1. Measurement of Poverty: Concepts & Measurements

2. Measurement of Poverty
“The governments are very keen on amassing statistics. They collect them, add them, raise them to the nth power and take the cubed root and prepare wonderful diagrams. But you must never forget that every one of these figures comes in the first instance from the village watchman who just puts down whatever he damn well pleases.” - Sir Josiah Stamp
Measurement of Poverty

3. Measurement of Poverty Practical Concerns
Identification of Poverty Line
Defining the Unit of Measurement
Selecting the Indicator of Well-being
Measurement of Poverty

4. Identification of Poverty Lines
The point at which the poor are separated from the non-poor
Relative Poverty Lines
Absolute Poverty Lines
Measurement of Poverty

5. Absolute Poverty Lines
Measurement of Poverty

6. Food Energy Intake Method
Sets PL at the level of expenditure at which FEI is just sufficient to meet basic nutrition requirements
STEP ONE: Establish the minimum nutrition requirements.
STEP TWO: Examine the observed spending pattern to see at what average expenditure household just achieve minimum nutrition requirement.
Measurement of Poverty

7. Food Energy Intake Method
Min Nutrition Standard (eg 2100 cals.) PL
Expenditure (or Income)
Measurement of Poverty

8. Food Energy Intake Method
The PL determined by the FEI method may vary across regions due to differences in:
Preferences: if more expensive animal protein and less food grain is eaten.
Relative Prices: in urban areas it may cost more to obtain basic nutrition because food prices are higher.
Publicly Provided Goods: in capital city transport to/from work may be cheaper than in provincial cities, allowing for lower expenditure level to meet minimum FEI.
Measurement of Poverty

9. Food Energy Intake Method
This method does take account of non-food purchases.
Measurement of Poverty

10. Measurement of Poverty
Cost of Basic Needs
PL is equal to the value of a bundle of consumption goods necessary to meet basic needs
May include just food (extreme poverty)
But more commonly includes non-food items
Measurement of Poverty

11. Measurement of Poverty
Cost of Basic Needs
STEP ONE: Establish the minimum consumption bundle necessary to meet basic needs
Measurement of Poverty

12. Measurement of Poverty
Cost of Basic Needs
STEP TWO: Establish the cost for the items in the basic consumption bundle
Measurement of Poverty

13. Additional Considerations in Setting Poverty Lines
Regional Poverty Lines
Significant regional price differences may exist
Urban / Rural poverty lines common
Sensitivity Analysis
Typically near mode of distribution
Multiple poverty lines often tried
Measurement of Poverty

14. Distribution of Expenditure Mexico, 1992
Measurement of Poverty

15. Cumulative Distribution of Expenditure Mexico, 1992
Measurement of Poverty

16. Measurement of Poverty Practical Concerns
Identification of Poverty Line
Defining the Unit of Measurement
Selecting the Indicator of Well-being
Measurement of Poverty

17. Defining the Unit of Measurement
Household vs. Individual
Adjusting for differences among HH
Adjusting for the age / gender of HH members
Adjusting for HH size
Measurement of Poverty

18. Defining the Unit of Measurement
Example:
2 HH with monthly Y of $150
HH1 has 2 members…per capita Y = $75
HH2 has 3 members …per capita Y = $50
BUT:
HH1 has 2 adult men
HH2 has woman and 2 small children
Measurement of Poverty

19. Equivalence Scales and Economies of Scale
HH size is often measured in “adult equivalent” units
each member of the HH counts as some fraction of an adult male
Economies of scales can then be accounted for by scaling the adult equivalent units
Measurement of Poverty

20. Equivalence Scales and Economies of Scale
Many different methodologies are followed within two basic approaches
Fixed Scales
Estimated Scales
Measurement of Poverty

21. Measurement of Poverty
Fixed Scales
Ex 1: Adult Equivalent Scale:
Adult Male = 1
Adult Female = 0.74
Child < 5 years = 0.6
Ex 2: OECD Scale: AE=1+0.7*(A-1)+0.5*C
First adult = 1
Additional adults = 0.7
Children < 14 = 0.5
Measurement of Poverty

