Measurement of poverty

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Poverty is a complex phenomenon, varying across time and space, with different philosophical perspectives leading to different conclusions about its nature, and with alternative measures sometimes providing conflicting indications about its size and evolution.

Measurement of Poverty

Any poverty measure is thus unlikely to satisfy the various demands addressed to it. In particular, every measure has a number of advantages and disadvantages. Important questions in the choice of the poverty measurement methodology include its purpose and the data requirements. The use of the measure or index as an advocacy instrument to raise public and political awareness, as a monitoring tool for progress, to compare regional, group or international outcomes or to guide policy maker will determine the methodology chosen. A summary statistic, few indicators and intuitive understanding are especially useful for communication and advocacy.

The first step in poverty measurement is the identification stage. In particular, the poverty dimension(s) have to be picked and a threshold for each dimension must be defined. This threshold services to identify the poor and differentiate them from the non-poor. Poverty lines exist on both national levels, where they servie to identify the poor in a specific society and on international level where. There are long-standing debates about which dimension(s) or welfare indicator(s) are to be used and where to set the threshold for general poverty measurement. The two main approaches are absolute and relative (to the standard e.g. the median or average) poverty lines. This debate might be even trickier when it comes to children: What would be the right cut-off point and what dimensions are important for measuring their pronounced dependency on the direct environment.

Poverty Measures

One distinction between poverty measures is whether the metric used to assess people’s conditions is monetary or non-monetary, and whether it refers to inputs (i.e. the resources required to achieve well-being) or to outcomes (i.e. the final conditions people achieve). Most poverty measures are monetary and input based, with income measures as the most obvious example. Income-based measures of poverty differ however in terms of the income-concept used (e.g. income before taxes, as in most US analysis, or income after taxes, as in the EU); the unit of analysis (whether you count the number of people who are poor or the number of households or families in this conditions); and how to account for differences in needs across households of various characteristics (such as size and presence of children).

 

Income based measures of poverty

Income based measures of poverty can be further distinguished depending on whether they rely on absolute or relative thresholds. Absolute thresholds are typically expressed in the form of the cost of a basket of goods and services deemed to be required to assure minimum living conditions, indexed for prices changes over time (e.g. the United States). Absolute thresholds are also used internationally (as in the case of the World Bank’s poverty lines of ‘one-dollar’ and ‘two-dollars’ per day and per person, measured at purchasing power parities) to monitor progress by the international community in meeting commitments to eradicate extreme poverty (to halve the 1990 $1 a day poverty rate by 2015) in the context of the Millennium Development Goals.

Relative thresholds are set as a proportion of the income level that is most typical in each country. While some observers may be uneasy about some of the implications of using a relative threshold (as it implies that poverty will decline even when the income of the poor is falling, provided that the income of the non-poor is falling faster), this approach follows logically from Adam Smith’s notion that the consumption standards prevailing in a community dictate which goods are viewed as essential and which ones are not. In the EU, a community regulation has set this threshold at 60% of median household disposable income, with each person being attributed the “adjusted” income of the household to which he/she belongs (adjusted through the so-called “modified OECD-scale”). This concept of the population “at risk of poverty” is monitored through indicators of its prevalence (i.e. the number of people who are poor, as a share of the total population) and severity (i.e. the gap between the median income of the poor and the poverty line). EU countries also use indicators of poverty based on a relative threshold “anchored” in time, so as to highlight changes in the absolute income of the poor.

Non monetary measures of poverty

Other approaches to the measurement of poverty rely on direct measures of people’s access to the types of goods and activities deemed to be necessary to enjoy a “decent” standard of living, rather than using income as an indirect measure of the resources available to satisfy consumption. These approaches generally assess the conditions of people through surveys designed to distinguish between situations where the lack of a good or activity reflects the preferences of each person and those where they reflect the lack of financial resources to pay for them, and select these “necessary” items based on either experts’ views or on surveys that elicit people’s consensus of which consumption items are more critical to a decent standard of living. This approach to the measurement of multidimensional poverty can be used either as an alternative to income based measures or in combination to them, as in the Irish definition of “consistent poverty” (which counts as consistent poor those people who have both relative low income and who experience a given number of deprivations). Other approaches to the construction of multidimensional poverty are rooted in the notion of capabilities (the freedom of a person to choose among the various things that he or she manages to do or be in leading a life) but these have not yet lead to the development of measures that could be reliably applied in comparative analyses.

 

Official measures of poverty

Several countries have official measures of poverty, typically defined as the costs of a nutritionally adequate food bundle plus an allowance for non-food poverty; in some of these countries, these official thresholds are also to define the conditions of access to various types of benefits. The existence of an official definition of poverty cut short all ambiguities as to its meanings. This, however, generally comes at a price: politically, it has often proved difficult (if not impossible) to change definitions when warranted by changed conditions. One telling example of this difficulty is represented by the lack of agreement, despite decades of discussion, on how to revise the US poverty line, which dates back to the 1950s and whose value is today is equivalent to less than 40% of median income. The OECD, on his side, relies on measures of income poverty based of several relative thresholds (set at 40%, 50% and 60% of median household disposable income, and adjusted with a “square root” elasticity) to benchmark countries performance, while also using alternative measures (multidimensional) for some more specific applications.

 

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Further Reading

Poverty Data