The Poverty Trap

“Poverty is the worst form of violence.”  
— Mahatma Gandhi

What is a poverty trap?

A poverty trap is a situation that creates a never-ending pattern of poverty. Unless something dramatically is done to change the situation, the cycle cannot be broken, leaving generation after generation ‘trapped’ in a constant state of poverty.

The reality is that the effects of poverty lead to even more poverty. And this condition can be passed from generation to generation depending on the underlying cause(s).

What are the causes of a poverty trap?

When many people think about poverty, they think about the lack of an adequate income. While low wages certainly contribute to poverty, there are many other conditions that can cause poverty traps.

  • Lack of good paying jobs: In densely populated urban areas or remote rural areas, it is usually difficult for people to even find a job, let alone finding a job that pays well.
  • Inability to pay for higher education or specialized job training: Without money, people cannot pay for the education they need to get a better job.
  • Violence: Many poverty-stricken areas are so stuck in a poverty trap that people are forced to fight for the basic necessities which creates a very dangerous and violent environment. Violence can inhibit education, industry, and an individual’s ability to excel.
  • The cost of products and services: In poor areas, certain products and services (including food, housing, transportation and medical care) can be unaffordable for large portions of the population.
  • Lack of business and industry growth: In extremely poor areas, even if there is room to build buildings for large industries, the corruption of government, the price of power, and the lack of skilled labor can deter business and industry growth.
  • Poor sanitation: Poor sanitation, or tainted resources (like bacteria tainted water or high levels of air pollution) can lead to disease which spreads quickly and can be difficult to control in areas that are already lacking essential resources.
  • Access to quality medical care: Due to the lack of money or medical insurance, people do not get the medical care they need. Hence, many become chronically ill or die from starvation, malnutrition or a chronic disease.

Taxation and welfare systems can jointly contribute to keep people trapped in poverty because the withdrawal of means-tested benefits that comes with entering low-paid work causes there to be no significant increase in net income. An individual sees that the opportunity cost of returning to work is too great for too little a financial return, and this can create a perverse incentive to not work.

Hence, the government systems that were designed to lift people out of poverty actually institute the barriers that keep people from being able to climb out of poverty.

A Look at Global Poverty Today

Globally, the number of people living in extreme poverty declined from 36 per cent in 1990 to 10 per cent in 2015. But the pace of change is decelerating and the COVID-19 crisis risks reversing decades of progress in the fight against poverty. New research published by the UNU World Institute for Development Economics Research warns that the economic fallout from the global pandemic could increase global poverty by as much as half a billion people, or 8% of the total human population. This would be the first time that poverty has increased globally in thirty years, since 1990.

More than 700 million people, or 10 per cent of the world population, still live in extreme poverty today, struggling to fulfil the most basic needs like health, education, and access to water and sanitation, to name a few. The majority of people living on less than $1.90 a day live in sub-Saharan Africa. Worldwide, the poverty rate in rural areas is 17.2 per cent—more than three times higher than in urban areas. 

For those who work, having a job does not guarantee a decent living. In fact, 8 per cent of employed workers and their families worldwide lived in extreme poverty in 2018. One out of five children live in extreme poverty. Ensuring social protection for all children and other vulnerable groups is critical to reduce poverty.

COVID-19 and Poverty

Developing countries are most at risk during – and in the aftermath – of the pandemic, not only as a health crisis but as a devastating social and economic crisis over the months and years to come. According to UNDP income losses are expected to exceed $220 billion in developing countries, and an estimated 55 per cent of the global population have no access to social protection. These losses will reverberate across societies; impacting education, human rights and, in the most severe cases, basic food security and nutrition.

Facts and Statistics

  • According to the most recent estimates, in 2015, 10 percent of the world’s population or 734 million people lived on less than $1.90 a day.
  • Even before COVID-19, baseline projections suggested that 6 per cent of the global population would still be living in extreme poverty in 2030, missing the target of ending poverty. The fallout from the pandemic threatens to push over 70 million people into extreme poverty.
  • In 2016, 55 per cent of the world’s population – about 4 billion people – did not benefit from any form of social protection.

Section Source: The United Nations

This post is the second post on poverty. To read the first post, Understanding Poverty, please click here.

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Published by W. M. Brown

I am a retired U.S. expat living in Ecuador. I was a business owner for 32 years before retiring in 2012.

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