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Measurement of Poverty

Measurement of poverty is essential to understand the extent, causes, and distribution of poverty in a given population. It involves defining the parameters of poverty and using various indicators and tools to assess how many people are living in poverty and to what degree. The measurement of poverty typically involves identifying poverty lines, and using both income-based and multidimensional approaches. Below are the key methods for measuring poverty:

1. Income-Based Measures:

These measures focus on the income levels of individuals or households to assess whether they fall below a specified poverty threshold.

Poverty Line:
  • The poverty line is a threshold below which individuals or households are considered to be in poverty. The line is typically set based on the minimum income required to meet basic necessities like food, shelter, and clothing.
    • Absolute Poverty Line: A fixed threshold that defines poverty based on the cost of a basic basket of goods required to maintain a minimum standard of living (e.g., the World Bank’s poverty line of $1.90 per day adjusted for purchasing power parity).
    • Relative Poverty Line: This measures poverty in relation to the average income or standard of living within a specific society. For example, individuals whose income is below 60% of the median income in a country are often considered to be in relative poverty.
    • National Poverty Line: Governments of different countries set their own poverty lines based on local conditions, which reflect the minimum income required to meet basic needs (e.g., India’s poverty line, the US poverty line).
Headcount Ratio:
  • This is a simple measure that calculates the percentage of the population whose income falls below the poverty line. It is computed as: 
  • Headcount Ratio=Number of people below the poverty line/ Total population×100 
Poverty Gap Index:
  • The poverty gap index measures the intensity of poverty by calculating the average distance below the poverty line of the people who are poor. It is expressed as the total poverty gap divided by the poverty line. It shows not only the percentage of people living below the poverty line but also how far below the line they are. Poverty Gap=∑(Z−Yi)/N⋅Z Where:
    • Z = poverty line
    • Yi​ = income of the i-th person
    • N = total number of people
    • The poverty gap measures the total shortfall of income of all poor people from the poverty line.
Squared Poverty Gap (Sen Index):
  • The squared poverty gap is a more advanced measure that captures the severity of poverty by squaring the poverty gap for each person, thus giving more weight to individuals who are further below the poverty line.
2. Multidimensional Poverty Index (MPI):

This approach recognizes that poverty is not just about income. It incorporates multiple dimensions that affect people’s quality of life, such as education, health, and living standards. The MPI measures poverty based on these dimensions.

Key components of the MPI include:

  • Education: Years of schooling and child school attendance.
  • Health: Child mortality and nutrition.
  • Living Standards: Access to electricity, drinking water, sanitation, flooring materials, and assets like radio, television, and bicycles.

An individual is considered multidimensionally poor if they experience deprivations in at least one-third of the weighted indicators. The MPI is calculated using the following formula:

MPI=H×A 

Where:

  • H = the proportion of people who are poor (headcount ratio)
  • A = the average proportion of deprivations that poor people experience
3. Qualitative Approaches:

These approaches use non-quantitative data, often obtained through surveys or interviews, to assess the lived experiences of poverty.

Participatory Poverty Assessments (PPA):
  • PPAs involve direct engagement with poor communities to understand their own perceptions of poverty. This approach focuses on local definitions of poverty, how people experience it, and how they prioritize solutions to overcome it.
Social Exclusion and Vulnerability:
  • These concepts assess whether certain groups or individuals are excluded from social, economic, and political opportunities. Measuring exclusion involves understanding how inequality, discrimination, and marginalization contribute to poverty.
4. Composite Indices:

These indices combine several indicators to offer a more comprehensive view of poverty.

Human Poverty Index (HPI):
  • Developed by the UNDP, the HPI was used in the Human Development Reports (1997-2009) before being replaced by the MPI. It had two versions:
    • HPI-1: Measured deprivation in developing countries using indicators such as life expectancy, literacy, and access to clean water.
    • HPI-2: Measured deprivation in industrialized countries using indicators like income, education, and life expectancy.
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