Unidimensional poverty measurement - PowerPoint Presentation

Slide1

Unidimensional poverty measurement

Elisabetta Aurino

Partnership for Child Development

Imperial College London

& University of OxfordSlide2

Learning outcomes for this session

Importance of measurement for policy

Conceptual differences in the measurement of poverty, well-being and inequalityKey steps in measuring povertyApply the 3 most used unidimensional poverty measuresSlide3

What is poverty?

You have one minute to discuss with your

neighbour what you think the concept of poverty is and then share your thoughts with the rest of the classSlide4

What is Poverty?

Lack of income / wealth

Human (under)development Social exclusion Ill-being (Lack of) capability and functioning Vulnerability Livelihood unsustainability Lack of basic needs Relative deprivation Slide5

What is poverty? (

ctd.)

This apparently simple question leads to a potentially infinite range of answers. Why?POVERTY IS A COMPLEX CONCEPT!Debate on the meaning of well-being (and the lack of it) certainly not new:Aristotle, the Buddha or to some Sanskrit writings of 8th Century b. C.

In the economic theory from Adam Smith onwardsSlide6

What is the meaning of this debate?

Critical

issue at stake is how to deal with the complexity of human well-being, while,at the same time, to provide usable information for policy-making (Sen 1987) Slide7

Why should we bothered with poverty?

Intrinsic

and instrumental reasonsMatter of basic human rights and social justiceLess likely to accumulate “human capital”, i.e. education, health, that is key for advancing countries’ economies

Less likely to invest

in higher-risk/more remunerative activities (i.e. poverty traps)

Intergenerational transmission

of poverty: children born in poor households are more likely to be poor themselves, perpetuating the poverty cycle across generationsSlide8

Why should we bothered with

measuring poverty?

You have one minute to discuss with your neighbour on why poverty should be measured and then share with the classSlide9

Why should we bothered with

measuring poverty?

 “It is clear that without solid information we cannot measure where we are and what needs to be done, with respect to the MDGs or in other domains. If the world cannot get the right numbers, it cannot come with the right solutions.” (Paul Cheung)Slide10

If you cannot measure it, you cannot improve it*.

Allocate

fundsTarget groups/communitiesAssess impact of policies and programs

Track

progress

Enhance

accountability

of the policy

process

Diagnose

problems/bottlenecks

Advocacy

and communication

*Lord KelvinSlide11

The link with policy-making

Measurement and policy issues are inseparable (Ravallion

1992)The goal is to reduce poverty, not measure itMeasurement is a basic building block of the policy edifice, comprising:Analysis (including qualitative)Policy designPolicy evaluationSlide12

What is the difference between poverty, inequality and well-being?

You have another minute to discuss with your neighbour and then share your thoughts with the classSlide13

Key concepts

POVERTY MEASURES

: focus on the part of the population that falls short of some minimum level, often called a poverty line (in one or several indicators) and provide a value that summarises deprivation in the societyINEQUALITY MEASURES: consider the entire distribution (in one or several indicators) and provide a value that summarises the inequalities between every person/group and the rest of the population/groups

WELL-BEING MEASURES

: consider

the entire distribution of achievements

(in one or several indicators) and provide a value that summarise the well-being of the entire population (e.g. GDP, Human Development Index)Slide14

Poverty

viz. Inequality

ZSlide15

Example

POVERTY MEASURES:

National poverty measures, World Bank’s $1 a day, UNDP Multidimensional poverty indexINEQUALITY MEASURES: Gini index, coefficient of variationWELL-BEING MEASURES: UNDP Human Development Index, Happy Planet indexSlide16

Key concepts (2)

POVERTY

MEASURES: assess the extent of poverty in a populationPOVERTY

MODELS

:

model

the socioeconomic

factors

that are associated to higher risk of poverty

E.g.

Factors associated to higher risk of children poverty in the UK

Living in a lone parent household

Living in a larger family with 3 or more children

Living

in a household where someone is disabled

.

