poverty measurement methodology

7/28/2019 Poverty Measurement Methodology

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Contents

Rationale

Review of Current Poverty Measurement Methodology

Socioeconomic Status (SES) Scoring Guideline

Limitations of Current Methodology

New Methodology

New Set of Indicators

New Scoring System and Guideline

Sample Computation

Measuring Poverty Outreach

Advantages and Limitations of the New Methodology

List of Figures

Figure 1. Current Client Information Form

Figure 2. Poverty Threshold

Figure 3. New Client Information Form

List of Tables

Table 1. Current Guideline in Scoring SES

Table 2. Current and New Set of Indicators

Table 3. New Guideline in Scoring SES

Table 4. Sample Computation for Staff who belongs to a Small Household

Table 5. Sample Computation for Staff who belongs to an Average Household

Table 6. Sample Computation for Staff who belongs to a Large Household

Table 7. Combination of Values that Results to a Score of 4

List of Boxes

Box 1. Advantages and Limitations of the New Methodology


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New Methodology for Determining Poverty Outreach

RATIONALE

The Center for Small Entrepreneurs set for itself the goal of promoting entrepreneurship as a means of

poverty alleviation, among others. Though not explicitly and categorically stated in its Mission-Vision-Goal statements, CSE, as a development-oriented NGO, wants to contribute to the ultimate goal of all

development programsimproved quality of life for all.

The Philippines has long been known as and still is a poor country, regardless of the episodic economic

booms that it enjoys. This is the reason why in this country, any development-oriented NGO cannot

claim significant level of success if its interventions do not address the issue of poverty. CSE knows this

lesson, thus, it is now trying to assess its level of poverty outreach.

REVIEW OF CURRENT POVERTY MEASUREMENT METHODOLOGY

Prior to 2012, there was no systematic procedure in assessing whether a participant was poor or not. In

December 2012, CSE designed an ad hoc poverty measurement methodology using five (5) pieces of

information culled from the current Client Information Form or CIF, as shown below in Figure 1.

Figure 1

Client Information Form


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Socio-Economic Status (SES) Scoring

With the use of these five (5) ad hoc indicators, CSE tried to determine whether participants belong to

the poor or non-poor class. It was done by assigning points to the values of the indicators as they are

listed in the CIF. Then, a composite index of socio-economic status (SES) and a scoring system were

devised. The scores were then laid out to form a scale that was divided into ranges that approximately

represented a particular SES. Table 1 below served as guideline.

Table 1

Guideline in Scoring SES

Indicator Values and

Equivalent Points

Remarks

Average Monthly

Net Income

Original Values These values will not be taken as they are. As

mentioned above, we will need to obtain Per

Capita Income by dividing Income by the Number

of Household members. Since we cannot divide a

range, we will get its representative midpoint(except the first and the last values) and that

midpoint will be divided by the number of

household members to get per capita income.

Hence, the adjusted values listed on the left.

For example:

P 12,500 / 4 (No. of HH Members)

= 3,125 / 30 days

= 104.17

P5,000 below

5,001 10,000

10,001 15,000

15,001 20,000

20,001 30,000

30,001 above

Adjusted Values

P5,000

7,500

12,500

17,500

25,000

30,001

Number ofHousehold

Members

This is an open ended itemwhere there are no fixed

values or choices to select

from.

This is the figure by which the adjusted values ofaverage monthly net income will be divided.

We use as reference the international absolute

poverty threshold of $2/day (roughly P82/day) to

measure poverty.Per Capita Income Values and

Points

P80 below(1 pt)

81 200 (2 pts)

201 300 (3 pts)

301 400 (4 pts)

401 above(5 pts)

Business

Ownership

Yes(1 pt)

No (0 pt)

No, but previously owned one

(0 pt)

Having an existing business is a plus in terms of

income and income stability. Having a business

before, though, does not directly impact present

income, and so it is considered 0 just like never

having a business at all.


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Equivalent Points

Remarks

Primary Source

of Income

Salary(3 pts)

Business/Livelihood(2 pts)

Retirement/Pension (2 pts)

OFW Remittance (2 pts)Family/Relatives (1 pt)

Others (1 pt)

Salary is given the highest point because it implies

regular source of income, hence, stability.

Moreover, it is assumed that the salary is at least

at par with the minimum wage requirement.Others here can be very confusing because it can

point to many things that would be hard to

categorize.

Highest

Educational

Attainment

Post Graduate(5 pts)

College Graduate(4 pts)

College Level(3 pts)

Vocational Course(3 pts)

High School(2 pts)

Elementary(1 pt)

Points are assigned according to such educational

levels which are universally acknowledged. The

same points (3 pts) are assigned to College Level

and Vocational Course as they are both considered

additional years after high school but not enough

to earn a college degree.

After assigning the equivalent points, they were added to obtain a score. The highest possible score was

14 and the lowest was 3. A score of3 would more or less mean that the participant:

Is an elementary graduate Receives P82 or less income per day Does not own a business Derives income from other sources

From these characteristics, it was deemed that a score of 3 represented a condition of poverty. To finally

determine whether a participant fell into the Poor category, a scale of scores was provided andassigned a threshold of7 points.

