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Revisiting Poverty Measurement,
Globally and for Malaysia
Martin Ravallion
1
Presentation at the Stakeholder Roundtable
Ungku Aziz Centre for Development Studies, University of Malaya
January 10 2019
Poverty measures are the starting point for
fighting poverty
• Measures of poverty reflect and inform public debate and public action.
• For that purpose, poverty measures must be socially relevant.
• Today’s talk will focus critically on existing measures, both globally and for Malaysia.
• The focus here is on income poverty.
• My public lecture, Jan 29, will go into more depth on inequality in Malaysia and policies for reducing poverty and inequality.
2
Stylized facts about development have been
based on absolute measures of poverty
• “Richer countries have less poverty”
• “Economic growth reduces poverty”
• “Population urbanization reduces poverty”
• “Poverty is falling in the developing world”
• “Inequality is falling in Malaysia”
• “Malaysia has nearly eradicated poverty”
3
Are these claims robust to changing the assumptions
made in measuring poverty and inequality?
The prevailing narrative on poverty
• The most common approach to poverty measurement sets a line with constant real value over time and space
• Then one counts how many people live in households with consumption or income below that line.
4
• Many issues:– Quality of data?
– Selective samples?
– Poverty line?
– Consumption or income?
– Scales?
– Other dimensions? 0
10
20
30
40
50
60
1970 1980 1990 2000 2010 2020
Hea
dcou
nt in
dex
("po
vert
y ra
te")
in %
Malaysia’s success(official poverty measures)
49%
0.4%
Today I focus on two neglected issues
Two concerns about current measures
1. They ignore social effects: taking “welfare” seriously. Do current methods make economic sense? Are the current stylized facts about poverty right?
Relative poverty in rich world; how much poorer is the developing word?
Rising inequality in many growing developing countries; slower progress than we think?
But how can we devise sensible relative poverty measures?
Social subjective poverty lines
2. They ignore the floor: “make sure that none left behind.” Rights-based approaches: social inclusion Are the poorest being left behind? That requires that we are
lifting the floor—the lower bound to living standards? Are we doing that?
5
1: Social effects on welfare
6
Ungku Aziz on relative poverty
• Royal Professor Ungku Aziz is famous for his Sarong index (# sarongs per persons over 1 year) This is presumably absolute.
• But Aziz also recognized that the idea of “poverty” is relative. – Aziz’s thought experiment: Imagine people living on a remote tropical
island. Adequate food and shelter. No inequality. No sense of poverty.
– “The problem would begin when someone from the island visited Singapore or Sydney and then became aware of what was lacking in the level of living of the island people….The main point here is that poverty is a relative notion based on material inequality.” (Aziz, p. 1375)
7
Ungku Aziz, 1964, “Poverty and Rural Development in Malaysia,” Kajian Ekonomi Malaysia, 1(1):75-105. Reprinted in Ungku Aziz Collected Papers, Vol. 3, Kuala Lumpur 2017.
People care about relative consumption
• The value attached to consumption of a specific commodity depends in part on what others consume. “Keeping up with the Jones.”
• Janis Joplin: “Oh Lord, won't you buy me a Mercedes Benz? My friends all drive Porsches, I must make amends.”
• Duesenberry (1949), Easterlin (1974), Hirsch (1977), Frank (1985), Frey and Stutzer (2002), Luttmer (2005), Senik(2005), Knight et al. (2009), Clark et al. (2008), Rayo and Becker (2007), Cohn, et al. (2014).
Questions
• Do current methods of global poverty measurement make economic sense? Are they welfare-consistent (treating people deemed to be equally well off the same way)?
• Are the claims about global poverty, and poverty in Malaysia, robust to allowing for social effects on welfare? Is it still true that Malaysia has made progress against relative poverty?
9
Theoretical arguments
10
Two worlds of poverty measurement
Two standard (near universal) approaches:
• Absolute poverty lines—fixed in real terms—have dominated practice in the developing world, and the US.
z = constant (in real value)
• Relative poverty lines set at (say) 50% of the mean or median have dominated practice in rich countries (except US)
z = k.m
• Call these “strongly relative” lines. Key property: an elasticity of unity. Growth holding inequality constant will not reduce poverty.
11
Under a plausible assumption about welfare
neither standard approach makes sense
• Suppose that people care about both their own consumption and their consumption relative to a comparison level, such as mean in country of residence.
