MEASURING POVERTY

Why Should Poverty Be Measured?

According to the World Bank, poverty should be measured for the following reasons:

• Keeps the poor on the agenda.

• Helps target interventions both domestically and globally.

• Monitors and evaluates projects and policies aimed at benefiting the poor.

• Assesses the effectiveness of institutions focused on poverty reduction.

The Poverty Line

The poverty line is a monetary measure of the minimum annual consumption needed to meet an adult's basic food and non-food requirements. It is used to measure:

• The incidence of poverty (how many people are poor).

• The depth of poverty (poverty gap).

• The severity of poverty (how poor the poor are).

Variations in the Poverty Line

• The poverty line varies based on a country’s development, societal norms, and values.

• International Poverty Line:

  • US$1.00 per day for low-income countries.

  • US$2.00 per day for developing countries.

• Grenada (2008):

  • XCD$5,842 per year or XCD$16.01 per day.

Stages in Determining the Poverty Line

1. Indigence or Food Poverty Line

   • Determines the minimum amount needed to meet basic nutritional requirements.

   • Based on the lowest price possible for a standard food basket.

   • Provides at least 2,400 kcal per day.

   • Grenada (2008): XCD $2,391 per adult per year or XCD $6.56 per day.

   • Indigent people cannot meet this minimum and are considered critically poor.

2. The Overall Poverty Line

   • Adjusts the indigence line to include basic non-food items.

   • Based on relative standards accepted by society.

   • Grenada (2008): XCD $5,842 per adult per year or XCD $16.01 per day.

   • 37.7% of Grenada's population was considered poor in 2008.

Shortcomings of the Poverty Line

• Subjective in nature – Deciding what should be included in the food basket varies by society.

The Vulnerability Line

• Indicates how close a person is to falling into poverty.

• Set at 1.25 times the poverty line (25% above it).

• Households consuming below this threshold are considered vulnerable.

• A person may not be classified as poor but still be at high risk of becoming poor.

• Grenada: XCD $7,302 per adult per year or XCD $20.01 per adult per day.

• The average household in Grenada needs XCD $1,271 per month or XCD $15,247 per year to escape poverty.

The Poverty Map

• Provides a detailed geographical distribution of poverty.

• Combines household survey data and census data.

• Used to identify poverty levels, social class, and income distribution in different areas.

• Developed by: Charles Booth.

The Head Count Index

• Measures the incidence of poverty (poverty rate).

• Represents the proportion of the population living below the poverty line.

• Formula: Po = Np/N

  • Np = Number of poor people.

  • N = Total population.

• Example: If 60 out of 300 people are poor, Po = 60/300 = 0.2 = 20% poverty rate.

Shortcomings of the Head Count Index

• Does not measure how poor people are – only counts how many are below the poverty line.

• Does not change if people become poorer – does not track the depth of poverty.

• Assumes equal well-being within households – does not consider individual differences.

Poverty Gap Ratio

• Measures how far the poor are from the poverty line.

• Helps policymakers estimate the minimum cost of eliminating poverty through targeted measures.

Poverty Severity Index

• Examines income distribution among the poor.

• Measures inequality within the poor population.

• Divides people into quintiles (five equal groups) from poorest to wealthiest.