MEASURING POVERTY

ABSOLUTE, RELATIVE AND SUBJECTIVE

POVERTY

Gordana Matković
 Absolute Poverty
• Absolute poverty entails the inability to meet
the basic, minimum needs.
• “Ultimately poverty must be seen to be
primarily an absolute notion.” “If there is a
starvation and hunger then – no matter what
the relative picture looks like – there clearly is
poverty“
(Sen, 1983, 153; 159)
 Absolute Poverty
• This is the earliest developed concept – it ties poverty
to the inability to secure mere subsistence.
• First measurements – Rowntree (1902) collected data
on all workers' families in York in 1899
• This concept was also applied by Beveridge to define
social benefit amounts in his report
• The USA Government's official poverty lines,
established in the early 1960s, are also based on the
absolute poverty concept
• The absolute poverty concept is also used by the
World Bank
 Absolute Poverty – Measurement
• The "cost of basic needs" method – the poverty line
is set by adding up the food expenditure sufficient
to meet the caloric intake guidelines and the
expenditure on other basic needs
• The "one dollar line" (later $1.25 PPP per person per
day) was set on the basis of the poorest countries'
national poverty lines
• The line set at $2 PPP per person per day, as well
as the $2.5 PPP and $5 PPP lines (in the ECA
region) are also used
 Extreme Poverty
• Defined in relation to the "food line" – the
extremely poor are those who are unable to
meet the basic food needs
• In the EU, absolute poverty is also described as
the extreme form of poverty – the European
Commission uses the term extreme poverty
"because the notion of absolute poverty does not
translate very well into other EU languages" –
Bradshaw & Mayhew (2010, 22)
• Certain researchers hold that extreme poverty is
pronounced and sustained, persistent poverty
 Absolute Poverty – Criticism
• The poverty line established on the basis of the
poorest population’s consumption, rather than
on the basis of minimum needs
• The nutritional minimum based on caloric intake,
in particular with regard to children
• Simplistic, limited, one-dimensional concept
(disregarding non-financial aspects – social,
cultural)
• Obsolete concept, the idea stems from times
when it was natural to think in subsistence terms
 Absolute Poverty – Criticism
• "One dollar a day": pertains only to
developing countries, is not the right option
for the measurement of poverty worldwide
– Reliance on the consumer price index and
purchasing power parity enables the inordinate
influence of the prices of goods and services not
used by the poor and influence of the American
consumption pattern
• The higher poverty lines ($2 PPP and $5 PPP)
are arbitrary
 Relative Poverty – Concept
• Relative poverty entails the inability to attain a standard
of living adequate from the perspective of the society in
which an individual lives
• The concept is attributed to Peter Townsend – "Their (poor
people's) resources are so seriously below those
commanded by the average individual or family that they
are, in effect, excluded from ordinary living patterns,
customs and activities" (Townsend, 1979, 31)
• "The Greeks and Romans lived, I suppose, very comfortably,
though they had no linen. But in the present times, through
the greater part of Europe, a creditable day-labourer would
be ashamed to appear in public without a linen shirt"
(Smith, 1776)
 Relative Poverty – Indicators
At-risk-of-poverty rate – the share of individuals whose
equivalised income after social transfers is below 60% of
the national median equivalised income. This proportion
of the median income represents the at-risk-of-poverty
line/threshold
– According to the Eurostat glossary, "this indicator does not
measure wealth or poverty, but low income in
comparison to other residents in that country, which does
not necessarily imply a low standard of living"
– Before the adoption of the Europe 2020 strategy, the fight
against poverty and social exclusion was monitored
through the at-risk-of-poverty rate.
 Relative Poverty – Criticism
• Criticism focuses on the indicators, rather than on the concept as such.
• 60% of the median income – what standard of living (sufficient,
insufficient) is warranted by this arbitrarily set threshold?
• Risk of poverty in richer societies may be equal to that in those less
developed
• In the new Member States, poverty is low since the poverty threshold is
very low in absolute terms, and the proportion of the population at risk is,
consequently, relatively low
• Despite economic development and rise in income for all strata, the
number and proportion of the vulnerable may grow and vice versa
• In times of crisis, earned income is the first to decline, which affects
income distribution and median income; the poverty threshold is lowered,
and individuals immediately below the threshold may exceed it, despite
the fact that their actual situation has, in fact, deteriorated – relative
poverty may thus decrease at the outset of a crisis
 Relative Poverty – Criticism
Some criticism primarily concerns income as an indicator of
poverty:
• Income is only an indirect indicator of the current status
• Inadequacy of income in countries characterised by a high
share of production for own use and widespread informal
economy
• Remittances from abroad, which are often not reported as
income; reliance on income as an indicator of standard also
fails to take into account other gifts, loans, and even
consumption based on earlier savings
• "Income data (though not the Nordic registers) is more or
less unreliable, understated, hidden or forgotten"
(Bradshaw & Mayhew, 2010, 10; 60)
 Subjective Poverty – Concept
• Subjective poverty entails individual assessment of
one's material status/poverty – a complementary
measure of well-being
• Already in the late 1960s, Van Praag defined the
forerunner to the well-known question on the
assessment of the minimum resources required for
subsistence
• "Poverty is a subjective feeling of individuals"
(Van Praag & Carbonell, 2005, 27)
• A complementary measure of well-being – but data are
also used to test objective poverty lines, to calibrate
composite social well-being indices...
 Subjective Poverty – Measurement
1. Direct approach – individuals describe their material situation,
grading it from "good" to "very bad"
• The EU indicator "inability to make ends meet" – scale of 5
responses, from "very easily" to "with great difficulty" – is not
included among the items used for the assessment of MD, owing
to the overemphasis on the subjective component
• Poverty incidence – the proportion of individuals stating that
they make ends meet "with difficulty" or "with great difficulty"
2. The other approach is based on respondents' assessment of the
minimum income level they need to meet their essential needs
• Poverty incidence – the proportion of individuals "below the
line"
 Subjective Poverty – Criticism
• The most serious problems are the absence of a clear attitude and
inconsistency on the part of respondents, giving socially desirable
responses
• Responses vary depending on individual and household
characteristics, as well as their real income
• In line with adaptive preferences, once they become accustomed to
a higher standard of living, the more affluent start judging it "by
higher criteria", while under the conditions of long-term poverty,
respondents tend to overestimate their status
• The subjective feeling of poverty is enhanced
– in respondents who are ill or unwillingly unemployed,
– when respondents' aspirations and expectations exceed their
current possibilities,
– when household income is on the decline
 Poverty indicators in Serbia, 2012
API – Absolute poverty rate
RPI – Relative poverty rate
70
64.6 AROPE – At-risk-of-poverty-
or-social-exclusion rate
60 MDR – Material deprivation
rate
50 SMDR – Severe material
44.3
42.1 deprivation rate
40 SPI – Subjective poverty rate
ADMIN – Administrative
26.9 poverty rate
30
24.6

