This Notes calls for the need to regularly come up with household vulnerability measurements and trends in the Philippines, in addition to official poverty measures, for purposes of guiding policy on poverty concerns. It argues that given the results of the vulnerability model that it used in its study, it becomes prudent for the government to incorporate not just alleviation efforts in its poverty reduction strategies but also prevention programs. Read more.vulnerability, poverty

Albert, Jose Ramon G.

English

Research Papers in Economics

Household vulnerability to income poverty
Jose Ramon G. Albert
Philippine Institute
for Development Studies
Surian sa mga Pag-aaral
Pangkaunlaran ng Pilipinas
Policy Notes
No. 2007-05 (December 2007) ISSN 1656-5266
M     uch attention has been given to
the measurement and analysis of poverty.
Official poverty statistics have been gener-
ated by the Philippine Statistical System
since 1987 as sourced from income data
from the Family Income and Expenditure
Survey (FIES) and regularly released every
three years. At the global front, the World
Bank also comes up with its own estimates
of consumption poverty. Nongovernment
organizations (NGOs) such as the Social
Weather Stations (SWS), meanwhile, monitor
poverty on a quarterly basis by asking
household heads’ perception on their state
(or nonstate) of poverty. All these statistics
provide different dimensions of poverty.
Regardless of the measurement system,
poverty is measured ex post. That is, poverty
analysis focuses on households that are
currently poor or were poor in the past. It is,
however, just as important to be forward-
looking and help households that are at risk
of becoming poor and households that are
already poor and likely to stay poor. Inter-
ventions should be provided to these
households that are vulnerable to poverty
so that the likelihood of their becoming
poor in the future may be minimized and the
impact of their possible falling into poverty
be mitigated.
Measuring vulnerability
A number of attempts have been made to
measure vulnerability, especially by looking
into income or consumption changes in
panel data where the same household or
individual is surveyed at two or more points
PIDS Policy Notes are observations/analyses written by PIDS researchers on cer-
tain policy issues. The treatise is holistic in approach and aims to provide useful inputs
for decisionmaking.
This Notes is based from PIDS Discussion Paper Series No. 2007-16 titled “Toward
measuring household vulnerability to income poverty in the Philippines” by Jose
Ramon Albert, Lilia Elloso, and Andrei Philippe Ramos. The author is Senior Research
Fellow at the Institute. The views expressed are those of the author and do not
necessarily reflect those of PIDS or any of the study’s sponsors.2
PN 2007-05
Policy Notes
in time (Tabunda and Albert 2002, Reyes
2002, and NSCB 2005). Unfortunately, panel
data are quite scarce due to difficulties in
conducting these surveys.
A rather promising approach to measuring
vulnerability based on an analysis of cross
section data was developed by Chaudhuri
(2000), which essentially identifies the
vulnerability level of a household at some
fixed time as the probability that said
household will find itself poor at the next
time period, and estimates this probability.
Chaudhuri’s approach also incorporates an
assumption on how to model volatilities
resulting from shocks that lead to different
welfare levels for households.
While this methodology was originally
developed for consumption data, this study
applies it to income data sourced from the
1997 FIES in order to generate a profile of
vulnerable households in the Philippines.
The methodology was then validated by
considering the poverty status of house-
holds that formed a panel in the 1997 FIES,
the 1998 APIS, and the 1999 APIS.
After obtaining vulnerability estimates, our
study used two thresholds, viz., the ob-
served national poverty rate in the popula-
tion and the threshold 50 percent, to be
able to categorize households by their
vulnerability status.
In employing a vulnerability threshold
equal to the observed national poverty rate,
we recognize that there are households that
are more likely than the typical household
to be poor in the next period. Any house-
hold whose vulnerability level lies above
this threshold therefore faces a risk of
poverty greater than the average risk in the
entire household population.
Meanwhile, in choosing a threshold of 50
percent, we are cognizant of the fact that
there are households that have an even
chance of being poor in the next time
period. This particular threshold indicates
that a household whose vulnerability level
exceeds 50 percent is more likely than not
to end up being poor and can thus be
considered to be highly vulnerable.
Using the above two thresholds, we there-
fore categorize households to be vulnerable
if the predicted vulnerability level is greater
than the national poverty rate; highly
vulnerable if the vulnerability level is
greater than 50 percent; and relatively
vulnerable if the household is vulnerable
but not highly vulnerable.
Vulnerability profile
The overall picture of income poverty and
vulnerability based on the 1997 FIES is
shown in Table 1. The proportion of poor
households (28%) is less than the propor-
tion of the vulnerable households (54%),