• Then neither absolute nor current relative poverty measures are welfare consistent, i.e., they do not treat people with the same level of welfare the same way.
12
What might welfare-consistent measures look like?
What does poverty look like with such measures?
Poverty is absolute in the space of welfare
• Poverty measures that use a constant real line do not take account of the concerns people face about relative deprivation and social exclusion. These are specific to place and time.
• An overriding principle: poverty is absolute in the space of welfare: “…an absolute approach in the space of capabilities translates into a relative approach in the space of commodities” (Amartya Sen, 1983).
• Clearly an absolute measure is not welfare consistent if people care about relative income (or it => capabilities).
• But (as we will see) strongly relative lines are also problematic.
13
Welfare effects of relative consumption
• Welfare depends on relative consumption:
y=own consumption; m(>0)=comparison income; uy>0; uy/m>0
• The poverty line (z) is “absolute” in the welfare space, but “relative” in consumption space:
• Inverting gives the poverty line as a function of the mean:
• The elasticity to mean is positive but less than unity.
“weakly relative” measures.
• Then neither absolute lines nor relative lines can be correct!
)/,( mzzuuz
)/,( myyuu
),( zumzz
14
1.1
1
ln
ln0
MRSm + =
m
z(where MRS=uy/uy/m)
The perverse assumption of strongly relative
lines: Only relative income matters!
• Strongly relative lines–set at (say) 50% of the mean or median—imply that people care only about relative income; no value on own income!
• If utility is only determined by relative income (own income ydivided by mean income m) then:
• The monetary poverty line is the income you need to attain the poverty level of welfare:
• Inverting we have the poverty line as a constant proportion of the mean:
)/( mzuuz
mufz z )(
)/( myuu
15
Alternative interpretation: Capabilities and
the cost of social inclusion
• Following Atkinson and Bourguignon (2002) we can think of poverty as having both absolute and relative aspects in the income space.
– The former is a failure to attain basic survival needs: the capabilities of being adequately nourished and clothed for meeting physical needs of survival and normal activities.
– On top of this, a person must satisfy social needs, which depend on the prevailing living standards in the place of residence.
• Atkinson-Bourguignon: To be non-poor one needs to be neither absolutely poor (“survival” capabilities) nor relatively poor (social inclusion capabilities).
• Calibrated to data on national poverty lines. 16
It can be agreed that certain forms of
consumption serve an important social role
• Famously, Adam Smith pointed to the social-inclusion role of a linen shirt in eighteenth century Europe:
“..a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.”
• Anthropologists have often noted the social roles played by festivals, celebrations, communal feasts, clothing.– Seemingly high expenditures on celebrations and festivals by very poor
people in survey data for a number of countries (Rao, Banerjee-Duflo).
– Clothing can also serve a social role; conspicuous “designer label,” which he interpreted as status-seeking behavior.
– Qat in Yemen “refusing to take qat is tantamount to accepting ostracisation” (Milanovic, 2008, p.684).
17
However, the social role of consumption does
not imply strongly relative poverty lines
• The key assumption of strongly relative lines is that the cost of inclusion is a constant proportion of mean income.
• That is implausible. The social-inclusion needs of very poor people may well be low, but it is difficult to see why they would go to zero in the limit.
– Presumably a socially acceptable linen shirt would not have cost any less for the poorest person in eighteenth century Europe as for someone living at the poverty line.
– Very poor people are highly constrained in spending on things that facilitate their social inclusion, but that does not mean that their inclusion needs are negligible.
18
Weakly vs. strongly relative lines
Poverty line
Absolute line
Weakly relative Strongly relative
(Atkinson-Bourguignon)
Social inclusion cost for
poorest; e.g., Adam Smith’s
linen shirt, which costs just
as much for the poorest.
Mean
19
(0,0)
How can this be implemented?
• Global absolute lines have been calibrated t national lines in low-income countries (Ravallion et al., 1991)
• In principle, we could do the same for relative lines,
• Data matrix is sparse (10%). So predicted values.
• However, there is an identification problem that clouds the welfare interpretation.
20
Ravallion, Martin, Gaurav Datt, and Dominique van de Walle, 1991, “Quantifying Absolute Poverty in the Developing World,” Review of Income and Wealth 37: 345-361.
Chen, Shaohua, and Martin Ravallion, 2010, “The Developing World is Poorer than we Thought, but no Less Successful in the Fight against Poverty,” Quarterly Journal of Economics, 125(4): 1577-1625.
