IGCSE Economics 0455: Poverty in Old Age and Policy Evaluation

Mr. Danto is 68 years old and lives in the country of Ashworth. He worked as a factory labourer for over 40 years, but a chronic illness forced him to retire five years ago, earlier than he had planned. He now relies entirely on a state pension of $140 a month. Ashworth's government defines the absolute poverty line as a monthly income of $220 per person, the amount needed to afford basic food, shelter and clothing.

(a) State whether Mr. Danto is living in absolute poverty, and calculate by how much his monthly income falls short of the poverty line. [2]

(b) Explain two causes of poverty illustrated by Mr. Danto's situation. [4]

(c) Other than introducing a National Minimum Wage, discuss two policies Ashworth's government could use to reduce poverty among elderly and ill citizens like Mr. Danto, including one limitation of each policy. [5]

Part (a): Is Mr. Danto in absolute poverty?

Ashworth’s absolute poverty line is $220 a month. Mr. Danto’s income is $140 a month, which is below this line, so he is living in absolute poverty.

The shortfall between his income and the poverty line: $220 - 140 = 80$

His monthly income falls short of the poverty line by $80.

Part (b): Two causes of poverty illustrated by Mr. Danto’s situation

Old age: at 68, Mr. Danto is no longer part of the workforce and relies entirely on a state pension. State pensions are often set below what a person earned while working, so simply reaching an age where paid work stops can push someone into poverty.
Illness: a chronic illness forced Mr. Danto to retire five years earlier than he had planned. This cut short his working life and years of wage income, moving him onto his lower pension income sooner than if his health had allowed him to keep working.

These are distinct causes: old age reflects the general loss of earning power once someone leaves the workforce, while illness explains why Mr. Danto left the workforce earlier than he otherwise would have.

Part (c): Evaluating two policies (other than a National Minimum Wage)

Policy 1. Raise the state pension. Increasing the state pension would directly raise Mr. Danto’s income, potentially lifting him above the $220 poverty line and closing some or all of his $80 shortfall. Limitation: paying a higher pension to every elderly citizen in Ashworth would significantly increase government spending, which would likely need to be met through higher taxation or government borrowing, creating a trade-off with other areas of spending.

Policy 2. Increase government spending on healthcare. Providing free or subsidised treatment for chronic illnesses could help workers with health conditions stay in employment for longer (reducing the “illness” cause of poverty) and reduce the medical costs faced by ill or elderly people like Mr. Danto. Limitation: improvements in health outcomes from extra healthcare spending typically take time to materialise, and this policy does not directly raise Mr. Danto’s income today, so on its own it would not immediately close his current $80 monthly shortfall.

Final answers

(a) Mr. Danto is in absolute poverty; his income falls short of the poverty line by $80 a month.
(b) Old age (no longer working, relying on a low pension) and illness (forced early retirement, cutting short his working life).
(c) Raising the state pension (limitation: cost to government spending/taxpayers) and increased healthcare spending (limitation: takes time to help and does not raise his income immediately).