Measuring poverty

Poverty can be and is measured in different ways by governments, international organisations, policy makers and practitioners. Increasingly, poverty is understood as multidimensional, comprising social, natural and economic factors situated within wider socio-political processes. The capabilities approach also argues that capturing the perceptions of poor people is fundamental in understanding and measuring poverty. 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. Poverty can be and is measured in different ways by governments, international organisations, policy makers and practitioners. Increasingly, poverty is understood as multidimensional, comprising social, natural and economic factors situated within wider socio-political processes. The capabilities approach also argues that capturing the perceptions of poor people is fundamental in understanding and measuring 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 (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. 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 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). 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. 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. For deeper discussion see. See also the Wikipedia article on Multidimensional poverty. The World Bank defines poverty in absolute terms. The bank defines extreme poverty as living on less than US$1.90 per day> (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. There are criticisms of these measurements.