11.2 Poverty measures

Poverty measures are crucial tools for understanding and addressing economic inequality. They range from income-based thresholds to multidimensional indices that consider health, education, and living standards. These metrics help policymakers identify vulnerable populations and design targeted interventions.

Challenges in measuring poverty include data collection limitations, regional comparability issues, and capturing non-monetary deprivation. Despite these obstacles, poverty measures remain essential for tracking progress in reducing economic hardship and guiding effective poverty reduction strategies.

Absolute vs relative poverty

• Absolute poverty refers to a fixed standard of living below which individuals are considered poor, regardless of the overall wealth or income distribution in a society
• Relative poverty defines poverty in relation to the economic status of other members of the society, usually based on a percentage of the median income
• Absolute poverty measures focus on the inability to meet basic needs (food, shelter, healthcare), while relative poverty highlights income inequality and social exclusion within a community

Income-based poverty measures

Poverty thresholds

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• Poverty thresholds are the income levels used to determine the poverty status of individuals or households
• Thresholds vary by family size and composition to account for different consumption needs
• In the United States, the Census Bureau sets poverty thresholds based on the cost of a minimum food diet multiplied by three, adjusted for inflation annually

Poverty guidelines

• Poverty guidelines are simplified versions of poverty thresholds, used for administrative purposes such as determining eligibility for government assistance programs
• Guidelines are issued annually by the Department of Health and Human Services (HHS) and are a single set of numbers for the 48 contiguous states, with separate guidelines for Alaska and Hawaii
• Poverty guidelines are not used for statistical purposes or official poverty population figures, which rely on poverty thresholds

Consumption-based poverty measures

Basic needs approach

• The basic needs approach defines poverty as the lack of resources necessary to meet a minimum standard of living
• This approach considers the cost of essential goods and services (food, housing, healthcare, education) in a specific region or country
• Households unable to afford this basic needs basket are considered poor under this measure

Food energy intake method

• The food energy intake method estimates the poverty line based on the cost of obtaining a predetermined food energy requirement
• This method calculates the income or expenditure level at which an individual's typical food energy intake is just sufficient to meet a specific caloric threshold
• The food energy intake method is useful in regions where food constitutes a significant portion of household expenditures (developing countries)

Multidimensional poverty index

Health indicators

• The Multidimensional Poverty Index (MPI) includes two health indicators: nutrition and child mortality
• The nutrition indicator considers the percentage of the population that is undernourished, based on caloric intake and the prevalence of underweight children
• Child mortality measures the proportion of children dying before the age of five, reflecting access to healthcare and overall living conditions

Education indicators

• The MPI incorporates two education indicators: years of schooling and school attendance
• Years of schooling measures the percentage of the population with less than five years of education, indicating a lack of basic literacy and numeracy skills
• School attendance assesses the proportion of school-age children not attending school up to grade 8, highlighting barriers to education access

Standard of living indicators

• The MPI evaluates standard of living using six indicators: electricity, drinking water, sanitation, flooring, cooking fuel, and asset ownership
• These indicators capture access to basic infrastructure and resources necessary for a decent standard of living
• Households are considered deprived if they lack access to these essential amenities or assets (clean water, proper sanitation, electricity, durable housing, clean cooking fuel, and basic assets like radios or bicycles)

Gini coefficient

Calculating income inequality

• The Gini coefficient is a measure of income inequality within a population, ranging from 0 (perfect equality) to 1 (perfect inequality)
• It is calculated based on the Lorenz curve, which plots the cumulative share of income earned by each cumulative percentage of the population, ordered from poorest to richest
• The Gini coefficient is the ratio of the area between the Lorenz curve and the line of perfect equality to the total area under the line of perfect equality

Interpreting Gini values

• A Gini coefficient of 0 represents perfect income equality, where everyone earns the same income
• A Gini coefficient of 1 indicates perfect income inequality, where a single individual or household earns all the income
• Countries with Gini coefficients below 0.3 are considered relatively equal, while those above 0.5 have high levels of income inequality
• Changes in the Gini coefficient over time can reveal trends in income inequality within a country or region

Poverty traps

Vicious cycle of poverty

• A poverty trap is a self-reinforcing mechanism that keeps individuals or communities in persistent poverty
• The vicious cycle of poverty occurs when low incomes lead to limited access to education, healthcare, and productive assets, which in turn perpetuate low productivity and incomes
• Escaping poverty traps often requires external interventions or structural changes to break the cycle (investments in human capital, infrastructure, or asset transfers)

Intergenerational poverty transmission

• Intergenerational poverty transmission refers to the passing of poverty status from one generation to the next within a family or community
• Children born into poor households often face disadvantages in access to education, nutrition, and healthcare, limiting their future economic opportunities
• Intergenerational poverty can be perpetuated by factors such as low parental education, limited social networks, and discrimination, making it difficult for subsequent generations to escape poverty

Poverty reduction strategies

Economic growth policies

• Economic growth policies aim to increase overall economic output and per capita incomes, which can help reduce poverty by creating employment opportunities and raising living standards
• These policies may include investments in infrastructure, human capital, and productivity-enhancing technologies
• Inclusive growth strategies focus on ensuring that the benefits of economic growth are distributed across society, particularly to disadvantaged groups

Social protection programs

• Social protection programs provide assistance to vulnerable populations to prevent or alleviate poverty
• These programs can include cash transfers (unconditional or conditional on meeting specific requirements like school attendance or health check-ups), in-kind transfers (food, housing, healthcare), and public works programs
• Well-designed social protection programs can help break the cycle of poverty by providing a safety net and investing in human capital development

Human capital investment

• Human capital investment focuses on improving the skills, knowledge, and health of individuals to enhance their economic productivity and opportunities
• Investments in education (primary, secondary, and tertiary) can increase individuals' earning potential and employability
• Healthcare investments, such as immunization programs and access to primary care, can improve population health and reduce the economic burden of illness and disease
• Targeted human capital investments can help disadvantaged groups overcome barriers to economic mobility and escape poverty

Challenges in measuring poverty

Data collection limitations

• Accurate poverty measurement relies on the availability and quality of data on income, consumption, and living conditions
• In many developing countries, data collection systems may be inadequate or inconsistent, leading to gaps or inaccuracies in poverty estimates
• Household surveys, a primary source of poverty data, can suffer from sampling errors, non-response bias, and misreporting of income or consumption

Comparability across regions

• Poverty measures may not be directly comparable across countries or regions due to differences in the cost of living, consumption patterns, and cultural norms
• Absolute poverty lines based on a global standard (e.g., $1.90 per day) may not accurately reflect the actual living conditions or deprivation experienced in different contexts
• Efforts to ensure comparability, such as the use of purchasing power parity (PPP) exchange rates, can help but may not fully account for all relevant differences

Capturing non-monetary deprivation

• Traditional poverty measures often focus on income or consumption, but poverty is a multidimensional phenomenon that encompasses non-monetary aspects of well-being
• Non-monetary deprivations, such as lack of access to education, healthcare, clean water, and sanitation, may not be adequately captured by income-based measures
• Multidimensional poverty measures, like the Multidimensional Poverty Index (MPI), attempt to address this limitation by incorporating indicators of health, education, and living standards
• However, selecting appropriate indicators and weights for multidimensional measures can be challenging and subjective, requiring careful consideration of local contexts and priorities