Relative-Income-Based Measures of Poverty

RELATIVE INCOME MEASURES of poverty typically identify the poor as being below a specific income threshold, such as 50 or 60 percent of the median income, for the country in which they live. The median income is the income figure that divides a society's income distribution into equal parts such that half of the population have incomes above the median and the other half have incomes below. At 50 or 60 percent of the median, a person is deemed to be much worse off than the societal average. If the median income is $300 [Page 908]per week and the poverty measure is set at 50 percent of median income, then a weekly income of $150 per week would be considered poor.

People perceive themselves relative to one another: relative income measures of poverty measure one's distance from the norm, in terms of income, within a specific community.

Relative income measures of poverty are the commonly used basis for international comparisons of poverty, especially for comparisons of child poverty. The European Union (EU) views this as the “risk of poverty rate.” Not all people whose incomes are below the median threshold are living in poverty, but the EU identifies their situation as being at risk of becoming poor.

Unlike absolute measures of poverty, which measure one's inability to meet certain basic needs, relative income measures of poverty measure one's distance from the norm, in terms of income, within a specific community. Relative income poverty measures, in addition to providing a picture of the prevalence of poverty within a specific political community, such as a nation or province, also offer a measure of the degree of inequality. Relative income measures of poverty can provide insights into the depth of poverty within a society by showing the distance and distribution of people from the income norm. Interpretations of this distance and distribution reflect views about how wide a gap between members of the same society is acceptable.

Relative income measures of poverty show that incomes at different levels do not grow at the same rate. Typically, low incomes grow at a slower rate than higher incomes. For one thing, poor people's jobs tend to provide income raises or promotions less frequently and at lower levels. Precarious work, which leads to serial employment at entry-level rates, also slows income growth for poor people. In addition social transfers, such as welfare or disability payments, which poor people often have to rely on, grow at much slower rates, if at all, than rates from employment and profit. Thus even in a period [Page 909]of income growth the instance of relative poverty might not drop.

A weakness of such measures is that they do not show an increase in poverty in periods such as an economic downturn, when personal income is declining and poverty may actually be increasing. The reason is that unemployment will reduce the median income along with the income of poorer households.

The Organization for Economic Cooperation and Development (OECD), a mainstream economic organization, argues that relative income measures of poverty are preferable to absolute measures of poverty since such measures have little meaning in advanced industrialized societies where virtually everyone earns more than $1 or $2 per day. Understanding poverty means going beyond a focus on the deprivation of basic needs and looking at one's exclusion from the standards of living broadly available within one's community.

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