Tuesday 16 November 2010

Poverty in poverty measures

Should we measure absolute or relative poverty in developed countries? The former captures real poverty but misses relative deprivation; the latter lead to absurdities as the measures would prefer equal but poor societies to unequal but rich ones.

Kristian Niemietz in The Journal of Public Policy notes a further problem with relative poverty measures: what's the relevant comparison group? If relative poverty draws on the notion that folks feel disempowered relative to a comparison group, we kinda need to know against whom folks compare themselves. And relative measures anchor things to the median.
The concept of relative poverty suggests that in case of doubt, the poor would be better off foregoing a rise in living standards, as long as the median income households forego an even bigger rise. Since this is a very stark assumption, we should expect the evidence supporting it to be especially strong. If it is not, there would be a strong case for finding a poverty measure which avoids this.
Niemietz proposes a mixed absolute and relative standard for determining poverty: construction of minimally acceptable bundles of goods to define the poverty line, as measured by actual spending by low income groups. This ties relative measures to spending by other relatively poor people rather than to the median.
The poverty line would be equal to the cost of all items on a list of essential goods and services. The items would be obtained through a large-scale survey (the CMS-element) similar to the Poverty and Social Exclusion survey, to ensure a degree of social relevance. The survey would yield a number of broad product categories. In identifying specific products for each product category, the list would then be streamlined (the BSA-element). In this way, the inability to purchase a particular item could be separated from unwillingness to do so, and structural changes in the relevant product markets could be incorporated.
And so we'd solve the problem of benchmarking things to the median.

I'm probably missing something here, but doesn't the method then require an ex ante decision about what income level constitutes poverty? If you're going to take the common items in bundle of goods purchased by poor people as constituting the minimal bundle, then that bundle will be bigger if it's bought by folks making $15,000 and less than it will be if restricted to those making $8,000 and less. So what then makes for the appropriate reference group?

Sorting out poverty measures is an important problem; Niemietz does a great job of outlining the absurdities of existing approaches. I'm not sure that it doesn't still beg the question. But I've probably not read closely enough.


  1. It sounds a bit odd to me also, for the same reason: first we find poor people, then measure what they buy, and that helps us define poverty.

    I didn't quite get the refinement stage but it sounds as though it depends on which type of product one buys in each category. If he is right that this separates inability from uwillingness to purchase it would be a big step forward, but on the face of it there is the same problem here: eg poor people buy cheap low quality bread, so purchases in that category help us define poverty.

  2. I can't help with your overall question, but I'm pretty sure Jonathan Boston (I don't know where he was working at the time) designed exactly such a measure (as well as a more traditional 50/60% of median) of poverty for the Shipley government.