Measuring Poverty (10): Multidimensional Poverty

Poverty can be many different things. It can be different things to different people in different countries or circumstances. It can mean one thing for people in Africa and another for people in the favelas in Rio, and still another for those in the inner-cities in the U.S. It’s probably different for men, women and children. It can be absolute deprivation or relative poverty (i.e. inequality). It can be insufficient income or insufficient consumption. It can be a lack of one thing or another. For some people it means inadequate healthcare, for others it means insufficient water. It can be physical suffering or the stress inherent in insecurity. It can be malnutrition or a lack of self-esteem. It can be illiteracy or child mortality. Etc.

Most poverty measurement systems try to keep it simple. The most common systems just measure income. Poverty is then insufficient income (typically below $1-a-day, corrected for purchasing power; this measures the number of people incapable of buying a basic basket of commodities). That makes sense, because without sufficient income, you’re likely to experience child mortality, illiteracy, malnutrition, inequality, water shortages, stress, insecurity and all the other nasty things that come with poverty.

However, it is important to know those details of poverty. Two people who both have an income of less than one dollar a day, may experience very different consequences: one may be deprived in lots of areas, the other one maybe in just a few. One may lack good health, may be starving and may be illiterate. The other one may just be illiterate. If we want to help people, it’s important to know what the exact nature of their problem is. Which we don’t if we just focus on how much their income is.

That is why some researchers at the Oxford Poverty and Human Development Initiative at the University of Oxford have tried to come up with a so-called Multidimensional Poverty Index (MPI).

The index seeks to build up a picture of the prevalence of poverty based on the fraction of households who lack certain basic things. Some of these are material. Does a family home have a dirt or dung floor? Does it lack a decent toilet? Must members of the household travel more than 30 minutes on foot to get clean water to drink? Do they live without electricity? Others relate to education, such as whether any school-age children are not enrolled or whether nobody in the family has finished primary school. Still others concern health, such as whether any member of a household is malnourished. A household is counted as poor if it is deprived on over 30% of the ten indicators used. Researchers can then calculate the percentage of people in each country who are “multidimensionally poor”. (source)

Such a multidimensional approach has the advantage of identifying which specific aspect(s) of poverty is/are most common in certain areas or among certain groups of people. It shows how people are poor, and what contributes most to poverty in a specific place and among a specific group. This will obviously greatly enhance response capacity. Rather than just trying to generally increase income, we can target our efforts more specifically: in one area or among one group of people we know that we should focus on nutrition; elsewhere we know that we should focus on literacy for instance. The MPI also shows us how different aspects of poverty overlap: for example, how many people who are illiterate also have health problems?

If 30% of people are malnourished and 30% of children are out of school, it would be useful to know if these deprivations affect the same families or different ones. (source)

The approach also helps us to distinguish between deprivation and choice. People may actually prefer mud floors to concrete floors in some places, and don’t consider having a mud floor as a form of deprivation. It also helps to identify the depth of poverty: deprivation along a wide spectrum of indicators means that poverty is deeper.

Unsurprisingly, the results of the MPI are substantially different from traditional poverty measurements:

Also the totals are different:

About 1.7 billion people in the countries covered – a third of their entire population – live in multidimensional poverty, according to the MPI. This exceeds the 1.3 billion people, in those same countries, estimated to live on $1.25 a day or less, the more commonly accepted measure of ‘extreme’ poverty. (source)

One of the disadvantages of this new approach is the weighting of the different measures: there’s inevitably some arbitrariness involved. Is the death of a child equivalent to having a dirt floor? Worse? How much worse? More criticism of the MPI is here.

There’s a really cool interactive map of the MPI here.

What is Poverty? (3): Vulnerability

Definitional discussions about poverty have convinced me that there are actually different types of poverty. I don’t think that all types are equally urgent policy problems, although they’re all worthy of attention (personally, I think poverty as absolute material deprivation is the one to focus most attention on, rather than relative poverty, poverty as a mental harm etc.).

