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November 10, 2010 / economistindia

Measurement of poverty

Although the most severe poverty is in the developing world, there is evidence of poverty in every region. In developed countries, this condition results in wandering homeless people and poor suburbs and ghettos. Poverty may be seen as the collective condition of poor people, or of poor groups, and in this sense entire nation-states are sometimes regarded as poor. To avoid stigma these nations are usually called developing nations.
When measured, poverty may be absolute or relative poverty.

Absolute poverty

This refers to a set standard which is consistent over time and between countries. An example of an absolute measurement would be the percentage of the population eating less food than is required to sustain the human body (approximately 2000-2500 calories per day).
Relative poverty, in contrast, views poverty as socially defined and dependent on social context.

Relative Poverty

One relative measurement would be to compare the total wealth of the poorest one-third of the population with the total wealth of richest 1% of the population. In this case, the number of people counted as poor could increase while their income rise.

There are several different income inequality metrics, one example is the Gini coefficient.
The main poverty line used in the OECD and the European Union is a relative poverty measure based on “economic distance”, a level of income set at 50% of the median household income.

Both absolute and relative poverty measures are usually based on a person’s yearly income and frequently take no account of total wealth. Some people argue that this ignores a key component of economic well-being.

The World Bank defines poverty in absolute terms. The bank defines extreme poverty as living on less than US$1.25 per day[4] (PPP), and moderate poverty as less than $2 a day. It has been estimated that in 2008, 1.4 billion people had consumption levels below US$1.25 a day and 2.7 billion lived on less than $2 a day. The proportion of the developing world’s population living in extreme economic poverty has fallen from 28 percent in 1990 to 21 percent in 2001. Much of the improvement has occurred in East and South Asia. In Sub-Saharan Africa GDP/capita shrank with 14 percent and extreme poverty increased from 41 percent in 1981 to 46 percent in 2001. Other regions have seen little or no change. In the early 1990s the transition economies of Europe and Central Asia experienced a sharp drop in income. Poverty rates rose to 6 percent at the end of the decade before beginning to recede.There are various criticisms of these measurements.

Some economists such as Guy Pfeffermann say that other non-monetary indicators of “absolute poverty” are also improving. Life expectancy has greatly increased in the developing world since WWII and is starting to close the gap to the developed world where the improvement has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy increased from 30 years before World War II to a peak of about 50 years before the HIV pandemic and other diseases started to force it down to the current level of 47 years. Child mortality has decreased in every developing region of the world. The proportion of the world’s population living in countries where per-capita food supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the 1990s. Between 1950 and 1999, global literacy increased from 52% to 81% of the world. Women made up much of the gap: Female literacy as a percentage of male literacy has increased from 59% in 1970 to 80% in 2000. The percentage of children not in the labor force has also risen to over 90% in 2000 from 76% in 1960. There are similar trends for electric power, cars, radios, and telephones per capita, as well as the proportion of the population with access to clean water.
Income inequality for the world as a whole is diminishing. A 2002 study by Xavier Sala-i-Martin finds that this is driven mainly, but not fully, by the extraordinary growth rate of the incomes of the 1.2 billion Chinese citizens. However, unless Africa achieves economic growth, then China, India, the OECD and the rest of the middle-income and rich countries will diverge away from it, and global inequality will rise. Thus, the economic growth of the African continent should be the priority of anyone concerned with decreasing global income inequality.

Poverty measurement – Different concepts and different approaches

1)Consumption or income poverty-measures:

The measurement of poverty is here based on consumption expenditure or income data from household surveys, usually large-scale, statistically representative surveys, mainly implemented by the Statistical Bureau or other official institution.

Advantages: simple result, presentation, and interpretation; since it is based on monetary value, it is easily linked conceptually to GDP, so the link with the economy is seemingly straightforward; yields a statistically representative national picture.

Disadvantages: for policy, slow, measurement error may be high; link between raw data and results not simple, limited transparency; in practice, linking data with the economy is not self-evident; distant from the poor, etc.

2)Non-monetary measures of poverty:

Typically, there are health indicators and education statistics.
Data is from large household surveys, statistically representative. Implemented by the Statistical
Bureau or other government agency.

Advantage: yields direct measure of well-being, more easily understood than consumption.

Disadvantages: health status is largely influenced by long-term factors such as health history, health endowments, etc.; child health is strongly influenced by the long-term health status of the mother;consequently, while health is also influenced by current services and income, the link is not easy or direct, so for short-term policy analysis at least, it is problematic.

3)Qualitative studies on poverty:

Often based on participatory techniques. Experiences, perceptions,
livelihood issues, social conditions, political issues, etc. Quite often implemented by non-government organisation or research centres.

Advantages: rich, direct, detailed, contextual findings; not necessarily cheaper, but faster results;ownership externalities are possible.

Disadvantages: not representative, not straightforward to replicate or check, etc.

Poverty Gap Index

The mean distance below the poverty line as a proportion of the poverty line where the mean is taken over the whole population, counting the non-poor as having zero poverty gap.
Even if poverty may be lessening for the world as a whole, it continues to be an enormous problem:
• One third of deaths – some 18 million people a year or 50,000 per day – are due to poverty-related causes. That’s 270 million people since 1990, the majority women and children, roughly equal to the population of the US.
• Every year nearly 11 million children die before their fifth birthday.
• In 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day
• 800 million people go to bed hungry every day.
The World Bank’s “Voices of the Poor” , based on research with over 20,000 poor people in 23 countries, identifies a range of factors which poor people consider elements of poverty. Most important are those necessary for material well-being, especially food. Many others relate to social rather than material issues.
• precarious livelihoods
• excluded locations
• gender relationships
• problems in social relationships
• lack of security
• abuse by those in power
• dis-empowering institutions
• limited capabilities, and
• weak community organizations.

Sources :

1) wikipedia

2) world bank report


4) evaluation.zunia

5) Dercon (2000)

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