2. Poverty Indicators
To determine what poverty is, there is a need to decide on what barometer for living standards will be used. In general, real consumption values are used. The poverty headcount ratio and poverty gap ratio are typical poverty indicators. More concretely, one method used is to look at the poverty line and basic consumer spending; that is, the amount of spending required for the amount of food necessary for basic energy intake plus basic non-food items. Anyone whose consumption level is below this is regarded as being among the poor. Reference is often made to the measure of a dollar a day per person as marking the poverty line. In this case, each country’s household consumption according to survey results is converted according to purchasing power parity so that the amount of goods that can actually be consumed is equalized. The ratio of the population that is earning (or consuming) an amount below the poverty line is the poverty headcount ratio. We can tell how big the population of the poor is according to this indicator, but we cannot tell how serious each individual’s circumstances are. With income transfers, the poverty headcount rate can easily be lowered by granting such payments to those whose income levels are not that low, and this may be preventing the poorest of the poor from receiving relief. In contrast with this, the poverty gap ratio expresses the amount of income the poor are lacking to make it over the poverty line, which is useful in order to grasp the severity of the problem. The poverty gap ratio is calculated as follows:
In other words, "Σ" is determined by the poor (those whose consumption levels are below the poverty line). Under this method, if consumption levels of the poor are reduced, the poverty indicator increases, reflecting the situation of the poor. This makes it a better indicator than the headcount ratio. The squared poverty gap ratio is another suggested method, which squares the amount of the gap between consumption levels of the poor and the poverty line and sum up them. By squaring this amount, the situation of the poorest is better reflected in poverty indicators.
In grasping poverty by looking at consumer spending, emphasis is on the goods and services necessary for daily life. It is important, however, in understanding poverty to actually know about people’s being and what they are doing (what Amartya Sen refers to as "functioning") through goods and services. This is where social indicators such as health and life expectancy and literacy prove useful in understanding poverty. The UNDP’s Human Development Index (HDI) is one such indicator.
3. Measures to Reduce Poverty
In the 1970s, when efforts to deal with poverty began in earnest, "Redistribution with Growth" (Chenery et. al. 1974) was proposed. The concept of Basic Human Needs (BHN) was also advocated at the 1976 ILO World Employment Conference. Under this view, it is not just growth that is needed to meet people’s basic needs; redistribution of wealth and institutional reform are also necessary. In addition to basic consumption, adequate food, housing, and clothing, BHN includes access to safe drinking water and public health, use of public transportation, medicine, education, employment and the protection of human rights. In the 1990s, interest in poverty relief was high, and having undergone structural adjustments in the 1980s and reconsidered the meaning of development aid, focus was particularly on institutions and governance, non-income related poverty (human rights and social exclusion), participation in the local community, and self-initiated public action (Drèze and Sen 1989) . Tremendous impact could be seen particularly in the 1990 and 2000/2001 World Development Reports and post-1990 Human Development Reports (UNDP) . World Development Report 2000/2001 considered poverty reduction by looking at three dimensions - encouraging opportunity, empowerment and social security to deal with risks that people face - and emphasized institutions and governance. Human Development Report is based on the concept of expanding people’s choices in life by promoting development policies that are people-centered. According to Drèze and Sen, included in poverty reduction and social security are promotional measures to consistently improve people's income and skills, and protective measures/safety nets to guard people in emergency situations (e.g. disaster and economic crisis) (Drèze and Sen 1989). This includes safety net measures and the provision of assets, as well as improvements to "entitlements" of low-income earners.
With the current emphasis on targeting (determining policy beneficiaries by looking at specific indicators) arise the issues of its effect on the information gap between government and society, administrative costs, and incentives. People who are not suffering from poverty also benefit if limits are not established, but a strict means test for beneficiaries greatens the administrative costs involved, thereby increasing the burden on the poor. There is also the use of variables closely correlated with income as relatively easy indicators to determine beneficiaries (area, ethnic group, gender of head of household, housing situation, access to resources such as drinking water). There is also "self-targeting", whereby a framework is created that non-poor will not fit into, leaving only the poor (by setting the wage levels in public job creation programs close to the minimum standard of living, those whose living standards are supported by more than minimum wage do not take part).
