The economics of inequality and poverty

Monday 22 May 2023


The following article has been published as part of a series celebrating 550 years since St Catharine’s was founded in 1473.

The World Bank introduced the dollar-a-day poverty line in 1990 and has since made adjustments to how it measures poverty worldwide. A threshold of $5.50 per day was introduced in 2017 as a new poverty line for upper-middle-income countries and was used by economists for many years (it was recently adjusted upwards to $6.85).

During our 550th anniversary celebrations, it seems appropriate to find out more about our economists and their research into poverty and inequality:

  • Dr Noriko Amano-Patiño (2021), University Assistant Professor in Economics, Director of Studies in Economics and Warden of the Russell Street Hostel
  • Dr Yujiang River Chen (2017), Bevil Mabey College Associate Professor, Director of Studies in Economics and Chair of the College’s Equality, Diversity & Inclusion Working Group
  • Professor Sriya Iyer (2000), Professor of Economics and Social Science, University of Cambridge
  • Dr Vasileios Kotsidis (2019), Bibby College Assistant Professor and Director of Studies in Economics
  • Mikhail Safronov (2022), University Assistant Professor in Economics

Prof. Sriya Iyer, 550th anniversary logo for St Catharine's College, Dr River Chen, Dr Vasileios Kotsidis, Dr Noriko Amano-Patiño, Mikhail Safronov
Clockwise from top left: Prof. Sriya Iyer, Dr River Chen, Dr Vasileios Kotsidis, Dr Noriko Amano-Patiño and Mikhail Safronov

Our economists have very different backgrounds. What led to you joining the Fellowship at St Catharine’s?

VK: “Originally from Greece, I came to Cambridge in 2017, having just finished my PhD at the University of Nottingham. I joined St Catharine's two years later and was elated by the excellent and welcoming fellowship. The Fellows are extremely supportive and very much encourage a culture of inclusion and excellence. It is primarily for this reason that I consider myself very fortunate to be a member of the College.”

YRC: “After completing my undergraduate studies in China, I arrived in Cambridge in 2012 and completed both an MPhil and a PhD in Economics. I was admitted to St Catharine’s in 2017, joining a group of economists here working on diverse research areas. The Fellowship are extremely supportive and always work together closely. I’m very fortunate to be able to be a member of the College.”

SI: “I came to Newnham College in 1991 directly from India to read for the Economics Tripos and then went on to read for a PhD. I joined St Catharine’s in 2000 for my first job. At that time, Catz had a very different kind of fellowship – I think I was the first ethnic minority female Official Fellow of the College. The economists of the College then as now were terrific colleagues and this was a major reason I joined the College. I cannot believe it has been 23 years!”

NAP: “I grew up in Mexico and my postgraduate studies took me to Yale University. I had the pleasure to accept the offer of a lectureship position at Cambridge’s Faculty of Economics in 2018 but was initially hesitant about joining a college because I imagined that the duties of a Fellow would conflict at times with my research. Sriya, River, and Vas are a major factor for me joining Catz: having met them at the Faculty in different settings, I could not imagine a better community to be part of than one with such supportive economists.”

MS: “After completing my undergraduate degree and Master’s degrees in Russia, I was admitted to Northwestern University in the USA for my PhD. I’ve since been based at Cambridge’s Faculty of Economics (apart from a year’s teaching at the University of Nottingham). The different backgrounds of the Catz economists is remarkable and they are contributing to a vibrant and diverse community in Cambridge, but we also need to be mindful that this is at the expense of academic communities in our own countries – a driver of inequality that I have had to contend with when making career choices.”

How did you first come to be interested in issues around inequality?

VK: “I grew up in a village of 500 people, most of whom at the time were cultivating the land or raising livestock. The average yearly nominal income in Cambridge is a far cry higher from what one would make in my childhood village. The poverty rate is also a lot higher. These simple observations are straightforward to state but intriguing for an economist!”

NAP: “Growing up in Mexico City, there are many experiences that come to mind. Differences in the resources that people have, and the differential treatment they get for having irrelevant but visible characteristics, have surrounded me and I believe shaped me. For instance, when I was about 8 years old and one of the three Asian students in my school (of about 2000 students), I was called to the front of a classroom with my sister and the other Asian girl so that other pupils and a few teachers could compare the three of us physically: they pointed out the similarities in our eyes, differences in our skin colour, height, and so on. Once satisfied with their observations, they allowed us to go back to our respective classrooms and carry on as if nothing had happened.”