Figure 2

Poverty Threshold


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Using the methodology described above, CSE identified who among its participants belonged to the

poor class. From there, it was only a matter of counting how many scored 7 points or below to

determine the extent of CSEs poverty outreach.

Limitations of the Current Methodology

There are very obvious limitations in using this methodology. To wit:

The income ranges are not structured to capture meaningful difference in income brackets. Getting the midpoints of these income ranges does not eliminate the first limitation. The Per Capita Income ranges are based on the $2/day or P80/day poverty threshold, which

incidentally approximates the equivalent of minimum wage for a family of five. (Minimum wage

in Metro Manila is P427.50. When divided by five (5) family members, we get P85.50) It is

bound to become inaccurate when minimum wages, inflation, and dollar-peso exchange rate

increased or decreased.

The retention of Others as a choice in the item Primary Source of Income will always be asource of confusion unless CSE finally decides to redesign the CIF.

The threshold score of 7 is not meant to be a fixed reference point, but an ad hoc figure that ismeant to serve CSEs purpose.

To offset the limitations of the methodology described above, CSE redesigned the CIF to serve as

poverty measurement tool. The changes are discussed below.

NEW METHODOLOGY

The current methodology was designed based on the principle that poverty is a function of vulnerability,

which is understood here as the inability to withstand economic pressures or economic shocks such as

sudden loss of job, disasters, illness or death, high inflation, high unemployment, etc. Great emphases

are given to level of education and stability of income; the former because education is stronglycorrelated to income and the latter because a steady source of income presumably ensures the

provision of basic needs. The less vulnerable one is, the more s/he can stay out of poverty.

New Set of Indicators

The new methodology is still based on the same idea but will use a slightly different set of indicators and

SES scoring system. It features the following changes:

Table 2

Current and the Proposed New Set of Indicators

Current Set of Indicators Proposed New Set of Indicators

1. Business Ownership Business Ownership and Stability2. Average Monthly Net Income Average Monthly

Income

SameMonthly Per Capita

Income3. No. of Household Members4. Primary Source of Income No. of Regular Income Earners in the

Household

5. Highest Educational Attainment No. of College Graduates in the Household


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Following these change in the set of indicators, the CIF is reformatted to capture the necessary

information for poverty measurement. The new look of CIF is shown by Figure 3.

Figure 3

The New Client Information Form


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With the new CIF format and new set of indicators comes a new guideline in SES scoring. For the

proposed methodology, CSE will follow the following guideline outlined in Table 3.

Table 3

New Guideline in Scoring SES


Equivalent Points

Remarks

Business

Ownership and

Stability

None (0 pt)

Yes & 0-1 yr (1 pt)

Yes & 2-4 yrs (2 pts)

Yes & 5 yrs + (3 pts)

It is not enough to know that a participant has a

business. It is of greater importance to know if the

business is stable as evidenced by the number of

years of operation.

Average Monthly

Income of the

Household

P 5,000

P 10,000

P 15,000

P 20,000

P 25,000

P 30,000P 35,000

P 40,000

P 45,000

P 50,000

Other __________

The values here are different in that they are no

longer ranges but figures with interval of P5,000.

To obtain information on this indicator, we ask the

participant to either choose from the list the

closest amount to their Average Monthly Income

or write the actual/estimate amount on theOther field.

As before, we divide the amount provided by the

participant by the No. of Household Members to

get the Monthly Per Capita Income.

For example:

P 25,000 / 4 (No. of HH Members)

= 6,250 / 30 days

= 208.33 3 points*Number of

Household

Members

This is an open ended item

where there are no fixed

values or choices to select

from.

As before, this is the figure by which the adjusted

values of average monthly net income will be

divided.

We still use as reference the international absolute

poverty threshold of $2/day (roughly P82/day) to

measure poverty, but adjusted the ranges in

hundreds to standardize it.*Per Capita Income

Values and Points

P100 below(1 pt)

101 200 (2 pts)

201 300 (3 pts)

301 400 (4 pts)

401 above (5 pts)

Number of

Regular IncomeEarners in the

Household

Both are open-ended items

where there are no fixedvalues or choices to select

from.

One (1) point is assigned for every household

member who has regular income, which meansthat 2 regular income earners = 2 points

Number of

College

Graduates in the

Household

One (1) point is assigned for every household

member who has a college degree, which means

that 3 college graduates = 3 points


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It is very important to note that the unit of measurement used here is the Household, and not the

individual participant or his/her family. Though it is the individual participant who fills out the CIF and

who is counted in CSEs measurement of poverty outreach, his/her socio-economic status does not

depend on him/herself but on the group with which s/he shares resources. In many cases, that group is

his/her family. However, in many instances, family could be interpreted to include siblings or second

degree relatives who have already formed their own families or households apart from the participants.

