Measuring Poverty (7): Different Types of Poverty

I already mentioned the obvious but consequential fact that poverty measurement depends on the choice of the type of poverty you want to measure. Definitional issues are always important, but when it comes to poverty the choice of a definition of poverty determines who will benefit from government benefits and who won’t. For example, in the U.S. you’re poor when you’re income is below a certain poverty line. If that’s the case, you’re eligible for certain benefits. So poverty is a function of income.

1. Insufficient income

Usually, and not only in the U.S., poverty is indeed understood as insufficient income (preferably post-tax and post-benefits). Measuring poverty in this case means

  1. determining a sufficient level of income (sufficient for a decent human life); this is usually called a “poverty line” or “poverty rate”
  2. measuring actual income
  3. counting the number of people who have less income than the sufficient level.

There are some problems with this measurement system or this choice of type of poverty. Actual income levels are notoriously difficult to measure. People have a lot of informal income which they will not disclose to people doing a survey. Likewise, there is tax evasion and income in kind (market based or from government benefits, e.g. social housing), and material or immaterial support by local social networks. None of this is included correctly if at all in income measurement, leading to an overestimate of poverty. Another disadvantage of income based measurements: they neglect people’s ability to borrow or to draw from savings in periods of lower income. Again, this overestimates poverty (although one could say that it just estimates it a bit too early, since borrowing and eating up savings can lead to future poverty).

2. Insufficient consumption

Because of these problems, some countries define poverty, not by income levels, but by consumption levels. Measuring poverty in this case means

  1. determining a sufficient level of consumption (sufficient for a decent human life)
  2. measuring actual consumption
  3. counting the number of people who consume less than the sufficient level.

However, this measurement isn’t without problems either. As is the case for income levels, actual consumption levels are difficult to measure. How much do people actually consume? And what does it mean “to consume”? Is it calorie intake? Is it financial expenses? Or something else perhaps? Consumption levels are also deceiving: people tend to smooth their consumption over time, even more so than their income. If they face a financial crisis because of unemployment, bad health, drought etc. they will sell some of their assets (their house for instance) or take a loan. If you determine whether someone is poor on the basis of consumption levels, you won’t consider people dealing with a crisis as being poor because they continue to consume at the same levels. However, because of loans or the sale of assets, they are likely to face poverty in the future. They may also shift their diet away to low quality food, taking in the same amount of calories but risking their health and hence their future income. Similarly, they may be forced by their crisis situation to delay health expenditures in order to smooth consumption, with the same long term results.

And even if you manage somehow to measure consumption, you’re still faced with the problem of the threshold of sufficient consumption: that’s hard to determine as well. Consumption needs differ from person to person, depending on age, gender, occupation, climate etc.

3. Direct physical measures of real consumption

Rather than trying to measure total income or consumption, you can choose to measure consumption of certain specific physical items, and combine that with some easy to measure elements of standard of living, such as child mortality or education levels. It’s possible to argue that poverty isn’t an insufficient level of overall income or consumption, but instead the absence of certain specific consumption articles. People are poor if they don’t have a bicycle or a car, a solid floor, a phone etc. Or when their children die, can’t go to school or are undernourished. These items or indicators are relatively easy to measure (for example, there’s the Demographic and Health Survey). While they may not tell us a lot about relative living standards in developed countries (where few children die from preventable diseases for instance), they do provide poverty indicators in developing countries.

The OECD has done a lot of good work on this. They call it “measuring material deprivation“. It’s the same assumption: there are certain consumer goods and certain elements of living standard that are universally considered important elements of a decent life. The OECD tries to measure ownership of these goods or occurrence of these elements, and when people report several types of deprivation at the same time, they are considered to be poor.

Take note that we’re not talking about monetary measures here, contrary to income and overall levels of consumption. Sometimes, all that has to be measured is a “yes” or a “no”. Which of course makes it easier.

Unfortunately, not easy enough. This type of poverty measurement has its own drawbacks. Measures of material deprivation often fail to distinguish between real deprivation and the results of personal choices and lifestyles. Some people can’t have a decent life without a car or a solid floor; others voluntarily choose not to have those goods. It’s likely that only the former are “poor”. Furthermore, since these measurements are often based on surveys, there are some survey related problems. The really poor may be systematically excluded from the survey because we can’t find them (e.g. the homeless). These surveys measure self-reported poverty, and self-reported poverty can be affected by low aspirations or habit. People may also be ashamed about their poverty and hence not report it correctly.

Conclusion

There isn’t a perfect system for poverty measurement. And that has a lot to do with the fact that poverty is an inherently vague concept. It really shouldn’t be a surprise that people choose different definitions and types, and hence different measurement methods that all provide different data. There’s no “correct” definition of poverty, and hence no correct poverty measure.

More posts in this series on the difficulties of poverty measurement.

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