Headcount Index

THE HEADCOUNT INDEX is the simplest measure of the prevalence of poverty in a particular area. The Headcount Index is calculated by taking the total number of people in a country who fall below a predetermined income level and dividing this figure by the total population. In other words, the Headcount Index is simply the percentage of the population that falls below the official poverty line. The Headcount Index is also commonly referred to as the poverty rate.

While the appeal of the Headcount Index as a measure of poverty lies in its simplicity, several characteristics of the index limit its usefulness in practice. First, official definitions of what constitutes poverty vary from region to region so that the Headcount Index is generally not comparable across countries. For example, in the United States in 2003, 12.5 percent of all Americans lived below the poverty line as defined by U.S. government officials. The poverty line for a single American individual in that year was an annual income of roughly $9,400, a figure that exceeds the average income for populations in over 125 countries around the world.

By comparison the most recent Headcount Index for Mexico revealed only 10.1 percent of the population lived below the country's official poverty line of roughly $400. While a direct comparison of the Head-count Indexes of the United States and Mexico would suggest that Mexico has a lower incidence of poverty than the United States, a person defined as poor in the United States might earn over 20 times that of a typical poor person in Mexico, even after considering differences in the cost of living.

International agencies have attempted to correct for this deficiency in the Headcount Index by standardizing definitions of what constitutes poverty. The most commonly used standardized measure of poverty is the $1-a-day level, which corresponds to an annual income of $365 adjusted for inflation and international differences in costs of living (also known as purchasing power parity, or PPP).

By the $1-a-day threshold, the Headcount Index for the developing world was 20.6 percent in 2001, corresponding to just under one billion persons in poverty. These figures represent significant decreases from past numbers largely because of declining poverty rates in India and China. In 1981 and 1990, the Headcount Indices for the developing world were 40.7 and 27.9 percent, respectively; however, through population growth, the total number of persons below the $1-a-day threshold has declined much less rapidly, falling from 1.40 billion in 1981 to 1.14 billion in 1990.

The second shortcoming of the Headcount Index is the fact that all persons who fall below the poverty line are counted in the index regardless of how far below the line they fall. Thus an utterly destitute person with no income is treated identically in the Headcount Index as someone just below the poverty line cutoff.

A country that wishes to reduce its Headcount Index might be tempted to direct poverty assistance to those least in need of aid since relatively well-off poor persons will require the least money to bring them above the poverty line. The difference between a per-son's actual income and the poverty line is known as the poverty gap, and the Poverty Gap Index accounts for both the proportion of the population that is poor and how far below the poverty line the typical poor person lies.

...