This would cause confusion in counting the number of household members and the average monthly

income. To avoid these, explicit questions with detailed instructions are provided to obtain the clearest

possible answer (Please see Figure 3).

To improve on the current methodology, the current indicator Primary Source of Income is replaced by

Number Regular Income Earners based on the assessment that knowing how many household members

contribute to the familys income would give us a better picture of the financial situation than knowing

where they primarily derive their income.

Further, knowing the Highest Educational Attainmentof the participant only provides us information on

a single individual and not on the group (family/household) with which s/he shares resources. This is

replaced by the indicator Number of College Graduates in the household to gain insight into two things:one, the capacity of the family to send their children through college; and two, how many members can

be gainfully employed and can, therefore, contribute to the familys income.

Sample Computation

As an illustration, we asked some of the staff to fill out the new CIF. Here are the results.

Table 4

Sample Computation for Staff who belongs to a Small Household

Indicator/Item Answer Equivalent Points

Business Ownership & Stability No 0

No. of College Graduates 1 1

No. of Regular Income Earners 1 1

Average Monthly Income P25,000 5

[ (P25,000 2) 30

= P416.67 ]

No. of Household Members 2

Monthly Per Capita Income

Total 7 pts

Table 5

Sample Computation for Staff who belongs to an Average Household


Business Ownership & Stability No 0No. of College Graduates 4 4

No. of Regular Income Earners 2 2

Average Monthly Income P45,000 3

[ (P45,000 5) 30

= P300 ]



Total 9 pts


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Table 6

Sample Computation for Staff who belongs to a Large Household


Business Ownership & Stability Yes 1

No. of College Graduates 5 5

No. of Regular Income Earners 4 4Average Monthly Income P45,000 3

[ (P45,000 7) 30

= P214.28 ]



Total 13 pts

To be consistent in following the idea that poverty is a function of vulnerability, we set the poverty

threshold to the score that represents a household that would barely survive economic shocks. In doing

so, we ask:

Does the household have a reliable bread winner or bread winners? How many are they? Do they have an alternative source of income like business? Or do they rely solely on business

income for their sustenance?

How many household members can find gainful employment (based on the premise that collegegraduates are more employable compared to non-degree holders)? If an income earner

becomes unemployed for any reason, are there employable members who can take his/her

place?

How much is the household earning? How much daily income does each member can expect toenjoy?

In consideration of the foregoing, we set the poverty threshold score of 4. Seven scenarios would lead

to such score as demonstrated by the following tabulation. Note that the items No. of Regular IncomeEarners and Monthly Per Capita Income cannot be zero and must at least have a value of1.

Table 7

Combination of Values that Result to a Score of 4

IndicatorsScenarios

1 2 3 4 5 6 7

Business Ownership & Stability 0 0 0 0 0 1 1

No. of College Graduates 2 1 1 0 0 0 1

No. of Regular Income Earners 1 2 1 3 1 1 1

Monthly Per Capita Income 1 1 2 1 3 2 1

Total 4 4 4 4 4 4 4


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To summarize the scenarios above, we can say that the following are true for a household classified as

poor:

1. There are only two (2) cases where a household would own a relatively new business. The restrelies on income derived from other sources.

2. The household would have no more than two (2) college graduates.3. The household would have no more than three (3) regular income earners. This, on the other

hand, means that their Monthly Per Capita Income is P100 or below.

4. The highest Monthly Per Capita Income they could have is between P201 300. This, on theother hand, means that they neither have a college graduate in the household nor a business.

5. If they have two sources of income (salary and business for example) and a college graduate,this means that each member lives on P100 or less daily.

The threshold score of 4 means that anyone who gets 4 or lower are counted as poor, and anyone

who scores 5 or higher are classified as not poor. The lowest score that could be obtained is 2, and

there is no predetermined highest possible score.

Measuring Poverty Outreach

As before, to measure the extent of CSEs poverty outreach, we only need to count how many

participants scored 4 or lower based on their answers in their CIFs, and divide it by the total number

of participants for any given period of assessment.

Advantages and Limitations of the New Methodology

No methodology is perfect and CSE must continuously check on the relevance and effectiveness of its

research tools and improve them as needed. For any assessment tools devised, one must always be

aware of its advantages as well its limitations to know what can and cannot be achieved with the use of

such tools.

Box 1

Advantages and Limitations of the Methodology

Advantages Limitations

1. There is a clear focus and basis on whatpoverty means (Poverty as a function of

Vulnerability).

2. There is a clearly determined unit ofmeasurementHouseholdand not the

individual participant or his/her family.3. All indicators are quantified and can easilylend themselves to quantitative analysis.

4. It is easier to compute for the Monthly PerCapita Income.

1. It can only capture information related toincome and the ability to earn income.

2. It cannot be used to measure impact,either on the level of individual or of the

enterprise.

3.

The values assigned to Monthly Per CapitaIncome may no longer be relevant after a

year or two, depending on changes in the

inflation rate.

poverty measurement methodology

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