Stepping back: why do we see higher (real)
poverty lines in richer countries?
21
0
4
8
12
16
20
24
28
32
36
40
-0.4 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2 3.6 4.0 4.4
Mean consumption per person per day (log scale; 2011 PPP)
Na
tio
na
l p
ove
rty lin
e (
$/d
ay/p
ers
on
; 2
01
1 P
PP
)
USA
),( zumzz
Deep identification problem: higher welfare norms or higher costs of inclusion?
Two possible reasons for higher poverty
lines in richer countries
1. Social effects: Relative deprivation or rising costs of social inclusion (avoiding shame). Then a relative line is called for if we are to be absolute in terms of welfare.
2. Social norms: Richer countries implicitly use a higher reference level of welfare for defining poverty. Then we would want to use a common global norm an absolute line in terms of real income.
22
But we can’t say which is right!
The big uncertainty about global poverty!
• The problem is that we do not know which of these two interpretations—social effects on welfare or differing social norms in defining poverty—is right.
• And we may never resolve the matter from conventional empirical evidence. – There have been many claims about the existence of various social
effects on subjective welfare responses, though problems remain in credibly identifying such effects.
• This uncertainty makes it compelling to consider both approaches when measuring global poverty.
23
Proposed bounds to global poverty
• Absolute poverty measures can be interpreted as the lower bound to the true welfare-consistent measure.
– The lower bound assumes that the relativist gradient only reflects differing social norms.
• A weakly relative measure of poverty provides its upper bound, allowing for social effects on welfare.
– The upper bound assumes that the relatavist gradient stems solely from social effects on welfare—extra spending needed to attain the same level of welfare in richer countries.
• Those living between the two bounds are still poor by standards typical of the country they live in.
• The true welfare-consistent absolute line lies somewhere between the two bounds.
24
Empirical implementation
25
Data on national
poverty lines
• N=145
• Developing countries: Official lines and/or WB Poverty Assessments countries
• Developed countries: Relative lines (except US).
26
0
10
20
30
40
50
60
70
80
0 10 20 30 40 50 60 70 80
Mean ($ per person per day; 2011 PPP)
Po
ve
rty lin
e (
$ p
er
pe
rso
n p
er
da
y; 2
01
1 P
PP
)
USA
Luxembourg
Switzerland
Norway
CanadaAustralia
UKSpain
ItalySlovenia
Austria
Iceland FrNeBe
Japan
0
4
8
12
16
20
24
-0.4 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2 3.6
Log mean ($ per person per day; 2011 PPP)
Po
ve
rty lin
e (
$ p
er
pe
rso
n p
er
da
y; 2
01
1 P
PP
)
DRC
Slovenia
Gu Honduras
Argentina
Chile
LithuaniaHungary
Lebanon
South AfricaBotswana
SlovakRep.
Turkey
Brazil
Uganda
Haiti
RwandaMadagascar
Iraq
Poland
Panama
CI
ChinaIndia Namibia
BeninKyrgyz
ES
Liberia
Costa Rica
Estonia
ParaguayVenezuela Latvia
EcuadorBhutanCAR
B&H
Mont.
Egypt
Uruguay
Czech
Colombia
Sn.
Ym
Az
SL
Belarus
SbFiji
$PPP, 2011
Is Malaysia’s official poverty line credible?
• Fixed in real terms over 40 years, despite substantial progress in raising average living standards.
• Frequent claims in the media that the poverty line is too low by today’s standards.
27
Malaysia’s official poverty line is lower than
expected given Malaysia’s current mean income
• Malaysia’s poverty line made sense in the 1970s.
• But it is well below international standards today.
• Expected line of about $12 rather than $4.*
28
0
4
8
12
16
20
24
-0.4 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 3.2 3.6
Log mean ($ per person per day; 2011 PPP)
Po
ve
rty lin
e (
$ p
er
pe
rso
n p
er
da
y; 2
01
1 P
PP
)
DRC
Slovenia
Gu Honduras
Argentina
Chile
LithuaniaHungary
Lebanon
South AfricaBotswana
SlovakRep.
Turkey
Brazil
Uganda
Haiti
RwandaMadagascar
Iraq
Poland
Panama
CI
ChinaIndia Namibia
BeninKyrgyz
ES
Liberia
Costa Rica
Estonia
ParaguayVenezuela Latvia
EcuadorBhutanCAR
B&H
Mont.
Egypt
Uruguay
Czech
Colombia
Sn.
