalities

Inequality is the lack of equality in terms of status, rights and opportunities. It is a concept central to theories of social justice.

Inequalities in living standards can take many forms such as inequalities in income, wealth, education, health and nutrition.

Thus, we can divide inequalities into two types :

A- Economic inequality

Economic inequality generally focuses on disparities in income, wealth distribution, assets and consumption. These can be presented as follows:

Income inequality : gaps between salaries, pensions, capital income, etc.
Wealth inequality : unequal distribution of assets (real estate, shares, etc.)
Unequal access to employment : unemployment, precariousness, underemployment…

B- Social inequalities

Social inequality generally concerns disparities in access to education, health and nutrition.

It takes the following forms :

Inequality of access to education : quality of teaching, academic success according to social background ;
Inequality of access to health : access to care, life expectancy, prevention, etc ;
Inequality of access to housing : access to decent housing, urban segregation, etc ;
Inequality of access to culture : access to cultural goods and practices.

II- Poverty : a direct consequence of inequalities

1- What is poverty today?

A person can be considered poor when they lack the resources necessary to feed themselves, participate in activities and benefit from the living conditions and amenities that are customary, or at least widely encouraged or approved, in the societies to which they belong.

It is essential to first recall the difference between the concepts of relative poverty and absolute poverty. This difference lies in the type of poverty threshold chosen, as detailed below :

A- Absolute poverty

Poverty in its absolute perspective is considered to be completely independent of the conditions of other individuals or households. Absolute poverty can also be measured in relation to aspects of deprivation (e.g., food insecurity, malnutrition, lack of access to health care, etc.).

Indeed, measures of absolute poverty, such as the percentage of the population living on less than $1 or $2 a day, are more often retained for very poor countries.

B- Relative poverty

Relative poverty considers the status of each individual or household in relation to the status of other individuals, households or other social groups, taking into account their position in the distribution of that population.

Thus, the poverty line can be defined in relative terms, that is, in comparison with an average or median income (e.g. 50% of the median income).

2- How inequality fuels poverty

A- What are the economic causes of poverty?

Generally, three types of market failure likely contribute to the formation of poverty traps :

Imperfections in the credit market

They result in the inability of the credit market to conform to the assumptions of a perfectly competitive market, in that if markets were perfect and efficient, banks would not require guarantees from their customers. However, in practice, it is impossible to obtain a loan without guarantees.

Externalities

They appear when interactions, economic or otherwise, cause social gains or costs greater than those envisaged by the actors involved, such as environmental damage caused by the production of a commodity and resulting in pollution for which the buyers and sellers of said commodity do not bear responsibility.

These externalities which, by interacting with initial inequalities, perpetuate and exacerbate poverty.

Risks and poverty traps

Lack of insurance and risk protection is another market failure that has a disproportionate impact on the poor.

Moreover, problems of information asymmetry and those related to implementation aspects may be responsible for the low use of insurance mechanisms in developing countries, and even if they wanted to, the poor could not insure themselves against most of the risks they face.

B- What is the link between inequality and poverty?

Poverty, as a condition characterized by insufficient economic resources, is often the result of multiple factors, such as lack of access to education, health care, decent employment and equitable economic opportunities.

These circumstances limit individuals’ opportunities to rise above the poverty line and fully integrate into the economy. Unfortunately, this precarious situation also contributes to widening income inequality.

Thus, the persistence of poverty is largely due to serious market imperfections which, combined with inequalities in the distribution of assets, often lead to people being trapped in poverty traps from which it will be much harder for them to escape than to enter.

Indeed, income inequality refers to significant gaps in the income of individuals and groups within a society. These gaps manifest themselves through the concentration of wealth, opportunities and resources in the hands of a privileged minority, while the majority struggle to meet their basic needs.

These inequalities exacerbate economic and social disparities, preventing disadvantaged people from accessing equitable economic opportunities and keeping them in a state of chronic poverty.

III- Social and economic impacts of inequalities

1- Socio-economic inequalities

Indeed, inequality and poverty are major drivers of social exclusion, which manifests itself in conflict, instability and social unrest. Societies characterized by high levels of poverty, inequality and unemployment are fertile ground for rebels and radicalized groups.

Thus, the risk of conflict is higher in poor and unequal countries than in rich and less unequal countries, as a huge gap between the expected economic well-being and the actual situation of a group can generate conflict.

Without forgetting that inequality and poverty and conflicts create a vicious generational circle which tends to perpetuate itself from one generation to the next and to spread underdevelopment even further.

Moreover, inequality and poverty between countries and within a country, communities and groups, is an essential criterion for measuring social cohesion.

Broadly speaking, inequalities, whether or not linked to income, cause several anomalies in the nation, such as:

Deterioration of social cohesion;
Obstacles to human development;
Obstacles to sustainable economic growth;
Rising social and political tensions;
Brake on national development.

2- Measures to mitigate the effects of inequalities

Generally, in a liberal economy, it is the market’s responsibility to ensure balance and social advancement based on the principle of meritocracy. However, this objective is not always achievable.

So, in the face of market imperfections, the principle of interventions likely to improve efficiency is well established and that inequality and poverty can obviously be reduced directly through a decision to increase redistribution.

Indeed, countries can, through their socio-political choices, influence the level of inequality and poverty through redistribution policies.

These socio-political choices are approached by the average levy rates (progressive tax and social contributions), allowing a redistribution of income towards the population potentially in need.

Furthermore, and along side social transfers, the State can also reduce poverty and inequality more indirectly through the provision of collective goods such as education and health.

Conclusion

Inequality concentrates wealth and power in the hands of a privileged minority, contributing to the perpetuation of an unjust system that is incompatible with social justice and the eradication of poverty world wide.

Moreover, social inequalities are not inevitable, but rather the result of a long history of ideological, political and economic choices.

Thus, it is the will and choices made by society that have the power to bring about a fairer world.