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 capabilities approach argues that capturing the perceptions of poor people is fundamental to understanding poverty.[2]
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 an absolute poverty measure based on the U.S. Department of Agriculture's "economy food plan", adjusted for inflation. The World Bank also defines poverty in absolute terms. It defines extreme poverty as living on less than US$1.90 per day.[3] (PPP), 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.
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 (approximately 2000–2500 calories per day).
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.
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.[4]
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.[5]
The U.S. line has been critiqued as being either too high or too low. For example, 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 (with the average poor person's home having three bedrooms, with one and a half baths, and a garage).[6] 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.[7]
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.[8][9] 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. For deeper discussion see.[10] See also the Wikipedia article on Multidimensional poverty.
Benefits:
- Easy to measure (normally less incomes than expenditure)
- Measures degree control over finance of household
- Cheaper collecting of data
Disadvantages:
- Probably income will be underreported
- May be affected by short-term fluctuations (for example, the seasonal works), so reporting period might not catch right information
- Some parts of income are hard to survey (self-home production or self-employment income)
- Link between income and welfare can be confusing[11]
Benefits:
- Report actual material standard of living.
- For long term measuring is better and more precisely
- Less understated so expenditures are easier to recall
Disadvantages:
- Consumption of household could be unevenly (for example borrowing money)
- Consumption choices couldn't be rational. People who spend less, could save or live humbly
- Data could be damaged, because of untruly information
- Difficult to measure durable goods in some period of research.[11]
Even if income and expenses are measured perfectly, none of these measures show well-being objectively. For example, it includes leisure, public goods, health care, education and even peace and security. One criterion is the consumption of calories per person. According to this criterion, we can see what percentage of the population suffers from hunger. Although the average limit is around 2,100 calories, it still varies from person to person. It depends on age, gender, etc. What percentage of income do we spend on food consumption? Research shows that the more developed a country, the smaller the budget we spend on food. The disadvantage of this scale is that people differ relatively in the quality of food and it is consumption per person. Measuring results rather than inputs. Rather than the amount of food, we should focus on the anthropometric state (underweight, etc.). This measurement really shows the quality of the household. However, it cannot be used for comparisons between states or continents, because nationalities differ in scale. The last idea of how to assess poverty is up to the decision among citizens. In Vietnam, for example, some villages are judged by the people themselves, who need help out of poverty. Although this simple solution works somewhere, it is very often distorted by various influences. In short, there is as yet no ideal measure for the well-being of the population. This is not an argument to end the measurement, but rather a warning to minimize errors and take into account as many factors as possible.[11]
The World Bank defines poverty in absolute terms. The bank defines extreme poverty as living on less than US$1.90 per day.[3] (PPP), 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.[12] There are criticisms of these measurements.[13]
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.[14] The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories (9,200 kilojoules) 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.[15]
Headcount index (Po) 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: P o = N p N {\displaystyle Po={\frac {Np}{N}}} , 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:
P o = 1 N ∑ i = 1 N I ( y i < z ) {\displaystyle Po={\frac {1}{N}}\sum _{i=1}^{N}I(yi<z)} , 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 (yi) is less than the poverty line (z), then I(·) equals 1 and the household would be counted as poor.
This index is easy to understand, but has few disadvatages. Unfortunately, this index does not show us 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.[16]
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: G i = ( y i − z ) × I ( y i < z ) {\displaystyle Gi=(yi-z)\times I(yi<z)} , where define the poverty gap (Gi) as the poverty line (z) less actual income (yi) for poor individuals; the gap is considered to be zero for everyone else.
Could be rewrite: P 1 = 1 N ∑ k = 1 N G i z {\displaystyle P1={\frac {1}{N}}\sum _{k=1}^{N}{\frac {Gi}{z}}}
This method is only reasonable if the transfers could be made perfectly efficiently, what is unlikely.[16]
The Sen index connects the number of poor with the size of their poverty and the distribution of poverty in the sample.[16]
P s − P o ( 1 − ( 1 − G p ) U P 4 {\displaystyle Ps-Po(1-(1-G^{p}){\frac {U^{P}}{4}}}
The Sen-Shorrocks-Thon index (sometimes referred to as SST index) is an improved version of the Sen index.[16]
P s s t = P o P 1 p ( 1 + G p ) {\displaystyle Psst=PoP_{1}^{p}(1+G^{p})}
These surveys interpret data that has some common problems:
Random sample: All research is based on randomly selecting people into a sample, and each should have the same chance of being selected. Unfortunately, it is not easy for the sample not to be biased, because some groups of people are simply difficult to trace.