Ym
Az
SL
Belarus
SbFiji
OMalaysia($4, 3.33)
* Malaysia’s mean = $28 in 2015. Taking the interval ($20,$36) (n=14), mean Z = $11.97.
Upper and lower bounds to global poverty
measures
Poverty line
Slope=0.7
$1.90/day
$0.90
29
)0,00.1$7.0max(90.1$ * j
U
j m z
Gini-adjusted mean
Upper
bound
Lower
bound
Global data
• PovcalNet for developing countries; LIS and EUSILC for advanced countries.
• 1,500 household surveys for 150 countries over 1990-2013.
• Consumption or income per capita. Consumption preferred to income when there is a choice.
• 2011 ICP + best available price index over time within each country.
• Extrapolations/interpolations to line up estimates into reference years.
30
Data for Malaysia
• A comparable series of 18 nationally representative household income surveys from 1970.
• Two surveys prior to 1970, but not comparable (Anand, 1983).
• Data are thought to be of good quality by international standards.
• However, lack of public access is a major concern. In this respect, Malaysia is out-of-step with current international practice.
• Published tabulations 1970 onwards.
• PovcalNet, 1984 onwards.
31
Global poverty measures
32
On track for
SDG1, but
last few % may
be harder
0
10
20
30
40
50
60
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Glo
bal headcount in
dex o
f povert
y (
%)
Lower bound
(absolute; $1.90/day)
Upper bound
(weakly relative)
Slower progress against relative poverty, and rising share who are no longer absolutely poor but still relatively poor.
Numbers of poor
33
Absolutely poor
Relatively poor but not absolutely poor
0
400
800
1,200
1,600
2,000
2,400
2,800
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Glo
ba
l co
un
t o
f th
e n
um
be
r o
f p
oo
r (m
illio
n)
Lower
bound
Upper
boundRising numbers of relatively poor
but not absolutely poor
Breakdown of the global count for upper bound
34
0
500
1,000
1,500
2,000
2,500
3,000
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Co
un
t o
f th
e n
um
be
r o
f p
oo
r (m
illio
ns)
High income countries
Absolute poverty in
developing world
Relatively poor in
developing world
Global count
The purely relative poverty rate in the
developing world has overtaken the rich world
35
0
10
20
30
40
50
60
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Developing countries
(upper bound: absolute + relative)
Developing countries
(lower bound: absolute only)
High-income countries
Developing countries
(upper minus lower: relative only)
Po
ve
rty r
ate
(%
be
low
re
leva
nt lin
e)
Illustrative examples
for Malaysia
Intercept Slope Line in 1984
Line in 2015
Overall elasticity
Absolute $4.00 0 $4.00 $4.00 0
Weakly relative 1 $2.00 0.17 (1/6) $4.00 $6.65 0.50
Weakly relative 2 $2.50 0.33 (1/3) $5.61 $11.82 0.62
Strongly relative 0 0.50 (1/2) $6.22 $13.98 1
36
• Weakly relative 1 is anchored to the 1984 absolute line, then rises with a slope of 1/6. Intercept is $2.00 per day.
• Weakly relative 2 is more in line with the international experience in countries with similar average income.
• Slope = 0.33; Intercept =$2.50 (“hard core poverty line”).
Povertyline
Mean
Example for Malaysia 1
37
Absolute: $4 per person per day
Weakly relative 1: $2 + one sixth of current mean (k=2/12.45)
0
4
8
12
16
20
24
1982 1986 1990 1994 1998 2002 2006 2010 2014
Absolute
Weakly relative 1
Po
ve
rty
ra
te (
% p
op
ula
tio
n)
Example for Malaysia 2
38
Absolute: $4 per person per day
Weakly relative 2: $2.50 + one third of current mean
0
10
20
30
40
50
1984 1988 1992 1996 2000 2004 2008 2012 2016
Po
ve
rty r
ate
(%
po
pu
latio
n)
Absolute
Weakly relative 1
Weakly relative 2
Example for Malaysia 3
39
0
10
20
30
40
50
1982 1986 1990 1994 1998 2002 2006 2010 2014Absolute
Weakly relative 1
Weakly relative 2
Strongly relative
Po
ve
rty
ra
te (
% p
op
ula
tio
n)
Absolute: $4 per person per day
Weakly relative 1: $2.00 + one sixth of current mean
Weakly relative 2: $2.50 + one third of current mean
Strongly relative: 50% of current mean
Strongly relative shows
falling poverty during global
financial crisis 2008-9
Implications for the role of economic
growth and redistribution
40
Proximate causes of falling poverty:
Growth and redistribution
• A sensible poverty measure will fall if there is either a rise in the mean holding “inequality” constant or falling inequality holding the mean constant.