Living in

London, the North East, North West, West Midlands and

Wales

Source:

Barnardo's

(2007) It Doesn’t Happen Here: The reality

of

child poverty in the UKSlide17

Measuring poverty

Sen (1976) 3 steps:1. CHOICE OF THE SPACE OF THE ANALYSIS

2. IDENTIFICATION3. AGGREGATIONSlide18

Measuring

what

? 1. The choice of the spaceWhich informational basis

do we

choose to measure poverty?

Well-being and its deprivations (i.e

.

poverty, inequality, food insecurity

etc

) are

complex

phenomena.

They can be conceptualised and measured

in different spaces

(Sen 1999)

Resources (income, assets, consumption, wealth, calories

etc

)

Rights

Functionings and capabilities.Slide19

2 schools of thought on how to define and measure poverty

Poverty as lack of resources

, particularly financial (insufficient income or consumption) e.g. World Bank (1990)Poverty as a more broad-based conceptRawls: Poverty as lack of “basic goods”Sen: poverty as lack of “basic capabilities”Financial resources are just one of the many means to achieve well-being, and therefore efforts should be devoted

at focusing on well-being outcomes directlySlide20

Resources viz.

OutcomesSlide21

The resource-based approach

Focus

only on a single variable, usually a resource e.g.

income

,

consumption

,

assets

,

resources

,

wealth

,

etc

For the

next

part of the

class

,

we

will

focus on

poverty

as

defined

by

lack

of

income

or

consumption

(“

monetary

poverty

”)Slide22

Monetary poverty:

“The undefined yet measurable thing*”

Broad spectrum of approaches that share 3 key elements:

Nutrition science

to define minimum caloric levels

Revealed preference theory

: the choice of a given bundle of goods and services renders manifest consumers’ preferences

Aggregation

of different components

through market prices

, allowing for interpersonal

comparisons

*Ruggeri

Laderchi

2008Slide23

E.g.:

Rowntree’s Poverty in York (

1901)Slide24

Survey of 11560 households in York

Poverty line: weekly sum of money "necessary to enable families... to secure the necessaries of a healthy

life” (i.e. fuel and light, rent, food, clothing, and household and personal items) adjusted according to family size. He determined this level using for the first time “scientific” methods. Nutritionists to set the minimum calorific intake and nutritional balance necessary before people got ill or lost weight.

He

then surveyed the prices of food in York

and used

this information to set his poverty line.

According to this measure, 27.84 percent of the total population of York lived below the poverty line

.

Poverty determined by low or insufficient wages, not because of own plight of the poorSlide25

Why is this approach appealing for economists?

Since the time of Boots and

Rowntree:Objective and value free: derivation of the poverty line and the intersubjective comparisons of well-beingExternal: evaluations carried out by professionals, and not by the poor themselvesIndividualistic: poverty is an individual conditions and not the outcomes of some social processesSlide26

Are those measure adequate?

Assumption

1: Prices (hence markets) exists for all goods

Public

goods

?

Goods

not

exchanged

through

the market

system

(e.g.

gifts

,

barter

)

Non-

monetary

dimensions

?

Z

ero-

weight

in the

aggregation

in the welfare

measure

Assumption

2:

Resources

are an

adequate

space

for

capturing

the

complexity

of human

well-

being

Individual

factors

that

influence

achievements

(i.e.

age

,

health

status,

contextual

factors

etc

)

Difficulties

of

surveys

to

measure

individual

expenditures

directly

Households

different

sizes

and

structures

>> “

adult

equivalents

”Slide27

3 steps (Sen 1976)

Choice of the space

Identification AggregationSlide28

2. Identification:

Who is poor?

The aim of this step is to dichotomise the population in two categories – poor/non-poor- by using a Poverty Line (z)

Poor:

x

i

< z

Non-Poor:

x

i

≥ z

z

POOR

NOT-POORSlide29

Poverty Line

Poverty line:

Monetary approach: minimum amount of financial resources considered necessary to lead a non-impoverished life. Multidimensional approach: minimum amount required in order not to be deprived in that dimension/indicatorThe difficult step in identification is setting the poverty line, since it involves a

value judgement

and a

political choice.Slide30

3 Types of Poverty Lines

ABSOLUTE

: identify a minimum level of income or consumption required for all the individuals. Difference between total poverty line (the monetary equivalent of the cost of a basic bundle of goods and services; e.g. WB’s $1.25 a day) and food poverty lines (the monetary value of a set of food items that provide the minimum requirement of 2100 calories per day).

