Measuring poverty
is measured in different ways by different bodies, both governmental and nongovernmental. Measurements can be absolute, which references a single standard, or relative, which is dependent on context. Poverty is widely understood to be multidimensional, comprising social, natural and economic factors situated within wider socio-political processes.
The main poverty line used in the OECD and the European Union is a relative poverty measure based on 60% of the median household income. The United States uses a poverty measure based on pre-tax income and the U.S. Department of Agriculture's "economy food plan" by which 11% of Americans are living in poverty, but this is disputed.
The World Bank defines poverty in absolute terms. It defines extreme poverty as living on less than US$1.90 per day., and moderate poverty as less than $3.10 a day.
In 2008, 1.4 billion people had consumption levels below US$1.25 a day and 2.7 billion lived on less than $2 a day. And in 2025, an estimate around 831 million people lived in extreme poverty that lived less on 3.00$.
Absolute vs relative poverty
When measured, poverty may be absolute or relative. Absolute poverty refers to a set standard which is consistent over time and between countries. An example of an absolute measurement would be the percentage of the population eating less food than is required to sustain the human body.Another interpretation by the European Anti-Poverty Network reads:
Relative poverty, in contrast, views poverty as socially defined and dependent on social context. One relative measurement would be to compare the total wealth of the poorest one-third of the population with the total wealth of the richest 1% of the population. In this case, the number of people counted as poor could increase while their income rises. There are several different income inequality metrics; one example is the Gini coefficient.
Although absolute poverty is more common in developing countries, poverty and inequality exist across the world.
Measurements
Both absolute and relative poverty measures are usually based on a person's yearly income and frequently take no account of total wealth. Some people argue that this ignores a key component of economic well-being. Major developments and research in this area suggest that standard one dimensional measures of poverty, based mainly on wealth or calorie consumption, are seriously deficient. This is because poverty often involves being deprived on several fronts, which do not necessarily correlate well with wealth. Access to basic needs is an example of a measurement that does not include wealth. Access to basic needs that may be used in the measurement of poverty are clean water, food, shelter, and clothing. It has been established that people may have enough income to satisfy basic needs, but not use it wisely. Similarly, extremely poor people may not be deprived if sufficiently strong social networks, or social service systems exist.The main poverty line used in the OECD and the European Union is a relative poverty measure based on "economic distance", a level of income usually set at 60% of the median household income.
The United States, in contrast, uses an absolute poverty measure. The US poverty line was created in 1963-64 and was based on the dollar costs of the U.S. Department of Agriculture's "economy food plan" multiplied by a factor of three. The multiplier was based on research showing that food costs then accounted for about one-third of money income. This one-time calculation has since been annually updated for inflation.
The U.S. line has been critiqued as being either too high or too low. For instance, The Heritage Foundation, a conservative U.S. think tank, objects to the fact that, according to the U.S. Census Bureau, 46% of those defined as being in poverty in the U.S. own their own home. Others, such as economist Ellen Frank, argue that the poverty measure is too low as families spend much less of their total budget on food than they did when the measure was established in the 1950s. Further, federal poverty statistics do not account for the widely varying regional differences in non-food costs such as housing, transport, and utilities.
Definitions
The World Bank defines poverty in absolute terms. The bank defines extreme poverty as living on less than US$1.90 per day., and moderate poverty as less than $3.10 a day. It has been estimated that in 2008, 1.4 billion people had consumption levels below US$1.25 a day and 2.7 billion lived on less than $2 a day. The proportion of the developing world's population living in extreme economic poverty has fallen from 28 percent in 1990 to 21 percent in 2001. Much of the improvement has occurred in East and South Asia. In Sub-Saharan Africa GDP/capita shrank with 14 percent, and extreme poverty increased from 41 percent in 1981 to 46 percent in 2001. Other regions have seen little or no change. In the early 1990s the transition economies of Europe and Central Asia experienced a sharp drop in income. Poverty rates rose to 6 percent at the end of the decade before beginning to recede. There are criticisms of these measurements.Indicators
Non-monetary indicators
Some economists, such as Guy Pfeffermann, say that other non-monetary indicators of "absolute poverty" are also improving. Life expectancy has greatly increased in the developing world since World War II and is starting to close the gap to the developed world where the improvement has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy increased from 30 years before World War II to a peak of about 50 years — before the HIV pandemic and other diseases started to force it down to the current level of 47 years. Child mortality has decreased in every developing region of the world. The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories per day decreased from 56% in the mid-1960s to below 10% by the 1990s. Between 1950 and 1999, global literacy increased from 52% to 81% of the world. Women made up much of the gap: Female literacy as a percentage of male literacy has increased from 59% in 1970 to 80% in 2000. The percentage of children not in the labor force has also risen to over 90% in 2000 from 76% in 1960. There are similar trends for electric power, cars, radios, and telephones per capita, as well as the proportion of the population with access to clean water.Common Poverty metrics
Headcount index
Headcount index is a widely used measure, which simply indicates the proportion of the poor population. Although it does not indicate how poor the poor are.Formula:, where Np is the number of poor and N is the total population.
Example: If 10 people are poor in a survey that samples 1000 people, then Po = 10/1000 = 0.01 = 1%
Its often helpful to rewrite:
, Here, I is an indicator function that takes on a value of 1 if the bracketed expression is true, and 0 otherwise. So if expenditure is less than the poverty line, then I equals 1 and the household would be counted as poor.
This index is easy to understand, but has few disadvantages. It does not show the poverty rate. In addition, the headcount index does not show how poor the poor are. Moreover, this estimate is made on households and not on individuals.
Poverty gap index (P1)
The Poverty gap index is the mean distance below the poverty line as a proportion of the poverty line where the mean is taken over the whole population, counting the non-poor as having zero poverty gap.Using the index function, we have:, where define the poverty gap as the poverty line less actual income for poor individuals; the gap is considered to be zero for everyone else.
Could be rewrite:
The poverty gap index denotes the extent to which individuals fall below the poverty line as a proportion of the poverty line. By summing these poverty gaps we derive the minimum cost of eliminating poverty.
This method is only reasonable if the transfers could be made perfectly efficiently, which is unlikely.
Squared Poverty Gap Index (Poverty severity index, P2)
The squared poverty gap index is conducted by averaging the squares of the poverty gaps relative to the poverty line. This measure emphasizes extreme poverty and gives it a greater weight than less poverty. One of its benefits is the possibility of variation in the weight of income level of the poorest part of society. The Poverty severity index can also be disaggregated for population subgroups.Sen index
The Sen index connects the number of poor with the size of their poverty and the distribution of poverty in the sample.Sen-Shorrocks-Thon Index
The Sen-Shorrocks-Thon index is an improved version of the Sen index.The Sen-Shorrocks-Thon index takes into perspective measures of the proportion of poor people, the extent of their poverty and the distribution of welfare among the poor. This index enables us to decompose poverty into three components and answer these questions: Are there more poor? Is their depth of poverty worsening? Is there higher inequality among the poor?
Asset-based measures
Other point of view defines poverty and in terms of assets. These asset-based measures may consider the real financial asset holdings, access to the credit market and poverty related to a household’s wealth. An example of those may be income net worth measures, asset-poverty and financial vulnerability.Being asset poor does not imply being income poor and vice versa. For example, the importance of being asset wealthy is lower in countries with secure employment as it ensures stable living standards, while in other countries it may be needed as a cushion against uncertainties and shocks.