measurement – session 6 poverty. issues in mst of pvt recipient unit (household, individual?)...

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