One type I haven’t discussed a lot is poverty as vulnerability. This isn’t actual poverty in the sense of existing destitution; it’s rather the presence of a high level of risk of poverty, a high level of insecurity or a high probability of becoming poor. Indeed, it’s fair to say that poverty isn’t merely current insufficiency of income or consumption, but also the absence of stable and predictable income or consumption.If you can eat today you’re not poor according to some measures (other measures would correctly include more than just food). But what if there’s a good chance you can’t eat tomorrow? Wouldn’t it be correct to call someone living with such a high risk a person suffering from poverty? People who have enough to eat and who have shelter, but who would starve if they faced unexpected costs or events, such as a health crisis, a flood, a drought, unemployment etc. should be considered poor.

Of course, you might think we’re all living under such risks. Even the wealthiest among us can’t be sure not be become poor tomorrow. Hence we’re all vulnerable, but some are more vulnerable than others. The issue is then how to measure vulnerability and risk. The risk is higher for some than for others, and the consequences when the risk events occur are tougher for some than for others, but how can we know and measure this? We can look at resources and savings for instance. Some people, and some people in some countries, are better armed to deal with risks. They can insure themselves, or their government insures them (unemployment insurance for instance). They may be able to smooth over these events: sell some assets, take a loan… Other people can’t insure themselves, or they live in a country that doesn’t provide public insurance, or they can’t smooth without jeopardizing their future wealth.

This vulnerability is not just a risk for the future; it creates problems here and now. When the risk is perceived – correctly or not – as being very high, then it produces fear, stress and feelings of insecurity. That’s not deprivation or poverty but it sure isn’t pleasant. Those feelings can also be self-fulfilling: people may take irrational precaution measures, counterproductive family planning decisions etc. So poverty as vulnerability is a real problem. Perhaps not as urgent as absolute destitution, but not without importance.

Measuring Poverty (9): Absolute and Relative Poverty Lines

There are many ways you can measure how many people in a country are poor. Quite common is the use of a so-called poverty line. First you decide what you mean by poverty – for instance an income that’s insufficient to buy life’s necessities, or an income that’s less than half the average income etc. Then you calculate your poverty line – for instance the amount of income someone needs in order to buy necessities, or the income that’s half the average income, or the income of the person who has the tenth lowest income if the population was one hundred etc. And then you just select the people who are under this poverty line.

I intentionally chose these examples to make a point about absolute and relative poverty. In the U.S., people mostly use an absolute poverty line, whereas in Europe relative poverty lines are used as well. As is clear from the examples above, an absolute poverty line is a threshold, usually expressed in terms of income that is sufficient for basic needs, that is fixed over time in real terms. In other words, it’s adjusted for inflation only and doesn’t move with economic growth, average income, changes in living standards or needs.

A relative poverty line, on the other hand, varies with income growth or economic growth, usually 1-to-1 since it’s commonly expressed as a fixed percentage of average or median income. (It obviously can have an elasticity of less than 1 since you may want to avoid a disproportionate impact on the poverty line of very high and very volatile incomes. I’ve never heard of an elasticity of more than 1).

Both absolute and relative poverty lines can be criticized. Does an absolute poverty line make sense when we know that expectations change, that basic needs change (in contemporary Western societies, not having a car, a phone or a bank account can lead to poverty), and that the things that you need to fully participate in society are a lot different now than they once were? We know that people’s well-being does not only depend on the avoidance of absolute deprivation but also on comparisons with others. The average standard of living defines people’s expectations and when they are unable to reach the average, they feel excluded, powerless and resentful. Can people who fail to realize their own expectations, who lose their self-esteem, and who feel excluded and marginalized be called “poor”? Probably yes. They are, in a sense, deprived. It all depends which definition of poverty we can agree on.

It seems that people do think about poverty in this relative sense. If you compare the (rarely used) relative poverty line of 50% of median income in the U.S. with the so-called subjective poverty lines that result from regular Gallup polls asking Americans “how much they would need to get along”, you’ll see that the lines correspond quite well.

So if relative poverty corresponds to common sense, it seems to be a good measure. On the other hand, a relative poverty line means moving the goal posts for all eternity. We’ll never vanquish relative poverty since this type of poverty just moves as incomes rise. It’s even the case that relative poverty can increase as absolute poverty decreases, namely when there’s strong economic growth (i.e. strong average income growth) combined with widening income inequality (something we’ve seen for example in the U.S. during the last decades). (Technically, if you use the median earner as the benchmark, relative poverty can disappear if all earners who are below the median earner move towards the median and earn just $1 or so less than the median. But in practice I don’t see that happening).

