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 individuals 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 its 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.

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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.

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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

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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

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2 main types of issues in  counting the poor 

• What to measure defining the scale
• Who is poor defining the threshold

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Absolute VS. relative

• Absolute is always contingent to a time and place

15
Adam Smith
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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 EUs 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 EUs relative approach

• Is  60 of the median  an index of inequality,
  then?
• Not really, since it doesnt take into account
  whatever happens in the top half of the
  distribution

20
The EUs 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 EUs relative approach

• Indicator 1 At risk of poverty rate (2001)

22
The EUs relative approach

• At-risk of poverty thresholds (2001), single
  adult, PPP

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Poverty gap

• Z poverty line
• Yi income of household i
• PG 1/n S (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 EUs relative approach

• Median at-risk of poverty gap (2001)

25
The EUs 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 households
actual monthly income (Source French HBS, 2006)


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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

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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
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Comparing the 3 approaches

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

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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.
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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 theyve 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 n1
• 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 HHs equivalised
  income
• Very sensitive to hypotheses

40
Beyond the EU worldwide comparisons?
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Beyond the EU worldwide comparisons?

• World Bank (1990)  1 dollar a day 
• Idea measuring the worlds poverty according to
  the standards of the poorest countries

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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
  (n75) 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 Banks country-specific Poverty Assessments

51
Beyond the EU worldwide comparisons?

• They propose a new international poverty line of
  1.25 a day for 2005
• It is the mean of the lines found in the poorest
  15 countries in terms of consumption per capita

52
Beyond the EU worldwide comparisons?

• They suggest that relative poverty is a more
  important concern than was the case 20 years ago
• More countries are found in the region where the
  poverty line rises with mean consumption.
• Across their sample of 75 developing countries,
  the overall elasticity of the poverty line to
  mean consumption is around 0.7 close to the
  values found for developed countries

53
Population breakdowns why?

• Ex Recent focus on percentage of children who
  are poor
• Comes from UK (Child Poverty Action Group) and
  the US
• Goal make social policy acceptable because
  children cannot be deemed responsible for their
  situation
• idea that a child growing up poor has a low
  cost/benefit ratio (crime, unemployment, low
  productivity if drops out)

54
Pb with percentage rate

• Problems
• Insensitive to the depth of poverty
• Will not change when a poor persons welfare
  changes if s/he remains below the poverty line

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Lessons to be learnt

• On international comparisons what matters more?
  The same methodology or the same meaning behind
  the figure?
• Ex of deprivations different items in different
  countries more relevant than same items
• Importance of prior knowledge of the local
  situation (? education)

56
Lessons to be learnt

• Poverty is multi-dimensional
• Sometimes its better to forsake the idea of a
  single figure saying it all
• Trade-off between theoretical relevance and focus
  on what we think matter more
• ease of communication the media will usually
  use only one figure, the one on the first line of
  the first page...

57
Lessons to be learnt

• On child poverty policy impact of measurement
  linked with ideology of those you want to
  convince (figures for advocacy)
• Figures broken down by a heavily debated
  issue (men/women, age, number of children)
• The official measurement of something makes it,
  almost by definition, policy relevant