Alejandro Grinspun

English

Research Papers in Economics

overty Centre P
INTERNATIONAL
The content of this page does not  necessarily reflect the official views of the
International Poverty Centre or the United Nations Development Programme.
International Poverty Centre (IPC)
SBS – Ed. BNDES, 10º andar
70076 900  Brasilia DF  Brazil
Telephone:   +55  61  2105 5000
www.undp.org/povertycentre
povertycentre@undp-povertycentre.org
United Nations Development Programme
Measuring poverty: what’s in the line?
          December, 2004          Number  8
by Alejandro Grinspun
International Poverty Centre
Despite a long pedigree that dates back to late Victorian
England, the notion of a ‘poverty line’ – a welfare threshold expressed in
monetary terms – is not without its problems. Critics contend that the
idea of a discrete cut-off point separating the poor from the non-poor
is conceptually flawed as poverty and well-being can best be seen as a
continuum. There is, in fact, considerable movement into and out of
poverty that studies relying on a fixed poverty line fail to capture.
By focusing on the private means to satisfy human needs, income or
consumption reflects well-being only indirectly. But this is just one way
of assessing poverty. It matters, for instance, whether an individual also
has access to welfare-enhancing public goods and services.  This is why
monetary measures are often combined with more ‘direct’ indicators of
welfare such as life expectancy, nutritional and health status, education,
and housing conditions. Combining monetary and social indicators not
only better captures the multiple dimensions of deprivation, but may
also shed light on its chronic or transient nature.
In practice, though, money-metric measures are the most widely used
proxy for poverty. The question then becomes, what welfare level
determines the cut-off point between poor and non-poor?
The answer is not so simple, as poverty measures can be highly sensitive
to the methodological choices and assumptions made in constructing a
poverty line. The differences can be far from trivial. Székely et al. (2000)
have shown that, depending on the choice of equivalence scales,
assumptions about economies of scale in consumption, and methods of
treating zero and missing incomes or adjusting for income misreporting,
the Latin American headcount ratio ranged from 12.7% to 65.8%, and
the poverty gap from 4.5% to 37.9%, in the late 1990s!
Poverty measures are often rough estimates, at best. Take income. Apart
from its inability to fully capture a person’s command over commodities –
due, for instance, to regional variations in prices, costs of living or the
availability of essential goods – incomes from surveys are known to be
grossly under-reported. Yet the extent of under-reporting cannot be
gauged properly, partly because of limitations in the national accounts
which do not contain reliable data on informal and home-based activities,
a crucial source of earnings for the poor. Adjusting for misreporting can
sometimes introduce new biases, instead of correcting them.
Even determining the food component of a poverty line is far from
straightforward. Should one examine the actual consumption patterns of
the poor or rather select a food basket that will yield the required calories
at the lowest cost? Typically, nutritional requirements are reported as
national averages, even though needs vary by sex, age and activity levels.
And while equivalence scales may be used to account for differences in
household structure,  there is little guidance for choosing between
alternative scales despite their varying impact on poverty figures.
Calculating the non-food share is more problematic still. Despite a
consensus that non-food essentials should be part of a poverty
consumption bundle, it is not obvious what those items should be.
Thus, a modest allowance for non-food expenditure is often made by
scaling up the food poverty line by some multiple, which typically
reflects what poor households spend on non-food items rather than
what they ought to spend in order to avoid deprivation. This method of
estimating the non-food share tends to understate the scale of poverty,
particularly among children when combined with the use of calorie-
based equivalence scales; children may require fewer calories than
male adults, but have many other needs that must be paid for.
Poverty comparisons can also be biased by subtle differences in survey
definitions – such as the inclusion of different income sources or
consumption aggregates – or the choice of deflators to correct for
temporal price changes. Instead of re-pricing the same food basket
and re-calculating the non-food share in each period, adjustments for
price changes are often made by multiplying the total poverty line by
a general consumer price index. The problem is that cost-of-living
indices do not capture well the consumption patterns, and hence
the prices, that matter to the poor. Similar issues arise when using
purchasing power parity factors to correct for varying costs of living
across countries.
Ultimately, one must recognize that poverty lines – however defined –
will always represent an arbitrary cut-off point that, alone, may not
offer the best guide for policy making. More important than searching
for the ‘single best’ poverty line is to explore the sensitivity of poverty
estimates to the choices and assumptions behind the statistics, as well
as the use of alternative lines and measures. What matters, after all, is to
find robust measures that allow users to assess time trends in poverty,
analyze its determinants and profile, and establish poverty rankings
without having to accept the normative judgments that inevitably
underlie any single measure.
Reference:
Miguel Székely, Nora Lustig, Martín Cumpa and José Antonio Mejía, “Do we know how much poverty
there is?”, IDB Working Paper no. 437, December 2000.

Martín Cumpa and José Antonio Mejía, “Do we know how much poverty there is?”, IDB Working Paper no. 437,

Measuring poverty: what's in the line?

http://www.ipc-undp.org/pub/IPCOnePager8.pdf

Measuring poverty: what's in the line?

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics