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Measurement – session 6. Poverty. Issues in mst of pvt. Recipient unit (household, individual?) Measurement of income & other resources How to compare households of different size and composition? Time-period covered Counting the poor VS intensity of pvt. Theoretical debates. - PowerPoint PPT Presentation
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Measurement – session 6
Poverty
Issues in mst of pvt
• Recipient unit (household, individual?)
• Measurement of income & other resources
• How to compare households of different size and composition?
• Time-period covered
• Counting the poor VS intensity of pvt
Theoretical debates
• Rawls: « primary goods » whose lack = poverty, independently from the individual’s choice of life
• Sen: what matters is that each individual can access, then let them choose whether or not they want to.
Historical landmarks
• Rowntree, 1901: “primary needs”
• Daily needs, depending on age, sex and type of activity based on work of nutritionists.
• Ex: manual worker, weekday: – Breakfast: milk and porridge– Lunch: bread and cheese– Dinner: soup, bread, cheese and dumplings– Supper: bread and porridge
Historical landmarks
• Rowntree, 1901: “primary needs”
• These menus are the cheapest that satisfy the energy needs of a worker
• Then he adds an amount of money for other needs
• This approach is still used in the US today
Historical landmarks
• Townsend (UK), 1970: – Counting “lacks”: warm shoes for winter, meat
every two days…– Defining poor as “lacking more than 5 items”– Theoretical justification: there is a level
(threshold) at which poverty escalates: retreat from normal social life
Historical landmarks
• Townsend (UK), 1970
• Immediate questions: – how to define the list of necessary items? A
priori or by surveys “general opinion” if x% think it’s necessary?
– How many items lacking = being poor?– Existence of a threshold or a smooth continuum
of situations?
Historical landmarks
• Mack and Lansley (UK), 1986– Items are defined as a “socially defined
necessity” if within the sample, majority say that the item is “a necessity, i.e. something which every household should have, and no-one should have to do without”. 26 such items.
– Correlation with lack of such item and income is calculated. Retain only item with significant negative coefficient. Leaves 22 items.
7 definitions of poverty (from Callan and Nolan, 1987)
i) Absolute approach: minimum level of food and shelter to function properly
ii) related: food-ratio approach. Minimum food requirements converted into poverty line, or the ratio itself can be used as threshold.
7 definitions of poverty (from Callan and Nolan, 1987)
iii) “official” poverty lines: social security payment rates, representing social consensus
iv) Relative: percentile of income distribution or % of mean or median income
v) Purely subjective assessment of individuals as to whether they consider themselves poor
7 definitions of poverty (from Callan and Nolan, 1987)
vi) Subjective evaluation in the population of minimum level of income required poverty line
vii) Relative deprivation of some commodities / activities
7 definitions of poverty (from Callan and Nolan, 1987)
• “we are looking at the bottom of a distribution, but the distribution of what?”
• i, ii, iv vi are monetary defs of poverty
• Central definition: the income one
• Others : consumption-oriented or subjective
2 main types of issues in « counting the poor »
1) What to measure = defining the scale
2) Who is poor = defining the threshold
Absolute VS. relative
• Absolute is always contingent to a time and place
Adam Smith
The US definition
• Threshold = food basket * (1/ average food share in expenditures)
• Food basis = absolute, but allowance for non-food expenditure is relative (depends of consumption of all)
• Bias if family with one child are on average better off than families with 3 children: the food/total expenditure ratio will be lower, the inverse larger, so the food budget will be multiplied by more
In terms of food/total exp ratio
• The food/total expenditure ratio itself can be used as a measurement of poverty
The EU’s relative approach
• Why « 60% of the median »– Technical requirement: median more robust
than mean, more accurately measured– Normative choice: being poor = being excluded
from « normal » way of life, does not depend on living standards of the rich
– Property : if you multiply all incomes by k, poverty rate remains the same
The EU’s relative approach
• Is « 60% of the median » an index of inequality, then?– Not really, since it doesn’t take into account
whatever happens in the top half of the distribution
The EU’s relative approach
• Applying the Laeken indicators to new member states– If inequality is low, there may be almost no one
below poverty threshold– In that case, even if median is low and in
absolute terms, many are poor, povt rate is very low
The EU’s relative approachIndicator 1: At risk of poverty rate (2001)
0
5
10
15
20
25
30
CZHU SI
MT PL CY LV LT EE SK
ACC10
BG RO TR
CAN3
CAN13
EU15EU25
%
The EU’s relative approachAt-risk of poverty thresholds (2001), single adult, PPP
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
LV LT EE PLHU SK CZ
MT SI
CY
ACC10 RO BG TR
CAN3
can13
EU15EU25
in PPS
Poverty gap
Z = poverty line
Yi = income of household i
PG = 1/n Σ [(Z-Yi)/Z] = mean proportionate poverty gap among the poor
(n)Can be summed across the whole population (zero
gap for the non-poor)Can be calculated with median of income of the
poor, instead of mean
The EU’s relative approachMedian at-risk of poverty gap (2001)
16 16
18 18
2022 22
24 24
34
21 2122
31
28
25
22 22
0
5
10
15
20
25
30
35
40
%
The EU’s relative approachShare of food (black) and housing (yellow) in average HH budget
48.2
23.2
34.0
25.0
45.7
39.1
21.1
32.3
51.9
24.0
29.8
10.0
19.0
13.8
17.5 18.020.0
12.9
17.7
9.0
19.1
13.0
10.7
15.8
20.0
31.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
BG CZ EE H LT LV MT PL RO SI SK EU Min EU Max
food and non-alcoholic beverages housing, water, electricity, gas and other fuels
Source: Eurostat, HBS, 1999
Goal of the comparison?
• Eurostat (Part of the EU Commission): where to target Funds? – Same definition, much higher rates in new
member states = OK
• Sociologists: who are the poor of Europe?– More relevant to apply different definitions to
determine who is « left behind » in a given society
The subjective approach (roughly)Plotting the answer to the question “what is currently, according to you, the monthly income a household like yours needs to simply be able to fulfill its needs?” against the household’s actual monthly income
(Source: French HBS, 2006)
The subjective approach (roughly)
• European Panel (1995)– 90% of Portuguese respondents say they would
need more than their current income to live– Only 33% of Polish respondents give such an
answer
Building a « deprivation score »
• Lists of items can be variable according to the country– Ex: – heating in North but not South– holidays in France but not Poland– electricity in Madagascar
Building a « deprivation score »
• Aggregating the items into a score– Some authors choose to give each item a weight
of 1– Some others weigh each item by the its
diffusion rate in the country: a lack is all the more painful if it is something that everyone else has
– What if items are perfect complement of perfect substitute? Need to choose independent commodities
Deprivation as measured by EU-SILC
Comparing the 3 approaches
• It would be nice if the 3 approaches (income, subjective, deprivation index) yielded the same “poor” population
Comparing the 3 approaches
France Poland SlovakiaNot poor in any definition 74,8 77,2 72,7Poor acc. to 1/3 definition 17,1 17,1 19,2Poor acc to 2/3 definitions 6,3 4,6 6,2Poor acc. to the 3 definitions 1,8 1,1 1,9Total 100 100 100
Source: Verger in Economie et Statistique #383-385, 2005
R.
Comparing the 3 approaches
Source: Verger in Economie et Statistique #383-385, 2005
Correlation coefficients France Poland SlovakiaIncome povt - deprivation povt 0,27 0,16 0,16deprivation povt - subjective povt 0,25 0,14 0,27subjective povt - income povt 0,22 0,24 0,19
R.
Comparing the 3 approaches
• The populations are not the same…– Typical example: the elderly– They tend to be poor according to the income
approach– But they can be spending what they’ve saved
(life cycle approach)– More deeply: they say they need less (grew up
when less items available…)
Across countries
• Remember that survey data might seem comparable but…– HBS in the 1990s in Eastern Europe
• Slovak Republic: 95% response rate
• Romania : 95%
• Poland: 87%
• Czech Republic: 38% (17% in Prague)
= « quality issues »
Time-frame of poverty measurement
• One month, one year? Obviously too short
• Whole life? As in life-cycle theories. But impossible
• Usually one year since yearly income can be measured through fiscal sources
• Panel data for “persistent poverty”: several years and measurement of transitions
Persitent poverty
• Using Panel Data
• Between 40% and 55% of poor at year n leave poverty between n and n+1
• 6% to 8% of non-poor become poor
• 10 to 13% of population changes poor/non-poor status
• But 50% of that is pure noise! (European Panel Data, US Health and Retirement Study)
Persitent poverty
• Example: no change in job, in HH composition, in anything…
• Yet important variation in income
• Poor – Non poor status can be “smoothed”, i.e. estimated: given all the other variables, at the previous date, estimate the HH’s equivalised income…
• Very sensitive to hypotheses
Beyond the EU: worldwide comparisons?
Beyond the EU: worldwide comparisons?
• World Bank (1990): « 1 dollar a day »
• Idea = measuring the world’s poverty according to the standards of the poorest countries
Beyond the EU: worldwide comparisons?
• Ravallion, Datt and van de Walle (1991)
• How poverty lines vary with mean consumption (PPP)
• 1 dataset containing 1 line for each country, with its poverty line and mean consumption expenditure
Beyond the EU: worldwide comparisons?
• Chen and Ravallion (2001) used the median line for the lowest 10 lines as an international poverty line
• giving $32.74 per month = $1.08 per day
• In 2004, about one in five people in the developing world (one billion people) were poor by this standard
Beyond the EU: worldwide comparisons?
Source: dollar a day revisited, World Bank, 2008
Source: Dollar a day revisited, World Bank, 2008
Beyond the EU: worldwide comparisons?
Beyond the EU: worldwide comparisons?
Source: Dollar a day revisited, World Bank, 2008
Beyond the EU: worldwide comparisons?
• The median poverty line across the full sample (n=75) of $60.81 per month is equivalent to almost exactly $2.00 per day; the mean is higher at about $2.90 per day.
• Marked gradient implies that the mean will be well above the poverty lines found amongst the poorest countries
Beyond the EU: worldwide comparisons?
• Amongst the poorest countries, poverty lines tend to be low + show little or no economic gradient.
• Above a critical level of mean consumption, the national poverty line tends to rise sharply with mean consumption, with an elasticity approaching unity in rich countries.
• They argue that absolute poverty (poverty line at a constant real value) is the more relevant concept in poor countries, while relative poverty (poverty line proportional to the mean/median) is more salient in rich countries
Beyond the EU: worldwide comparisons?
Ravallion, Chen and Sangraula, « dollar a day revisited », World Bank, 2008
Beyond the EU: worldwide comparisons
• new set of national poverty lines for low- and middle-income countries, drawing on the
• World Bank’s country-specific Poverty Assessments
Beyond the EU: worldwide comparisons?
• They propose a new international poverty line of $1.25 a day for 2005
• It is the mean of the lines found in the poorest 15 countries in terms of consumption per capita
Beyond the EU: worldwide comparisons?
• They suggest that relative poverty is a more important concern than was the case 20 years ago
• More countries are found in the region where the poverty line rises with mean consumption.
• Across their sample of 75 developing countries, the overall elasticity of the poverty line to mean consumption is around 0.7 — close to the values found for developed countries
Population breakdowns: why?
• Ex: Recent focus on percentage of children who are poor
• Comes from UK (Child Poverty Action Group) and the US
• Goal: make social policy “acceptable” because children cannot be deemed responsible for their situation
+ idea that a child growing up poor has a low cost/benefit ratio (crime, unemployment, low productivity if drops out…)
Pb with percentage rate
• Problems– Insensitive to the depth of poverty
– Will not change when a poor person’s welfare changes if s/he remains below the poverty line
Lessons to be learnt
• On international comparisons: what matters more? The same methodology or the same meaning behind the figure?– Ex of deprivations: different items in different
countries more relevant than same items– Importance of prior knowledge of the local
situation ( education)
Lessons to be learnt
• Poverty is multi-dimensional
• Sometimes it’s better to forsake the idea of a single figure saying it all
• Trade-off between theoretical relevance and focus on what we think matter more
• + ease of communication: the media will usually use only one figure, the one on the first line of the first page...
Lessons to be learnt
• On child poverty: policy impact of measurement linked with ideology of those you want to convince (figures for advocacy)
• Figures “broken down by…”: a heavily debated issue (men/women, age, number of children):
• The official measurement of something makes it, almost by definition, policy relevant