• Strongly relative measures are not sensible from this perspective.
• Key problem: the strongly relative poverty line has an elasticity to the mean of unity.
• We need weakly relative measures.
41
Growth has been the main driver of absolute
poverty reduction in the developing world
• As a stylized fact, economic growth has been distribution-neutral on average among developing economies.
• Inequality has increased about as often as it has fallen in growing developing economies.
• Thus growth in the mean has come with lower measures of absolute poverty.
• Average elasticity of about two.
• Lower elasticity if one switched to relative lines =>
42
Relationship to the overall mean
43
-6
-4
-2
0
2
4
6
3.6 4.0 4.4 4.8 5.2 5.6 6.0 6.4 6.8 7.2 7.6 8.0
Log mean (latest survey)
Relative
(upper bound)
Absolute
(lower bound)
Log h
eadcount
index (
late
st
surv
ey)
Growth in mean household income in
Malaysia
44
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
National mean household income
Bumiputera
Chinese
Indian
Me
an
ho
use
ho
ld i
nco
me
(2
01
0 p
rice
s)
Malaysia has a high elasticity of poverty
reduction to growth
45
-4
-3
-2
-1
0
1
2
3
4
2.4 2.5 2.6 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4
Po
ve
rty
me
asu
re (
log
sca
le)
Headcount index
(elasticity=-3.6)
Poverty gap index
(elasticity=-4.2)
Squared poverty gap
(elasticity=-4.7)
Log mean income
Trend decline in relative inequality
since mid-1970s
46
.0
.1
.2
.3
.4
.5
.6
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
National Gini index
Bumiputera
Chinese
Indian
Gin
i in
de
x o
f in
eq
ua
lity
in
ho
use
ho
ld in
co
me
s
Falling inequality has been important for
progress against poverty
• Falling inequality has meant that economic growth has had a large impact on absolute poverty.
• Elasticity of poverty rate to mean of -3.6. This would have only need -2.2 without the fall in overall inequality.
• Elasticity of poverty rate to Gini index (holding mean constant) was 9!
• Decomposition of change in log poverty rate (1984-2015): 46% due to falling Gini index of inequality, 54% due to rising mean income.
47
Implications of switching to a relative
poverty measure in Malaysia
• Using the absolute poverty measure 46% of the reduction in poverty has been due to falling inequality.
• Switching to the (weakly) relative poverty measure 1, 59% is attributed to the reduction in inequality.
• Using relative poverty measure 2, 51% is attributed to the reduction in inequality.
• (100% for the strongly-relative measure.)
48
Social subjective poverty lines
49
• A (weakly) relative line is needed• But how should it be set?• One approach: ask the Malaysian people!
The Social Subjective Poverty LineThe Minimum Income Question (MIQ)
"What income do you consider to be absolutely minimal, in that you could not make ends meet with any less?“
z* Actualincome
Subjective minimumincome
45°
Is this method suitable for Malaysia?
50
Subjective poverty lines based on
consumption adequacy
• Minimum income question is of doubtful relevance to most countries
• Subjective poverty lines can be derived using simple qualitative assessments of consumption adequacy.
• Consumption adequacy question:“Concerning your family’s food consumption over the past one month, which of the following is true?” Less than adequate ...1Just adequate .......…. 2More than adequate.. .3
"Adequate" means no more nor less than what the respondent considers to be the minimum consumption needs of the family.
51
Examples for Jamaica and Nepal
• Respondents asked whether their food, housing and
clothing were adequate for their family’s needs.
• The implied poverty lines are robust to alternative
methods of dealing with other components of expenditure.
• The aggregate poverty rates turn out to accord quite
closely with those based on independent “objective”
poverty lines.
• However, there are notable differences in the geographic
and demographic poverty profiles—consistent with the view
that there are direct welfare gains from larger households.
52
Pradhan, Menno, and Martin Ravallion, 2000, “Measuring Poverty Using Qualitative Perceptions of Consumption Adequacy,” Review of Economics and Statistics 82(3): 462-471.