SI: “The early 1990s in India was a period of much poverty, inequality and religious conflict. I was interested to think about how economics could be used to solve some of these issues and to investigate the interactions between economic and social problems. I examined first the economics behind religious differences in demography in India for my PhD and that then led me to become interested in developing a new field of research which focuses now on many countries and which today we call the ‘Economics of Religion’.”

YRC: “I got interested in studying poverty and inequality during my undergraduate degree in China. Traveling around different countries, I further realised that poverty is an issue not unique to developing countries, but also almost relatively developed economies. Work from Raj Chetty and Thomas Piketty are among those inspired my research interests most.”

Broadly speaking, how would you describe the importance of economics in understanding and addressing poverty and inequality?

SI: “I see economics as fundamental to the study of inequality and poverty. Half the world’s population lives under $5.50. Economics, through its theory and empirical engagement, has the ability to make people better off, to improve their physical and mental wellbeing, and to get people out of poverty traps. Ultimately, it is a science of human behaviour, emphasising the trade-offs between alternative policy choices and the means to achieve them.”

NAP: “Poverty and inequality are complex, multifaceted problems that require holistic frameworks to be tackled. Economics gives us a toolkit to do this: a way to think about the incentives of individuals to act the way they do and the responses of others; it allows us to predict the consequences of taking those actions; and it also provides us with a myriad of measures of the benefits or the costs of a policy targeted at either preventing or motivating such actions.”

VK: “To build on this, I’d add that it is possible to group economics inquiries into those concerned with inequality as a matter of principle and those that investigate it as a matter of fact. The former examine inequality as a feature of any economic arrangement. The latter explore actual economies, where inequality may or may not have developed in the course of their function. We know that economic inequality can give rise to some degree of poverty even in prosperous economies and, more worryingly, an initially small degree of economic inequality may well be exacerbated over the course of a few generations due to systemic factors.”

YRC: “Economic research that falls in the second of Vasileios’s groups can be of immediate public benefit by evaluating policies that seek to address poverty and inequality. Using data and past policy intervention, economists attempt to identify the effectiveness of interventions on reduction of poverty and inequality, and also their general impact on economic growth, human capital, social mobility, and economic development. This work can help policymakers design new, more effective policies.”

How does your own research contribute to the theory and empirics of poverty and inequality?

SI: “It is inspiring how Catz economists are working on a wide range of microeconomic and macroeconomic issues: cost of living crises, inflation, unemployment and labour markets, urbanisation, affirmative action, design of optimal contracts, conflict prevention, and gender, race and religious inequalities. My own research deals with the economics of religion and conflict. I apply economic and statistical tools to evaluate the role of religion in different societies. A recent co-authored paper examines the role of religious movements in providing insurance and job support during economic crises in Brazil and earlier work examines how religious organisations provide public goods such as education, health care and employment in response to increased inequality in India[1]. Another project examines the interactions between religion, COVID-19 and mental health in the US[2].”

MS: “My research involves using mathematical models to investigate inequality. One project studies why inefficient social norms persist: one explanation might be that anyone rejecting a norm risks punishment, another might be that the available alternative could make the rejectors even worse off. I’m also interested in what renegotiation protocols (that is, rules describing what proposals can be made and what happens if the proposal is rejected) could lead to abolishment of inefficient norms. A second project considers the trade-off in the (re-)election of political parties between efficiency (i.e. an electorate sticks with one party to deliver an agenda) and equality (i.e. changing a party in power to give another group equal time in office), and the effect of different norms on the balance between efficiency and equality.”

YRC: “My research is mainly on labour market policy and the wage differential across regions. One key focus of my research is the minimum wage policy. A minimum wage rise would lead to an increase of income for those who earns minimum wage, but it might also lead to unemployment as some business may not be able to afford to continue operating – so it is important to understand the relative magnitude of these two forces, so that policymakers can aim to form an optimal policy. Equally, many theories try to explain the huge economic development gap among different regions. A better evaluation of those theory can help us further closing the inequality gap geographically.”

NAP: “In my current work, I focus on understanding the sources and implications of different dimensions of inequality. Specifically, I have projects tackling the gender wage gap[3], the effects of affirmative action policies in the workplace on the racial wage- and employment-gaps[4], the differences in publication patterns between men and women during the pandemic[5], among others. It is worth noting that this area of study, public economics, was mainly pioneered by economists in Cambridge (in chronological order Arthur Pigou, Frank Ramsey, and Sir James Mirrlees made outstanding contributions to the field).”