RELATIVE

:

defined with

reference to the total income of the society

. Usually, they are a fraction of an income standard (e.g. EU: z=60%median income). Confuses poverty with inequality.

HYBRID

:

combine absolute and relative poverty lines (e.g. Foster 1998: z=(

z

r

)

ρ

(

z

a

)

(1-

ρ

)

).Slide31

3. Aggregation:

How poor are we?

This step deals with the construction of an index that summarises all the available information in one number in order to depict an overall picture of poverty in the considered populationDef.: A poverty measure is a function P: D R that, according to the poverty line

z,

gives the

level of poverty

P

(

y

; z)

for the distribution

y.Slide32

Three basic

measures of poverty

Headcount ratio: percent of population falling below the poverty linePoverty gap: of how much the average person in the poor population falls below the poverty lineFoster Greer Thorbecke

class

of measuresSlide33

Headcount Ratio

What is the proportion of poor people in the population?

H=q/nq: number of people under the poverty linen: total populationZ: poverty lineSlide34

Poverty gap measure

What is the average depth of poverty amongst the poor in the population?

I= (z-p)/zp: average income of the poorSlide35

Exercise

1. You have 6 minutes to work in pairs in order

to define H and I in the following distribution of income:x=(5,6,7,11) With the following poverty line: z=8 2. What happens to H and I if the distribution change as per below?

x

’

= (5,

5

, 7, 11

)

x’’

= (

4

,

7

, 7, 11)

3. Can you think of any policy implication of using an index as opposed to the other?Slide36

Exercise solution

1. x=(5,6,7,11)

H = ¾ , I = ¼ = 0.252. x’= (5, 5, 7, 11)H = ¾, I =0.33. x’’= (4,

7

, 7, 11)

H=3/4, I=

¼ = 0.25Slide37

Limits of these indexes

H does not take into account of:How poor people are poor on average

The relative inequalities that exist in the group of the poor I does take into account of depth of poverty (how much poor people are poor)But it does not reflect whether changes in the distribution (i.e. the distribution sub3 has became more unequal)Slide38

Example: World Bank’s

$1.25 and $2 a dayH

eadcount ratios, extreme and moderate povertyThis is measured in international dollars that are adjusted for the fact that people in different countries face different price levels (Purchasing Power Parity adjustment).Slide39

Different lines,

different figures

Source: Wisor (2011)Slide40

Income poverty over time,

by region

Source: World BankSlide41

SDGs

(as per March 2015)Slide42

References

Ravallion

, M. (1992). Poverty Comparisons. A Guide to Concepts and Methods. Living Standards Measurement Study Working Paper No. 98.Rawls, J. (1971). A Theory of Justice. Cambridge, Massachusetts: Belknap Press of Harvard University Press. Ruggeri Laderchi, C. (2008). Do Concepts Matter? An Empirical Investigation of the Differences Between a Capability and a Monetary Assessment of Poverty. In Comim,F., Qizilbash,M

., &

Alkire,S

. (

eds

). The Capability Approach. Concepts, Measures and Applications. Cambridge: Cambridge University Press.

Sen, A. (

1999)

. Development as Freedom. Oxford: Oxford University Press.

Sen, A.K. (1987). The Standard of Living: Lecture II, Lives and Capabilities. In G. Hawthorn (ed.). The Standard of Living: The Tanner lectures on Human Values. Cambridge: Cambridge University Press

Sen, A. K. (1976). Poverty: An Ordinal Approach to Measurement.

Econometrica

, 44(2), pp. 219-31.

World Bank. (1990), World Development Report: Poverty, Oxford University Press for the World Bank.

Rowntree

, S. (1901).

Poverty

. A

Study

of Town Life. MacMillan.Slide43

Thanks!

E.aurino@imperial.ac.uk