Arguably the social subjective poverty line
(SSPL) is the fundamental concept
• In calibrating the parameters in the various “objective” absolute lines we are trying to find a line that will be generally accepted as meaningful in the specific country context.
• That is one explanation for why poverty lines vary across countries as they do.
• Arguably, what we are really doing with these objective lines is trying to find the SSPL.
53
What is the SSPL for Malaysia today?
Need to add minimum income/consumption adequacy questions to a national household survey. Future research?
2: Monitoring progress in assuring
that none are left behind
54
2.1: Theoretical arguments
55
A widely held view: poorest left behind
• “The poorest of the world are being left behind. We need to reach out and lift them into our lifeboat.” U.N. Secretary-General Ban Ki-moon, 2011
• “The World’s Poorest People are Not Being Reached.” IFPRI
• “Poverty is not yet defeated. Far too many are being left behind.” Guy Ryder, ILO
• And in 2015 the Vatican’s representative to the U.N. reaffirmed that the poorest of the world are being left behind.
56
Yet others appear to tell a different story
• We hear adages such as “a rising tide lifts all boats” or claims that “growth is good for the poor” (Dollar and Kraay) or that there has been a “breakthrough from the bottom” (Radelet).
• These views are generally based on survey-based evidence suggesting a falling incidence of absolute poverty in the developing world over recent decades.
57
How can we understand this difference?
The counting approach vs.
The rights-based approach
• We have seen the counting approach to measuring poverty. (The counting approach includes counts with unequal weights, such as PG, SPG, Watts.)
58
• The rights-based approach focuses on the consumption floor—the lowest expected level of living.
• If the poorest person sees a gain (loss) then (by definition) the consumption floor must rise (fall).
• The counting approach may miss what is happening at the floor.
0
10
20
30
40
50
60
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Glo
ba
l h
ea
dco
un
t in
de
x o
f p
ove
rty (
%)
Lower bound
(absolute)
Upper bound
(weakly relative)
Same reduction in the poverty count but
different implications for the poorest
59
Poorest left behind Same reduction in the incidence of poverty but without leaving the poorest behind
Measure of
welfare
Cumulative % of
population
Measure of
welfare
Cumulative % of
population
Poverty
line
Poverty
line Floor stays put
Rising floor
Arguments for studying the floor
• Rights-based approaches to justice
– Justice must be concerned with each citizen not averages
– Rights must be secured for all; none left behind.
• Mahatma Gandhi’s talisman:
– “Recall the face of the poorest and weakest person you have seen and ask if the step you contemplate is going to be any use to them.”
• Sustainable Development Goals: “ensure no one is left behind.”
• UN Report on World Social Situation: Leave No One Behind
60
Safety net as a consumption floor
• Social policies also aim to raise the floor above the biological minimum for survival.
• Statutory minimum wage rates: first appeared in late 19th
century in an effort to help raise the consumption floor.
• Basic-income guarantee (BIG): From the 1970s, we started to see arguments in support of a fixed cash transfer to every adult. A firm floor.
• Social policy as a “right of citizenship” rather than something to be targeted based on “need.”
• The ILO calls for a comprehensive Social Protection Floor:“nationally defined sets of basic social security guarantees”.
• Social policies in developing countries (China and India) aim to raise the floor. Do they?
61
We can measure success at leaving none behind
• The floor is certainly not all we care about, but we cannot continue to ignore it in monitoring poverty.
• Lowest observed consumption in a survey is not true floor. Lower bound of permanent consumption is what we are after:
where
• Success in assuring no one is left behind can be monitored from existing data sources under certain assumptions.
– Beyond some y* there is no longer any chance of being the poorest person in terms of latent permanent consumption.
– For those living below y* the probability of observed consumption being the true lower bound of permanent consumption falls monotonically as observed consumption rises until y* is reached.
• For linear:
62
n
iii yyyyE
1
min )()( )Pr()( minyyy ii
)/1()( ***min PGSPGyyyE )( iy
Ravallion, Martin, 2016, “Are the World’s Poorest Being Left Behind?,” Journal of Economic Growth, 21(2): 139–164.
2.2: Empirical implementation
63
Yes, the poorest have been left behind!Fewer people living near the floor, but little change in the floor
64
0
2
4
6
8
10
12
0 10 20 30 40 50 60 70 80 90 100
Percentile
Ab
so
lute
ga
in 1
98
1-2
01
1 ($
pe
r p
ers
on
pe
r d
ay)
-40
-20
0
20
40
60
80
100
0 2 4 6 8 10 12 14 16 18 20
Pe
rce
nt o
f th
e p
op
ula
tio
n
Consumption or income per person ($ per day, 2005 prices)
1981
2011
Difference (2011-1981)
Rising absolute
inequality
Near zero gain at bottom
And globally it looks like this!Rising absolute inequality coming from top few %
Ravallion, Martin, 2018, “Inequality and Globalization: A Review Essay,” Journal of Economic Literature, 2018.
65
0
10
20
30
40
50
60
70
0 10 20 30 40 50 60 70 80 90 100
Percentile of the global income distribution
Abso
lute
real g
ain
1988-2
008 (
$/p
ers
on/d
ay)
Much less progress in raising the
consumption floor globally
66
(about $1.00
in 2011 PPP)
Source: Update to Ravallion, “Are Poorest Left Behind?” J. Econ. Growth, 2016.
0
1
2
3
4
5
6
7
8
9
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Overall mean
Floor
Mea
n co
nsum
ptio
n in
$ p
er p
erso
n pe
r da
y
No sign that the new
Millennium raised the floor
)/1()( ***min PGSPGyyyE
67
Malaysia has made somewhat more progress
in raising the floor
0
5
10
15
20
25
30
1984 1988 1992 1996 2000 2004 2008 2012 2016
Overall mean householdincome per capita
Floor(based on weightedmean income of the poor)
Note: Poverty line = $4.00 at 2011 PPP (20% poverty rate in 1984)
Mean or floor ($ per person per day; 2011 PPP)
$2.30$3.00
$27.95
$12.45
This is one aspect of rising absolute inequality
• Relative inequality is measured using the ratios of incomes relative to overall mean.
• Absolute inequality is about the absolute differences—the gap between rich and poor.
• Absolute inequality matters more to many people.
• Which is more unequal?
– State A: (1, 2, 3)
– State B: (2, 4, 6)
• Over half the students (n=450) say State B has higher inequality. Similarly for my Twitter survey (n=250).
• Yet most (relative) inequality measures (such as Gini index) say that there is no difference.
68
Debates on inequality are often debates
between absolutists and relativists
• Perceptions on the ground often differ to the numbers quoted by economists and statisticians!
• Serge Kolm and the “May 68’ers”: Grenelle agreement gave same relative gain (13%) to all. Many felt this was inequitable.
• At local level in developing world, absolutist NGO see rising inequality but relativist economist sees constant or even falling inequality.
• Neither is wrong: Just different axioms of inequality measurement (scale-invariance vs translation invariance).
69
Malaysia: Falling relative inequality,
but rising absolute inequality
70
0.0
0.4
0.8
1.2
1.6
2.0
2.4
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Absolute Gini
Relative Gini
Gin
i in
de
x o
f h
ou
seh
old
in
com
e in
eq
ua
lity
Conclusions
71
Toward better poverty measures
• Social effects on welfare imply that we require relative measures integrated into our poverty assessments.
• To properly reflect the uncertainty about welfare-consistent poverty comparisons we require lower (absolute) and upper (weakly-relative) bounds.
• Leaving none behind requires that we can monitor progress in raising the consumption floor. Under certain assumptions, this is also feasible with current data.
72
Making poverty measurement relevant to
present-day Malaysia
• There is no denying that Malaysia has made huge progress against poverty. But the job is not done!
• International comparisons suggest that the official line is too low for a country with Malaysia’s average income today.
• Social subjective measures can also help identify a socially-relevant poverty line for Malaysia.
• The illustrative calculations here suggest that Malaysia has also been making progress in reducing relative poverty.
• Inequality management has played a role along side economic growth. Can rising inequality be avoided going forward?
• Some progress in lifting the floor, but still a long way to go.
73
Toward better public data for studying
poverty and inequality in Malaysia
• Over the last 25 years the govt. stats offices of most developing countries have implemented protocols for public access to complete micro data from the main national household surveys.
• Malaysia is an exception.
• This is constraining economic and social research on Malaysia. Many applications, including to policy, require access to the complete micro data.
• This also enhances the credibility of the data. Interaction with users is an important channel for improving the surveys in the future.
• Public data access should be a high priority going forward.
74
Further reading:
Martin Ravallion, The Economics of
Poverty: History, Measurement and
Policy, Oxford University Press, 2016
economicsandpoverty.com
Thank you for your attention!Terima kasih kerana memberi perhatian!
