RELATIVE INCOME VERSUS ABSOLUTE INCOME. Kids, there is a vigorous debate among economists about the importance of relative income versus absolute income. This article discusses the difference between absolute poverty and relative poverty. The European Union uses a poverty threshold of 60% of “national median equivalized household income”, which is a relative poverty concept. Somebody who has 50% of average European income would fall below the poverty threshhold and be considered poor even though he or she would be very well off compared to the roughly 20% of the people in the world who live on less than a dollar a day (discussed here). An example given here is: “in 1905 an individual in the United States unable to afford a car would probably not feel or be viewed as deprived since cars were a luxury. In 2005, when cars are common, an individual unable to afford a car is likely to be seen as deprived.”
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From what you describe here, relative income seems to make sense as a concept. True, even in 2005 being unable to afford a car but still afford a house with four walls makes you better off than millions of people in the world. However, the way our country’s roads and cities are laid out, it’s a big disadvantage not to have a car. Some companies even require that you have your own transportation or else they won’t hire you. When your ability to get hired is limited, your income is limited (or nonexistent) and it’s harder to move up in the world. Perhaps what’s important is to do the numbers for both relative income and absolute income, so as to keep both sides in perspective.