Foster, Greer and Thorbecke Index

THE FOSTER, GREER and Thorbecke (FGT) Index is a poverty measure developed by Eric Thorbecke and Joel Greer of Cornell University and James Foster, a professor of economics at Vanderbilt University. The formula is used by economists to measure how income is distributed below the poverty line. What it does, explains Foster, is to help measure how really poor the poor are. It accomplishes this by taking into consideration a variety of factors.

Poverty can be difficult to measure. For example, a family earning $6 a week in Guatemala is at a different poverty level than a family earning $6 in Tahiti or Tennessee. The index was first published in 1984 in Econometrica, the journal of the Econometric Society at Northwestern University in Evanston, Illinois, in an article titled “A Class of Decomposable Poverty Measures.” Since its publication, the FGT measure, as it is now called, has been adopted as the standard poverty measure by the World Bank and the Inter-American Development Bank. Most recently, it became part of Chapter V, Article 34, of the Mexican Constitution.

“I was extremely surprised when a colleague in Mexico mentioned to me, ‘Did you know that your measure is now the basis of the poverty program in Mexico?’” Foster said. He has since traveled to Mexico and visited with the Mexican vice minister of finance, who explained how the government uses the FGT measure in a poverty-reduction program called Progresa (Programa de Educación, Salud y Alimentación, or the Program for Education, Health and Nourishment).

“First they have a 14-billion peso fund that is gathered by taxation,” said Foster, “and is redistributed through education programs, through health programs and through other welfare programs to the poor. It's allocated among the states in proportion to what my measure says. So, if there's a state in Mexico with twice the poverty, it gets twice the funds, on a per capita basis. Secondly, within the states, it's allocated across regions.” Thus, the index determines the allocation of approximately $1.6 billion in funding.

Foster, who is a member of the MacArthur Foun-dation-funded Network on Inequality and Poverty and Broader Perspective, says he became interested in measures of poverty and inequality while an undergraduate student. He has recently completed a book with his mentor, Nobel laureate Amartya Sen, a pioneer in measuring poverty currently at Trinity College at Cambridge. Foster also has completed papers on measuring inequality and measuring literacy. He's currently working on measuring health inequality. A subtext of much of his work is “let's go beyond income in measuring the well-being of our society,” he said.

Foster's poverty measure, however, has not been adopted widely in the United States. “Here in the United States, the way we measure poverty is by counting people who are poor and expressing that figure as a percentage of the total population. One problem with that is if you have a lot of really poor people, it doesn’t show up in the data,” he said. According to Foster, the relative strength of the FGT is that it allows researchers to discover how many poor are falling far below the poverty line and how many are hovering close to it.

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