which consists of the highly vulnerable
(30%), and the relatively vulnerable (24%).
Eighty five percent of poor households are
vulnerable. A little more than 40 percent ofPN 2007-05
Policy Notes
3
nonpoor households, meanwhile, are also
vulnerable.
Regional estimates of household poverty
and household vulnerability are illustrated
in Figure 1. While the household poverty
rate is only about 5 percent in Metro Manila,
the proportion of vulnerable households is
twice this figure. Regional disparities are
also evident in terms of both poverty and
vulnerability, with poverty and vulnerability
rates (as well as shares) across the regions
being highly correlated.
Such gross disparities in poverty and vulner-
ability between urban and rural areas, and
across regions suggest the need for govern-
ment to work not only on poverty policies
for regional development but also on the
varying vulnerability profiles across regions.
At the same time, while government ought
to improve the plight of people’s living
standards in rural areas, it also has to
provide a number of social safety nets in
urban areas such as Metro Manila.
Meanwhile, Table 2 shows that larger-sized
households are not just poorer (than those
with small sizes) but are also more vulner-
able. Consequently, government needs to
adopt vigorous population management
policies that discourage families from
having family sizes that are not within their
means to support. Large-sized families have
the tendency to experience difficulties in
maximizing their human resource potentials
because of limited financial capacities. They
are typically unable to provide quality
education for the young which further puts
these families at risk of being poor.
Figure 1. Estimates of poverty and vulnerability incidence
by region, 1997
Table 1. Distribution of households by poverty
status and vulnerability status
(in percent)
Vulnerability Status Poverty Status
Poor Nonpoor Total
Highly vulnerable 17.3 12.7 30.0
Relatively vulnerable 6.5 17.6 24.1
Nonvulnerable 4.2 41.7 45.9
Total 28.1 71.9 100.0
Table 2. Average household size by poverty
status and vulnerability status
Vulnerability Status Poverty Status
Poor Nonpoor Total
Highly vulnerable 6.27 5.13 5.79
Relatively vulnerable 5.78 5.11 5.29
Nonvulnerable 5.34 4.51 4.59
Total 6.01 4.77 5.124
PN 2007-05
Policy Notes
There has been little attention given to
population management in the Philippines
despite the overwhelming evidence that
supports the nexus between population and
poverty (and now, vulnerability). A number
of countries, especially in the East Asia and
Pacific Region, have made substantial gains
in reducing poverty through rapid economic
growth coupled with population manage-
ment. With modest economic growth in the
Philippines and an absence of population
policies from the government, it is not
surprising why gains in poverty reduction
have been lackluster (Reyes 2002).
Figure 2 shows that households where the
head has little or no schooling are poorer
and more vulnerable than those with more
education. Government therefore has to
focus its long-term strategies around
educational programs both for poverty
reduction and vulnerability mitigation
purposes. Increasing access to education
provides a means for people to get better
paying jobs that will not put them at risk of
being poor. But while there have seemingly
been some gains in improving universal
access to education in the country over the
past several decades, there are questions on
whether or not low-income families have
been and/or are being given improved
access to quality education, especially in
higher education.
Household vulnerability by sector of em-
ployment of the household head is likewise
shown as gleaned in Figure 3. While poverty
rates for households with unemployed
heads are rather low, vulnerability rates for
such households are much higher. This
suggests the need for some formal mecha-
nisms such as publicly provided insurance
for households with heads who are unem-
Figure 2. Poverty and vulnerability estimates by level
of education of household head
Figure 3. Poverty and vulnerability estimates
by employment sector of household headPN 2007-05
Policy Notes
5
ployed. There have been some suggestions
that a number of the unemployed in the
Philippines may be unemployed by choice
because they may have other income sources
like remittances from overseas. Still, there
appears to be a need to help such house-
holds mitigate the impact of falling into
future poverty. Heads of poor and vulner-
able households are predominantly in the
agriculture sector, suggesting that more
program and policy interventions must be
directed toward helping this sector. Declines
in income are likely to be devastating for
households with heads in the agriculture
sector because they are likely to have few
assets or to have no or little access to
insurance or credit that will allow them to
hedge against income shocks resulting from
bad harvests or bad weather (Tabunda and
Albert 2002).
Although the Philippines has launched a
number of agriculture-related programs like
agrarian reform and agricultural moderniza-
tion, the results suggest that such programs
may have had minimal impact on helping
farmers reap the fruits of their labor.
A cross check with the 1997 FIES-1998 APIS-
1999 APIS panel households tagged as