22. Measurement of Poverty
Estimating AE Scales
Based on examining HH data to see how consumption varies with gender/age and size
Food share of expenditure is regressed on HH size, HH composition
Measurement of Poverty

23. Examples of AE Estimated Scales
Ex 1: Deaton and Meullbauer, Sri Lanka, Indonesia
Adults = 1
Child = 0.5
Child 7-12 = 0.3
Child < 7 = 0.2
Measurement of Poverty

24. Examples of AE Estimated Scales
Ex 2: Deaton, India and Pakistan
The AE value of adding another person to a HH with 2 adults:
Age 0-4 = 0.48
Age 5-9 = 0.56
Age = 0.60
Age = 0.68
Measurement of Poverty

25. Measurement of Poverty
What is a HH?
UN definition:
“Group of people who eat together”
But: how long must one be a resident to be counted as part of a HH
Students, migrant workers, etc.
Measurement of Poverty

26. Measurement of Poverty Practical Concerns
Identification of Poverty Line
Defining the Unit of Measurement
Selecting the Indicator of Well-being
Measurement of Poverty

27. Selecting the Indicator of Well-being
Monetary Measure of Welfare
Income
Expenditure
Non-Monetary Measures of Welfare
Direct Measures
Subjective Measures
Measurement of Poverty

28. Measurement of Poverty
Income
Definition: Y = C +  in net worth
Example
Assets start of year: $10K
Spending on consumption: $3K
Assets end of year: $11K
Annual Y: $4K
Measurement of Poverty

29. Problems with Income as Welfare Measure
Conceptual Problems
Goal is to measure HH ability to meet basic needs, but Y is just one factor
access to credit, public services, access, etc. are other factors that determine ability to meet basic needs
Measurement of Poverty

30. Problems with Income as Welfare Measure
Measurement Problems
Understating of Y
Difficult to recall all of Y, especially when Y flow is erratic as in the informal sector
Fear of tax collector
Illegally earned Y
Separating inputs from revenue in agriculture
Accounting for own consumption of output
Measurement of Poverty

31. Measurement of Poverty
Expenditure
Generally preferred to Income
Is more direct measure of what is consumed
Less volatile than Y
Consumption smoothing...
Measurement of Poverty

32. Consumption Smoothing
Income Consumption Y C
Time
Measurement of Poverty

33. Calculating Y or Expenditure for HH
How do we measure Y / Expenditure?
What is included?
NB: HH may be both producers and consumers
Measurement of Poverty

34. Measuring Y and Expenditure HH as Consumer
Measurement of Poverty

35. Measuring Y and Expenditure Household as Producer
Measurement of Poverty

36. Calculating Y and Expenditure
Must not include:
Inputs into HH production, like money spent on seeds, fertilizer
Expenditure on investment, like purchase of tools
Measurement of Poverty

37. Calculating Y and Expenditure
Should include:
Housing for owner-occupied dwellings
Expenditure on durable goods
Measurement of Poverty

38. Non-Monetary Measure of Welfare
Direct Welfare Measures
Nutrition Poverty
Health Poverty
Education Poverty
Measurement of Poverty

39. Measurement of Poverty
Nutrition Poverty
Input
Example: Calories per day
Outcomes
Example: Malnutrition
Measurement of Poverty

40. Measurement of Poverty
Health Poverty
Outcomes
Ex: life expectancy, infection rates
Inputs
Ex: vaccination rates
Measurement of Poverty

41. Measurement of Poverty
Education Poverty
Outcomes
Ex: Literacy rates
Inputs:
Ex: Enrolment numbers
Measurement of Poverty

42. Measurement of Poverty
Subjective Measures
HH may be asked directly about their welfare
HH may be asked to establish minimum standards
Community indicators may be established
Measurement of Poverty

43. Measurement of Poverty
Poverty Measures
We may want to measure poverty directly instead of looking at Y and inequality together
The most commonly used poverty measures are:
Head Count Index
Poverty Gap
Proportional Poverty Gap
Squared Poverty Gap
Measurement of Poverty

