It takes money to make money, and if you don’t have any, well...you’ll be stuck. Stuck in a poverty trap. Systems with high barriers to entry have large poverty traps. Systems with low barriers to entry have lower poverty traps.
Let’s say you’re very poor and trying to figure out how to get on your feet. If you’re in Thailand, you might be able to get some help from family and friends enough to start a little street food cart. You don’t need permits, land, nada...just a little cart attached to your motorbike. And you need to stay in business long enough by making decent food, and you hope you don't get robbed. In the U.S., there exist way more barriers to enter the market as a food vendor: food permits...you probably have to rent or buy space...have a health inspector check you out, etc. It’s a lot harder, and a lot more expensive. But fewer (probably) gunpoint robberies.
If you don’t have enough capital to escape poverty, you’re in a poverty trap. Oftentimes, people aren’t making a high enough income to save up any meaningful amount to climb out of the hole of poverty. Some people might even be living at shelters while working a full-time job, and may or may not be able to get out of the poverty trap that way. You begin relying on government handouts to make ends meat. You stop fighting for a better life. You end up just focusing on how to "work the system," rather than bootstrap your own independence. You have no other choice.
The poverty trap helps to inform programs meant to get people out of poverty. If a little money is thrown at those in poverty via a program, but not enough, then that program isn’t going to have the best results. People need that critical mass of capital, or else they will stay dependent on aid. And when a lot of money is thrown (witness: the projects), an entire generation is created that relies only on government handouts, which have grown so big that replacing those handouts with a market-based, high-paying office job is virtually impossible.
While helping people attain the critical mass of capital is one type of program, other factors like healthcare programs affect the poverty trap, too. Researchers have found that poor health and disease-ridden areas can keep people in the poverty trap. Things like healthcare programs might ease the cost burden of health issues for those in poverty, which could leave them more of their own income to buy climbing gear to, uh...get out of that poverty trap.
Related or Semi-related Video
![Finance: Who benefits from unions?](https://media1.shmoop.com/video/thumbnails/COURSE.FINANCE.381_770x433.jpg)
Finance: Who benefits from unions?11 Views
Finance allah shmoop who benefits from unions And while union
workers duh Maybe a better question is who doesn't benefit
from unions Well okay okay Union workers exist because workers
were abused at different points in our country's history Ever
read the grapes of wrath Yeah Joad family Peach picking
for like five bucks a day or less And then
there's norma rae great film should see it won the
academy award and remember the speech You love me You
love me That union in a cotton fabric mill lots
of abuse there So yes unions exist in reaction to
bad acting on the part of the man and they
collectively bargain against the man on behalf of the workers
who belong And they made the country a whole lot
more fair and square So thankyou unions for that Historically
well guess what time moved forward and corporations today frequently
don't want to deal with unions They dictated salaries and
benefits as they saw fit and well the workers pushed
back Union's got uppity and then corporations got down ity
all right And the result was that all whole bunch
of unionized shops were forced to hire a lot more
Workers than they really needed That is that the man
was required to hire thirty seven people instead of the
twenty three he actually needed And the work rules that
originally were intended to protect made it hard to train
and to fire like really talented people did not want
to be paid like the average joe with the same
career path But really untalented people loved the fact that
it was hard to get fired inside of a union
So you got all kinds conflict inside of the union
as well Got it And you know the firing thing
ever been to a d m v car place that
we get your license Wake up They're still all right
Well let's Talk to a now bankrupt newspaper company who
couldn't downsized fast enough to accommodate the assault of the
lower margin internet delivered competitors Local newspapers were highly unionized
at the time in the nineties and union rules would
not let them fire workers fast enough And then the
industry revenue model changed really fast Newspapers could not absorb
the cost changes fast enough They couldn't fire people So
they all went bankrupt And then all the workers were
out of jobs and everyone ended up being out of
work Yeah well that was a fail on the unions
part They didn't move quick enough So who doesn't benefit
from unions Well the largest union in the country the
u s government Our own g men have the largest
set of union workers in the country and they cost
taxpayers of fortune They can almost never be fired They
have spectacularly expensive benefits and the real salaries If you
do fair math are actually very high Taxpayers pay for
government unions Often the union worker has a way better
deal than the taxpayer him or herself who supports that
union worker Yet taxpayers keep voting in raises and benefits
and all kinds of rules that let the government higher
Thirty seven people for jobs that really only need fourteen
We can't figure out the rationale there either maybe the
taxpayer someday you'll wise up Police officer works thirty years
on the force from age twenty two Two fifty two
not darth vader Kind different force She can then retire
and make eighty five percent of what her average pay
wass for her last three years And of course in
those last three years she does massive overtime and extra
work toe goose up her eventual hundred seventy five grand
a year Pay Ask your folks how they feel about
a cop making one hundred seventy five grand in a
year All right well she then retires but for the
remaining thirty years that she'll live she'll get one hundred
seventy five grand a year That's her pension that's what
cops get in california Welcome to the left state here
So she might claim that she quote on ly unquote
made one hundred seventy five grand We think that's a
lot for cops getting cats out of trees But in
fact for the thirty years she worked she actually cost
the taxpayers something like double that amount plus benefits So
it isn't that joe taxpayer doesn't believe the officer has
worked really hard The question remains Does that person deserve
so much better pay And retirement and benefits and all
the other stuff then joe taxpayer who's funding her well
Police have a great union and jury's still out on
a lot of these questions But you know what they
say It's the government office who writes all the checks
Unions can't live with them Yeah that's it We're done 00:04:34.238 --> [endTime] that that's where they stopped the conversation
Up Next
What are Wage Rates? Wage rates are pay scales that are predicated on labor value at an hourly rate. The free market sets the rate based upon suppl...
What are Real v. Nominal Wages? Nominal wages are simply the amount of money that’s earned, so salaries or hourly wages. Real wages are the purch...