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.

Measuring Poverty (4): The Problem of the Definition of Poverty

Before you can start to measure poverty, you first have to decide what you actually want to measure. What is poverty? That’s not just a philosophical problem because depending on the definition of poverty you use, your measurements will be radically different (even with an identical definition, measurements will be different because of different measurement methods).

Among people who measure poverty, roughly 6 different definitions of poverty are used:

  • insufficient income
  • insufficient consumption spending
  • insufficient calorie intake
  • food consumption spending above a certain share of total spending
  • certain health indicators such as stunting, malnutrition, infant mortality rates or life expectancy
  • certain education indicators such as illiteracy.

None of these definitions is ideal, although the first and second on the list are the most widely used. A few words about the advantages and disadvantages of each.

Income

Advantages:

In developed countries, income is a common definition because it’s easy to measure. Most people in developed countries earn a salary or get their income from sources that are easy to estimate (interest payments, the value of houses, stock market returns etc.). They don’t depend for their income on the climate, crop yields etc. Moreover, developed countries have good tax data which can be used to calculate incomes.

Disadvantages:

In developing countries, however, income data tend to be underestimated because it’s difficult to value the income of farmers and shepherds. Farmers’ incomes fluctuate heavily with climate conditions, crop yields etc. If you ask them one day what their income is, there’s no guarantee that this is a good estimate of their yearly income.

Another disadvantage is that people are generally reluctant to disclose their full income. Some income may have been hidden from the tax administration or may have been earned from illegal activity such as corruption, smuggling, drug trade, prostitution, theft etc. For this reason, using income to estimate poverty means overestimating it.

And, finally, some income may be difficult to calculate (e.g. rising value of livestock).

Consumption

Advantages:

The main advantage of using consumption rather than income to measure poverty is that consumption is much more stable over the year and over a lifetime (see above). Hence, if you ask people about the level of their consumption, they can just tell you about their current situation, without having to go back in time or to predict the future – which they would have to do if you asked them about income. Their current consumption is likely to be representative of their long term consumption, which isn’t the case for income. This is even more true in the case of farmers who depend on the weather for their income and hence have a more volatile income. If you know that farmers are often relatively poor, then this issue is all the more salient for poverty measurement.

Another advantage of using consumption is that people aren’t as reticent to talk about it as they are about certain parts of their income. It’s also appears that people tend to remember their spending better than their income.

Disadvantages:

If you want to measure how much people consume, you have to include durable goods and housing. And consumption of those goods is difficult to measure because it’s difficult to value them. For example, if a household owns a house, you have to estimate what it would cost to rent that particular house and add this to the total consumption of that household, at least if you want to compare their consumption to the consumption of the household next door who has to rent its house. And you can’t make poverty statistics if you don’t make such comparisons. Then you have to do the same for cars etc.

Another difficulty in measuring consumption, is that in developing countries households consume a lot of what they themselves produce on the family farm. This as well is often difficult to value correctly.

And finally, different people have different consumption needs, depending of their age, health, work etc. It’s not clear to me how these different needs are taken into account when consumption is measured and used as an indicator of poverty.

Other definitions

Calorie intake: the problem with this is that different people need different amounts of calories (depending on their type of work, their age, health etc.), and that it isn’t very easy to measure how many calories people actually consume.

Food spending as a fraction of total spending: if you say people who spend more than x % of their total spending on food are considered poor, you still have to factor in relative food prices.

Stunting as an indicator of malnutrition and hence of poverty: stunting (height for age) is a notoriously difficult thing to measure.

Other issues

Some aspects of life tend to be excluded from poverty measurement, even though they have a huge impact on people’s wellbeing. The amount of leisure time people have is perhaps a good indicator of poverty, in certain circumstances (excluding CEOs and US Presidents), but it’s hardly ever counted in poverty measurements.

Another thing: people may have comparable incomes or even consumption patterns, but they may face very different social or environmental conditions: an annual income of $500 may be adequate for people living in a rural environment with a temperate climate where housing is cheap, heating isn’t necessary and subsistence farming is relatively easy. But the same income can mean deep poverty for a family living in a crowded city on the edge of a desert. The presence or absence of public goods such as quality schools, roads, running water and electricity also makes a lot of difference, but poverty measurement usually doesn’t take these goods into account.