44. Measurement of Poverty
Head Count Index
HCI = (# poor) / (population)
Measures the “incidence” of poverty
i.e. it tells us “How many poor”
Measurement of Poverty

45. Measurement of Poverty
Head Count Index
Simplest and most commonly used measure
Limitations:
Does not account for depth of poverty; i.e. it does not tell us how far below the poverty line the poor are.
Advantages:
Simple to understand, straightforward interpretation.
Additive across populations.
Measurement of Poverty

46. Regional Head Count Estimates Extreme Poverty <$275/year
1985 figures
Measurement of Poverty

47. Regional Head Count Estimates Moderate Poverty < $370/year
1985 figures
Measurement of Poverty

48. Measurement of Poverty
Absolute Poverty Gap
PG = (# Poor) * (Y shortfall)
PG = (Z-Yi) ;
where Z is PL, Yi is income of person i
It tells us the total Y shortfall of the poor; i.e. the absolute amount that would be needed to raise all the poor up to the poverty line.
Measurement of Poverty

49. Measurement of Poverty
Absolute Poverty Gap
Poverty Gap Y PL
Population (poorest to richest)
Measurement of Poverty

50. Measurement of Poverty
Absolute Poverty Gap Y Y
Poverty Gap PL PL
Population
Population
Relatively large poverty gap
Relatively small poverty gap
Measurement of Poverty

51. Proportional Poverty Gap
PPG = (1/N){(Z-Yi)/Z}
Measures the “depth” of poverty
It gives some weight to how far below the poverty line a poor individual is
If a poor person’s income fall, the HC won’t change, but the PPG will increase to reflect the increase in the depth of poverty
Measurement of Poverty

52. Squared Poverty Gap(Foster-Greere Thorbecke)
PPG = (1/N){(Z-Yi)/Z}2
Measures the “severity” of poverty
Squares the difference between the poverty line and each household’s income
provides much greater weight to the poorest of the poor because the farther the HH from the poverty line, the greater the weight it is given
Measurement of Poverty

53. Measurement of Poverty
Poverty Measures
Head Count
Proportional Poverty Gap
Squared Poverty Gap
Absolute Poverty Gap
Income Distribution Y PL
Pop (poorest to richest)
Measurement of Poverty

54. Measurement of Poverty
Poverty Measures
These first 3 poverty measures are often referred to as the Foster-Greere-Thorbecke family of indices
They can all be written as:
Pα= (1/N){(Z-Yi)/Z}
=0 is HC
=1 is PPG
=2 is SPG
Measurement of Poverty

55. Poverty Measures from Mexico
Measurement of Poverty

56. Human Development Index
An attempt to account for some of the limitations of using just income or expenditure as a measure of welfare
Tries to take seriously some of Sen’s arguments about capabilities
Sen argues that the goal is to increase capabilities …to be well fed, educated, healthy
These capabilities won’t always be perfectly correlated with income
Measurement of Poverty

57. Income and Capabilities
Measurement of Poverty

58. Measurement of Poverty
HDI
Consists of 3 elements
Life Expectancy
Educational Attainment
2/3 Adult Literacy
1/3 School Enrolment
Per Capita Income
Adjusted down for Y > $5K
Each component scored on scale
Index is simple average of 3 components
Measurement of Poverty

59. Gender Development Index
Motivated by inequality in the distribution of resources across gender.
Is there evidence that resources are distributed unequally?
The same 3 components as HDI, but gives weight to relative equality in Y and achievement of capabilities by gender.
Measurement of Poverty

60. Measurement of Poverty
Human Poverty Index
Attempt by UNDP to take Sen’s capability approach even more seriously
Index combines 3 parts:
Vulnerability to early death
Access to education
Overall standard of living
Health, water, nutrition
Measurement of Poverty

61. Measurement of Poverty
The secret of truth
is that there are no facts, only stories.
- Joao Ubaldo Ribeira
Brazilian novelist
Measurement of Poverty