VK: “It is often the case that favourable economic outcomes are predicated on people's willingness to trust and cooperate with each other. It is easy to see this in a shared-ownership production process: if everyone trusts their co-workers and works on their allocated station in the production line, the total product far exceeds what would be possible if everyone manufactured each unit entirely on their own. Incentives for cooperation, however, can be scarce in an individually minded system. In practice, people frequently cooperate at great personal costs, often citing codes of conduct that they are determined to uphold and which prevent them from shirking even when the temptation to do so is high. My research aims to track and account for the evolution of these codes of conduct, as well as their effects on the economic system as a whole. An ultimate goal is to help facilitate the design of public institutions that will promote those principles that are best suited to healthy, long-term development and alleviation of economic inequality.”

Why is important to have measures of poverty/poverty lines like the $5.50 benchmark developed by the World Bank?

VK: “Poverty might appear straightforward to determine as a concept but entails numerous difficulties both in terms of providing a satisfactory formal definition and in terms of finding ways to eliminate it in practice. One might indeed be inspired by the attitude of Bishop Myriel in Les Miserables: ‘As there is always more wretchedness below than there is brotherhood above, all was given away, so to speak, before it was received. It was like water on dry soil; no matter how much money he received, he never had any.’ Academic and professional economists try to direct the investment of such goodwill in ways that will yield the highest possible returns, so that any given increment of ‘brotherhood’ can eradicate as much ‘wretchedness’ as possible. The indices developed by international institutions such as the World Bank are useful proxies that allow for the quantification of certain aspects of poverty, in a bid to determine appropriate priorities in the expenditure of finite resources.”

NAP: “These measures are important for several reasons. First, they allow us to monitor the progress of the policies that are already in place. Second, they can help us target resources and aid to those who need them most; for example, they can help us decide which households should receive welfare benefits or other forms of assistance. Third, they allow us to compare poverty rates across countries and regions and, in doing so, they can help policy makers identify potential common factors that may exacerbate or reduce poverty.”

SI: For any policy intervention undertaken by firms or governments or entities like the World Bank or the IMF, we need to know whether these interventions are actually successful. Essentially, what works and what doesn’t. As more people in the world move above the world’s poverty lines, we are able to see whether our economic policies are having a clear impact to make people better off. Thresholds move upwards over time as prices rise, which is why the World Bank’s $5.50 in 2017 for upper-middle income countries has now become $6.85, but having a good sense of absolute and relative poverty and inequality both within and across countries is absolutely fundamental to assessing, as Adam Smith famously commented, the ‘natural progress of opulence’.”

YRC: “Those measures also serve as a benchmark and guidance to help policymakers to reallocate limited sources to those who has the greatest needs. Many countries have similar minimum level of living standard or minimum wages policy. Researchers also interested in how those numbers can have even wider effects outside the groups they seek to target. For example, in behavioural economics, many studies focus on the anchoring effect that people might over rely on these benchmarks.”

VK: “It is worth adding that we need to remember that these indices are, at best, accurate and incomplete measures poverty. In fact, a lot of information is forfeited in favour of quantitative pliability. It is, thus, the responsibility of economists to also remain aware of the scope and limits of our indices, as well as to find ways to aggregate them in ways that render them practically useful. These conversations are likely to entail a considerable ethical component. At the moment, there is not one commonly agreed upon way in which such aggregation might be performed but progress is continually taking place. After all, good investments, even if not perfect, are still better than entirely random ones. As a final word of caution, these indices are tools, not end-goals in their own right.”


Find out more about studying Economics as an undergraduate at St Catharine’s.


[1] T. Cavalcanti, S. Iyer, C. Rauh, C. Roerig and M. Vaziri. 2023. ‘A City of God: Afterlife Beliefs and Job Support in Brazil’. Centre for Economic Policy Research Discussion Paper DP17719.

[2] G. Bahal, S. Iyer, K. Shastry and A. Shrivastava 2023. ‘Religion, Covid-19 and Mental Health’. Centre for Economic Policy Research Discussion Paper DP17791.

[3] Amano-Patiño, Baron and Xiao (2021), CWPE2010

[4] Amano-Patiño, Contractor, Aramburu (2022), CWPE2262

[5] Amano-Patiño, Faraglia, Giannitsarou, Hasna (2020), VoxEU