Measuring Poverty

DFID: STATISTICS TRAINING DAYLONDON, NOVEMBER 11, 2013

J O N A T H A N H A U G H T O NJ H A U G H T O N @ S U F F O L K . E D U

H T T P : / / W E B . C A S . S U F F O L K . E D U / FA C U LT Y / J H A U G H T O N/

Measuring Poverty

1. Measuring poverty

2. Multidimensional poverty

3. Poverty Dynamics

4. Inference

5. International Poverty Comparisons

6. Vulnerability to Poverty

7. Tackling Poverty

mailto:[email protected]

http://web.cas.suffolk.edu/faculty/jhaughton/

http://web.cas.suffolk.edu/faculty/jhaughton/

DFID Statistics Training Day, November 11, 2013

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Outline

1. What?2. Why?3. Monetary measures:

a) What measure of welfare?b) What poverty line?c) How summarize the data?


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What is poverty?

“a pronounced deprivation in well-being” Conventional view: not enough money Sen: Lack of capabilities to function in society.

Treated in part 2

Distinct from, but related to Vulnerability (“ex ante poverty”) Inequality

A kissing cousin, if relative poverty line used


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Why measure poverty?

… given that it is expensive to measure

1. Keep the poor on the agenda2. Target interventions (domestic, international)3. Monitor and Evaluate projects, policies4. Evaluate institutions

World Bank: “Our dream is a world free of poverty”

N.B. Role of Poverty Reduction Strategy Papers


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Aside: Surveys

Poverty measures are based on survey data Ask:

Is sample frame representative? Sample size? Stratified?

If yes, use weights for summary statistics Clustering?

If yes, adjust when measuring standard errors Cross-section, or also panel? What indicator(s) collected? How? (e.g. diary?) Good data cleaning? Quality control?

LSMS have set a high standard EU-SILC: Income and living standards; “social cohesion”


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What welfare indicator?

“Utility”, as proxied by (typically) Income per capita, or Consumption per capita

Candidate 1: Income Income ≡ Consumption + Δ net worth

Net worth is hard to measure (e.g. livestock)What time period? Year? Lifetime?Income often seriously understated


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Expenditure?

Candidate 2: Expenditure Include own-production and purchases More stable than income; better tracks “lifetime

income”

Problems• Many items• Under-reporting,

especially luxuries• Sensitive to

questions– e.g Vietnam tobacco


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Table 10.1. Income vs. Consumption as a Measure of Welfare

Income (“potential”) Pro: Con: Measures household “command over resources” Can be measured with fewer questions than consumption, so cheaper to collect

Likely to be underreported. Subject to short-term, including seasonal, fluctuations. Some components hard to observe (e.g. informal sector income, home production, self-employment income) Tenuous link between income and welfare Reporting period might not capture the long-term average income of the household

Consumption (“achievement) Pro: Con: Shows current actual material standard of living Smoothed, so reflects long-term wellbeing Less understated than income

Households may have difficulty smoothing consumption Consumption choices may mislead (e.g. if a rich household chooses to live simply) Some expenses are irregular, so data may be noisy Some components are hard to measure (e.g. durable goods, housing services)

Source: Adapted from Albert (2004).


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Technical considerations

Durables Mainly depreciation + interest costs; need value

Housing Ask hypothetical about rentals?

Weddings and funerals


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Adult equivalents

Commonly: expenditure per capitaBut: individual needs differ; economies of

scale in consumption OECD scale: AE = 1 + 0.7 (Nad – 1) + 0.5 Nch Elegant: AE = (Nad + α Nch)^θ

e.g. α = 0.7; θ = 0.8. Deaton and Zaidi (1998)

“There are so far no satisfactory methods for estimating economics of scale” [in consumption]


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Other measures

Calories per dayFood share of consumptionNutritional outcomesPeer or observer assessmentsSelf-assessment

E.g. Social Weather Stations, the Philippines


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Poverty Lines

Relative: “the poor are always with us” Line giving poorest 20% (quintile) EU: 60% of national median equivalised disposable

income (OECD scale): “at risk of poverty”Absolute: for comparisons over time, states

World Bank “dollar a day” Cost-of-basic-needs poverty lines

Food poverty line (i.e. cost of enough food, only) US: Mollie Orshansky. 3 times cost of adequate food.

Updated over time to reflect price changes. Cash only.


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Different Poverty Lines


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Cost of Basic Needs Method

Widely used, but with variations Pick a nutritional requirement for good health

e.g. 2,100 kcals per person per day Estimate the cost of buying enough food for this

e.g. Cost of diet of someone consuming 2,100±100 kcals/cap/day

Add a non-food component e.g. Non-food spending of someone consuming

2,100±100 kcals/cap/day

Update over time by revising prices


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Measures of Poverty

Headcount Index: P₀ = Np/N Popular, easy to understand Does not pick up depth of poverty

Assumes equal sharing within household


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Poverty Gap Index

Poverty Gap Index

Does not reflect inequality among the poor EU: “Relative median at-risk-of-poverty gap”


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FGT

Foster-Greer-Thorbecke

Poverty gap squared: α=2Choice makes a modest difference


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Individual y_a y_b y_c

1 115 110 120

2 115 114 121

3 118 120 122

4 118 124 123

5 127 125 123

6 127 127 125

7 138 138 135

8 142 147 140

9 178 178 171

10 217 212 215

Problem to try: Which country is poorest? z=126


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Other measures

Sen-Shorrocks-Thon

Watts

Time Taken to Exit


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Reading

Haughton & Khandker, chapters 1-4Jonathan Haughton & Shahidur Khandker, 2009, Handbook on Poverty and Inequality, World Bank, Washington DC. Can be downloaded from my website.

Documents

Measuring Poverty