Poverty

Poverty Measures

There is disagreement on how best to measure poverty. The first distinction exists between absolute and relative measures. Absolute measures identify a minimum level of income or consumption below which individuals or households are considered poor. For example, the World Bank defines extreme poverty as less than $1 per day and moderate poverty as less than $2 per day, with purchasing power parity adjustments allowing comparisons between countries. Because standards of living vary dramatically across places, most countries have established their own absolute poverty lines. In the United States, the poverty threshold was established in 1965 based on the cost of food, taking into account household size and composition but making no adjustment for regional differences in cost of living. The threshold is adjusted annually for inflation. For example, in 2007, the federal poverty threshold for a family of three, with one adult and two children, was $16,705—far above the extreme world poverty measure but well below the national average income.

Income-based measures have led to some criticism that monetary amounts do not directly translate into human well-being. The Nobel laureate Amartya Sen argues that poverty is the deprivation of basic capabilities to lead the kind of life one chooses. Although income is instrumental in reaching this goal, its impact is conditional and varies between different communities, families, and even individuals. To address these shortcomings, in 1997, the United Nations constructed the Human Poverty Index (HPI) based on three components: life expectancy, education, and economic provisioning. Although correlated with per capita income, the HPI does not yield the same ranking of countries as the World Bank's extreme poverty measures, suggesting that social structures, government policies, and other local attributes can influence the quality of life.

Relative poverty measures conceptualize poverty as socially constructed and dependent on the social context. Within this perspective, the poverty threshold is defined in relation to a national or regional benchmark rather than in absolute terms. One of the most common measures sets the poverty cutoff at a given percentage—usually 50% or 60%—of the national or regional median income. Another approach defines poor people as those in the bottom percentiles of the income distribution. Thus, relative poverty and inequality are connected to the extent that the former results from a sense of deprivation emanating from a substandard economic position. Relative poverty measures are used more extensively in developed nations, where extreme poverty is less prevalent but people with incomes significantly lower than the median experience economic deprivation, social exclusion, and limited ability to participate in society.

The Distribution of Poverty

Poverty varies both demographically and geographically. In 2004, there were close to 1 billion people in the world living on less than $1 per day, a decrease of 250 million since 1990 and a step toward reaching the United Nations’ Millennium Development Goal of reducing extreme poverty by half by 2015. Poverty, however, is not distributed evenly (Figure 1). Most of its recent decline can be attributed to East Asian countries. Although the majority of poor people remain in South Asia, poverty has increased most rapidly in sub-Saharan Africa, where almost 300 million people, or 41% of the population, live on less than $1 per day. Poverty recently increased in Western Asia and remains fairly constant in Latin America. Many Latin American countries such as Ecuador, Argentina, and Nicaragua fare better on the HPI than on income poverty. This contrasts with African countries such as Morocco, Egypt, Algeria, Senegal, and Burkina Faso, where the HPI rankings are worse than expected, given the poverty rates.

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