vulnerable suggests that the methodology
we used has a very strong predictive power
of identifying what households are likely to
be poor in the near future. Among the panel
households that were poor in 1998, in 1999,
or in at least one of the two years, about 70
percent were tagged as vulnerable by the
methodology.
Implications: learning from
the vulnerability profile
Because the vulnerability profile shows that
more than half of the vulnerable households
are not currently poor, it is therefore not
enough to use current income poverty status
as a proxy for vulnerability. Moreover,
poverty reduction strategies need to incor-
porate not just alleviation efforts but also
prevention.
Regions with the highest poverty incidences
also appear to be those with the highest
estimates of vulnerability. Vulnerability
patterns, however, vary across regions,
suggesting that interventions would also
have to vary. While rural vulnerability is
higher than urban poverty, the gap in
estimates of vulnerability is much lower than
those pertaining to poverty. This suggests
that government should not merely focus on
rural poverty reduction but also on policies
and programs that protect vulnerable
households in urban areas.
Meanwhile, vulnerability rates of households
with unemployed heads are much higher
than their corresponding poverty rates.
Government should thus consider develop-
ing social protection mechanisms beyond
job generation such as publicly provided
insurance for unemployed heads and im-
proved access to credit. Vulnerable house-
holds also have, on average, much larger
family sizes than their nonvulnerable coun-
terparts, suggesting that government ought
to seriously pay attention to populationFor further information, please contact
The Research Information Staff
Philippine Institute for Development Studies
NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, 1229 Makati City
Telephone Nos: (63-2) 894-2584 and 893-5705
Fax Nos: (63-2) 893-9589 and 816-1091
E-mail: jalbert@pids.gov.ph; jliguton@pids.gov.ph
The Policy Notes series is available online at http://www.pids.gov.ph. Reentered as
second class mail at the Business Mail Service Office under Permit No. PS-570-04
NCR. Valid until December 31, 2007.
management to enable households to
minimize their risks of becoming poor.
Households whose heads have more school-
ing are less likely to be poor implying that
government should vigorously increase
access to education, especially higher
education.
While the vulnerability model used as basis
for this study is limited by the available
information from the FIES regarding house-
hold characteristics that make these house-
holds vulnerable, the validation exercise on
panel households indicates that the vulner-
ability estimation methodology employed
here has a strong predictive power in
identifying households that are likely to be
poor in the future (at least for the available
panel data).
The results of this study suggest the useful-
ness of coming up with a profile of vulner-
ability in the Philippines. Given that APIS
has more nonincome indicators than the
FIES such as membership in cooperatives,
among others, it seems useful to develop
vulnerable estimates from the APIS. It is
important to institutionalize vulnerability
measurement and measure trends in vulner-
ability in the Philippines, aside from ad-
dressing current limitations in the official
poverty measurement system, for purposes
of guiding policy on poverty concerns.
The conditions that vulnerable households
face may permanently damage their long-
term welfare or lead these vulnerable house-
holds to further risk-induced poverty traps
that may offer some stability but low re-
turns. Government will thus have to manage
social risks by designing and implementing
interventions that can strengthen informal,
market-based or public arrangements that
contribute to reducing the risk of house-
holds becoming income poor and/or assist-
ing them in coping with poverty’s dire
consequences. 
References
Chaudhuri, Shubham. 2000. Empirical methods for
assessing household vulnerability to poverty.
Preliminary Draft Technical Report, Economics
Department, Columbia University.
National Statistical Coordination Board. 2005.
Assessment of vulnerability to poverty in the
Philippines. Technical Report.
Reyes, Celia M. 2002. The poverty fight: have we
made an impact? PIDS Discussion Paper Series
No. 2002-20. Makati City: Philippine Institute
for Development Studies.
Tabunda, Ana Maria and Jose Ramon G. Albert.
2002. Philippine poverty in the wake of  the
Asian financial crisis and El Niño. In Impact of
the East Asian financial crisis revisited, edited by
Shahid Khanker. The World Bank Institute and
the Philippine Institute for Development
Studies.

Assessment of vulnerability to poverty in the Philippines.

Empirical methods for assessing household vulnerability to poverty.

Philippine poverty in the wake of the Asian financial crisis and El Niño. In Impact of the East Asian financial crisis revisited, edited by Shahid Khanker. The World Bank Institute and the Philippine Institute for Development Studies.

The poverty fight: have we made an impact?

Household Vulnerability to Income Poverty

http://dirp4.pids.gov.ph/ris/pn/pidspn0705.pdf

Household Vulnerability to Income Poverty

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