20

8.8
10
3.6

API RPI AROPE MDR SMDR SPI PADMIN

 REGIONAL ASPECT

35

30

25

20

15

10

0
API RPI

Belgrade Vojvodina South and East Serbia Šumadija and West Serbia Serbia
 BY LABOUR MARKET STATUS
50

45

40

35

30

25

20

15

10

0
API RPI

employed self-employed unemployed pensioners

SINGLE-MEMBER HOUSEHOLDS
40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0
API RPI

single-member total
 POVERTY LINE
ABSOLUTE POVERTY RISK OF POVERTY

SINGLE MEMBER 10223 13680

HOUSEHOLDS

SINGLE PARENT, TWO 20446 21888

CHILDREN

TWO ADULTS, TWO 27602 28728

CHILDREN
 CONCLUSIONS

"What we measure affects what we do; and if

our measurements are flawed, decisions may be
distorted."
(Stiglitz, Sen, & Fitoussi, 2009, 7)
 CONCLUSIONS
1. In line with the hierarchy of absolute and relative poverty
(Atkinson & Bourguignon), as long as there is a great
number and a high share of individuals unable to meet
even the minimum needs, the absolute poverty concept
is relevant

2. The definition and monitoring of absolute poverty are also

important from the aspect of the formulation and
evaluation of poverty reduction policies

"Physical survival has priority, and this is the first criterion by which policy
should be evaluated, but relative poverty legitimately comes next on our list
of concerns."
(Atkinson & Bourguignon, 1999, 16-17)
 CONCLUSIONS
3. The assessment of poverty in Serbia by
consumption is still important in view of:
– the scale of production for own use (its value as a
proportion of the total consumption of the poorest
two deciles stands at approximately 12%)
– the importance of remittances (by the ratio of
remittances to the GDP, Serbia shares the second and
third ranking among European countries)
– the prevalence of informal economy (about 30% of
the GDP, with the share of informal employment in
total employment ranging between 17% and 20%)
 CONCLUSIONS
4. Material deprivation indicators
– Indicate the level of deprivation by European
standards
– An element of subjectivity (negative responses may
simply result from the fact that certain items are not
a priority in the household budget and are not
wanted by respondents)
– Still under construction
5. Several research projects show that, to identify
the core of the poverty problem, it is essential to
monitor several indicators
 CONCLUSIONS
• The third wave of the Living Standard
Measurement Survey (LSMS)?
– Additional insight into poverty issues
– More detailed data on consumption and a more
precise picture of poverty
– Owing to separate modules on health, education and
employment status, the LSMS would provide other
invaluable information as well – the burden of private
health or education expenditures on the poor
population's consumption, their labour market status
and the like
• Matching HBS and SILC data?
Thank you!

For more information refer to:

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Concepts-Status-and-Recommendations.pdf