Sampling: We can see inequalities from experience and from surveys themselves. Surveys show us only an estimated formula. Another thing we should be interested in is how the sampling was performed. In areas with dense population, there is usually under-sampling.
Goods Coverage and Valuation: To cover and refine the information, we should ask the sample more generally. Not only the issues of income and expenditure are enough, but also own consumption from the family farm. It is necessary to gather information on housing and components of durable consumption.
Variability and the Time Period of Measurement: Income, consumption and other factors change over time. In less developed countries, therefore, the focus is only on consumption, which is more stable from income.
Comparisons across Households at Similar Consumption Levels: Comparisons between households are difficult because households differ not only in the size of income and expenditure, but also in the environment, leisure, quality of the environment, etc.[11]
Even if poverty may be lessening for the world as a whole, it continues to be an enormous problem:
- One third of deaths — some 18 million people a year or 50,000 per day — are due to poverty-related causes. That's 270 million people since 1990, the majority women and children, roughly equal to the population of the US.
- Every year nearly 11 million children die before their fifth birthday.
- In 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day.
- 800 million people go to bed hungry every day.[17]
The World Bank's Voices of the Poor initiative,[18] based on research with over 20,000 poor people in 23 countries, identifies a range of factors that poor people consider elements of poverty. Most important are those necessary for material well-being, especially food. Many others relate to social rather than material issues.
- precarious livelihoods
- excluded locations
- gender relationships
- ^ "GINI index (World Bank estimate) | Data". data.worldbank.org. Retrieved 2020-07-23.
- ^ Sen, Amartya (1999). Development as Freedom. OUP. ISBN 0-19-289330-0.
- ^ a b "New Data Show 1.4 Billion Live On Less Than US$1.25 A Day, But Progress Against Poverty Remains Strong". worldbank.org/. The World Bank. Retrieved 13 March 2015.
- ^ "Archived copy". Archived from the original on 2007-11-23. Retrieved 2011-10-10.{{cite web}}: CS1 maint: archived copy as title (link)
- ^ US Department of Human Services, FAQ Poverty Guidelines and Poverty
- ^ Rector, Robert E. and Johnson, Kirk A., Understanding Poverty in America, Executive Summary, Heritage Foundation, January 15, 2004, No. 1713
- ^ Frank, Ellen, "Dr. Dollar: How Is Poverty Defined in Government Statistics?" Dollars & Sense magazine, January/February 2006. Accessed April 13, 2008
- ^ "Measuring Poverty - Poverty is defined by deprivation, and can be measured with economic or social indicators". boundless.com. Archived from the original on 2 April 2015. Retrieved 12 March 2015.
- ^ Pogge, Thomas. "Measuring Poverty". thomaspogge.com/. Archived from the original on 29 January 2016. Retrieved 12 March 2015.
- ^ Thorbecke, E., 2008. Multidimensional Poverty: Conceptual and Measurement Issues. In: Kakwani, N., Silber, J. (Eds.), The Many Dimensions of Poverty. Palgrave Macmillan, New York, pp. 3–20
- ^ a b c d "Handbook on Poverty and Inequality" (PDF).{{cite web}}: CS1 maint: url-status (link)
- ^ Worldbank.org reference
- ^ TFF, 1999
- ^ The Eight Losers of Globalization by Guy Pfeffermann. Pfeffermann, former Chief Economist of the International Finance Corporation, is the CEO of Global Business School Network. This is a non-profit organization supporting business and management education in the developing world. 2002.
It is an area where not only is there little or no consensus among disciplines, but where economists themselves have widely differing views. So, what can one say with a fair degree of certainty about growth and inequality in developing countries? Life expectancy at birth — the most basic and robust of all social indicators — has increased very considerably around the world.
- ^ www.sciencedirect.org
- ^ a b c d "Poverty Manual, Chapter 4" (PDF).{{cite web}}: CS1 maint: url-status (link)
- ^ "millenniumcampaign.org". Archived from the original on 2006-12-09. Retrieved 2007-01-14.
- ^ "Voices of the Poor". worldbank.org. The World Bank. Retrieved 13 March 2015.
- Graph of poverty line across E.U. countries
- Poverty line definition at OECD
- A map of world poverty
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