Sen Index

THE SEN INDEX IS a sophisticated method of measuring the prevalence and severity of poverty in a society. The index was developed in 1976 by Amartya Sen. Sen is a Nobel Laureate in Economics who achieved prominence at Cambridge and Harvard Universities. Because the Sen Index provides a realistic methodology for quantifying variation in the levels of deprivation among the poor it is used by policymakers worldwide who seek to ameliorate poverty and improve the social welfare of the poor.

Prior to the development of the Sen Index, economists generally described poverty in terms of specific income-based measures such as the poverty line and the poverty gap. These measures, while useful, did not incorporate certain aspects of poverty of concern to policymakers. For example, as a nation's overall wealth increases, individuals who do not share in the increase grow poorer in comparison with their countrymen. Yet prior to the Sen Index, no existing measure of poverty reflected the impact of changes in nations’ overall prosperity in the wealth status of individuals.

In his 1976 paper entitled “Poverty: An Ordinal Approach to Measurement,” Sen published a method for measuring the multidimensional aspects of poverty. Sen's measure of poverty, now known as the Sen Index, incorporated earlier measures such as the “poverty line” and the “poverty gap.” However, it also required continuous recalibration, so that a nation's Sen Index value would increase if a person below the poverty line experienced a reduction in income (this is known as the “monotonicity axiom”), and increase if a person below the poverty line transferred income to anyone richer. (This is known as the “transfer axiom”).

The Sen Index is calculated from three principal components. The first component is the headcount, a measure of the share of a nation's population living below the poverty line. This component measures the extent of poverty in a nation. The second component is the poverty gap, or aggregate income shortfall of the poor. This component measures the intensity of poverty for those who experience it. The third component, income inequality among the poor within a nation, is measured by a Gini Index among the poor and captures variation in deprivation among the poor. Changes in any or all of these three elements will impact the overall measure of poverty. As formulated in 1976, the algebraic formula for calculating the Sen Index is:

Where

P = poverty measure

H = share of population below poverty line

I = income gap or shortfall ratio

G = Gini index of poverty gap among poor

In a 1983 paper entitled “Poor, Relatively Speaking,” Sen expanded his concept of poverty to reflect two additional new elements. First, Sen argued that a person is impoverished if circumstances deprive her of the capability to fulfill her human potential. Therefore, an ideal poverty index should attempt to quantify such impediments to capability.

Second, Sen argued that wealth, properly measured, includes access to public resources. Because access to resources varies across and within communities, an ideal poverty index should measure the relative lack of access to resources. Although these concepts may be difficult to quantify in practice, Sen suggests, “the direction in which to go would be that of some kind of effi-ciency-adjusted level of income with ‘income’ units [Page 968]reflecting command over capabilities rather than commodities.”

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