Measuring Poverty (15): A Common Misconception About Relative Poverty

Yesterday, I had a short email exchange with Tim Harford, in which I reacted to one of his claims in this article, more specifically the claim that the use of a relative notion of poverty in poverty measurement implies that poverty will always be with us:

Eurostat, the European Union’s statistics agency, … defines the poverty line as 60 per cent of each nation’s median income. (The median income is the income of the person in the middle of the income distribution.)

This has an unfortunate consequence: poverty is permanent. If everyone in Europe woke up tomorrow to find themselves twice as rich, European poverty rates would not budge. That is indefensible. Such “poverty” lines measure inequality, not poverty.

This argument against relative poverty is as common as it is mistaken. Here’s my email to Tim:

I read your article on poverty measurement a moment ago, and I wanted to object. You say that using a relative poverty measurement of income below 60% of median income makes poverty “permanent”. It does not. True, someone with an income of 61% of the median does not suddenly become poor because the median person receives a pay rise. But it’s also true that it’s perfectly doable – mathematically if not in reality – to raise every single poor person’s income above 60% of the median without changing the median. Poverty is only permanent when one would use 60% of the average as threshold, but no one proposes such a foolish thing, fortunately.

In fairness to Tim, his article does list some advantages of relative poverty and he qualified his views in our email correspondence.

More posts in this series are here.

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