Measurement – session 6

1. Measurement – session 6 Poverty

2. 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

3. 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.

4. 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

5. 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

6. 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

7. 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?

8. 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.

9. 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.

10. 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

11. 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

12. 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

13. 2 main types of issues in « counting the poor » • What to measure = defining the scale • Who is poor = defining the threshold

14. Absolute VS. relative • Absolute is always contingent to a time and place

15. Adam Smith

16. 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

17. In terms of food/total exp ratio • The food/total expenditure ratio itself can be used as a measurement of poverty

18. 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

19. 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

20. 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

21. The EU’s relative approach Indicator 1: At risk of poverty rate (2001)

22. The EU’s relative approach At-risk of poverty thresholds (2001), single adult, PPP

23. 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

24. The EU’s relative approach Median at-risk of poverty gap (2001)

25. 60.0 51.9 48.2 50.0 45.7 39.1 40.0 34.0 32.3 31.0 29.8 30.0 25.0 24.0 23.2 21.1 20.0 20.0 19.1 19.0 20.0 18.0 17.7 17.5 15.8 13.8 13.0 12.9 10.7 10.0 9.0 10.0 0.0 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 The EU’s relative approach Share of food (black) and housing (yellow) in average HH budget Source: Eurostat, HBS, 1999

26. 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

27. 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)

28. 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

29. 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

30. 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

31. Deprivation as measured by EU-SILC

32. Comparing the 3 approaches • It would be nice if the 3 approaches (income, subjective, deprivation index) yielded the same “poor” population

33. Comparing the 3 approaches Source: Verger in Economie et Statistique #383-385, 2005 R.

34. Comparing the 3 approaches Source: Verger in Economie et Statistique #383-385, 2005 R.

35. 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…)

36. 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 »

37. 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

38. 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)

39. 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

40. Beyond the EU: worldwide comparisons?

41. 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

42. 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

43. 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

44. Beyond the EU: worldwide comparisons? Source: dollar a day revisited, World Bank, 2008

45. Beyond the EU: worldwide comparisons? Source: Dollar a day revisited, World Bank, 2008

46. Beyond the EU: worldwide comparisons? Source: Dollar a day revisited, World Bank, 2008

47. 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

48. 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

49. Beyond the EU: worldwide comparisons? Ravallion, Chen and Sangraula, « dollar a day revisited », World Bank, 2008

50. 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