What you’ll learn to do: explain poverty and the poverty trap

Firms hire workers because they value the workers’ productivity. Employees get paid based on the value of their productivity to their employer. Labor productivity depends on a worker’s talents, skills and abilities. This means that people who lack marketable skills tend to be qualified only for low wage jobs, if they are employed at all.

Poverty is what we call the condition of people who do not earn enough income to be able to afford the necessities of life, which is measured by the poverty line. The poverty rate is what percentage of the population lives below the poverty line. In this section, we will examine poverty. Later we will take a closer look at income inequality, which refers to the disparity between those with higher and lower incomes.