Poverty

a. measurement

Voices of the Poor

• "Poverty is like living in jail, living under bondage, waiting to be free" — Jamaica

Voices of the Poor

• "Poverty is lack of freedom, enslaved by crushing daily burden, by depression and fear of what the future will bring." — Georgia

Voices of the Poor

• "Lack of work worries me. My children were hungry and I told them the rice is cooking, until they fell asleep from hunger." — Older man from Bedsa, Egypt.

Voices of the Poor

• "A better life for me is to be healthy, peaceful and live in love without hunger. Love is more than anything. Money has no value in the absence of love." — Woman in Ethiopia

Voices of the Poor

• "When one is poor, she has no say in public, she feels inferior. She has no food, so there is famine in her house; no clothing, and no progress in her family." — Woman from Uganda

Voices of the Poor

• "For a poor person everything is terrible - illness, humiliation, shame. We are cripples; we are afraid of everything; we depend on everyone. No one needs us. We are like garbage that everyone wants to get rid of." — Blind woman from Moldova

Voices of the (previously) Poor

• “I been rich and I been poor, and I like rich better.” – Ertha Kitt, African American singer/movie star.

Poverty line • Poverty line: level of income, consumption or access to goods under which individuals

are deemed poor. • But how to characterize it? Absolute or relative?

– (http://www.youtube.com/watch?v=fAADWfJO2qM )• nutrition-based poverty line:

– Could evaluate the necessary amount to afford the minimum consumption (may include rent and clothing) needed for a certain level of nutrients. (as the poverty line used by the US)

– India uses estimates of expenditure need to reach a certain level of calorie intake.– But should we look at the minimum budget to get a certain level of nutrient or the amount

needed given the local type of alimentation.• The poorer a country the better the nutrition-based approximation• extreme minimum is absolute but notion of “adequate level of participation in society”

concept of poverty is in part relative. – Ex: a TV may be deemed necessary in some societies and not in other.

• Some use poverty line like half the mean income (but confuse inequality and poverty since if income of all drops may not change).

Income, consumption

Measure different things. For instance for nutrition-based poverty line:

• expenditure (but can be low in calorie intake) • consumption (but wealthy ascetic) • income (only capacity to consume)

Temporary or chronic

• Both structural or chronic poverty and temporary poverty (especially with agricultural fluctuations) must be studied in their own right.

• Permanent versus temporary income.

Household or Individuals

•Allocation of expenditure within the hhds is often skewed (female and elderly)– Rarely addressed

• Concept of adult equivalence scale: – Economies of scale within a hhd– Children consume less

Oecd modified scale: assigns value of 1 to household head, of 0.5 to each additional adult member and of 0.3 to each child.

Poverty measures

1. Measuring the extent of poverty

Head Count = number of poor HC = yi<p 1 Head Count Ratio = proportion of poor

HCR = HC/n

2. The depth of poverty (Poverty Gap based)

Poverty Gap Ratio PGR = yi<p (p – yi)/nm– total shortfall from poverty line / total income – Compare gap to resources which may be used to

reduce it.– sensitive to income of the rich

 Income Gap Ratio IGR = yi<p (p - yi) /pHC– total shortfall is divided by the total income needed to

bring all the poor out of poverty– Sensitive to shifts out of poverty of marginal poors

FGT1 = yi<p (p – yi )/ np-poverty gap compared with population times poverty line

2. The severity of poverty

Foster-Greer-Thorbecke class of poverty measure for >1 FGT = (1/n) yi<p ((p – yi )/ p)

- When >1 the larger the shortfall the larger the weight in the poverty measure.

Q: what is FGT0? and FGT1?

– FGT2 can be rewritten as HCR [IGR2 + (1-IGR) 2 Cp2] where Cp is the

coefficient of variation evaluated for the poor population

The functional impact of poverty• Lack of credit for poor since:

– Lack of collateral: collateral is a guarantee for the lender in case of inability to repay or intentional default.

– Lower incentive to repay a debt due to diminishing MU: for the same continuation utility default is more tempting for the poor for a given loan size lower loans to poor

Utility income

• we saw earlier how this can decrease the total income.

• Poverty and the household • Minimum amounts of nutrition, care and economic resources are needed for one to be healthy and

productive • a poor household may have to divide its resources unequally in order for at least some of its

members to be productive • Convexity in the capacity-income relation which creates incentives for unequal treatment. If concave,

equal distribution would be desirable for productive capacity.

E B

A D

C

O ConsumptionY/2 Y*/2 Y Y*

Poverty • From 1981 to 2005 (the most recent year for which

comprehensive estimates are available), the # of people living on less than $1.25 per day (PPP adjusted in 2005 US$) has fallen from 1.9 to 1.4 billion.

• During this same period, the proportion of the world’s population living below the $1.25 pov line declined from 52% to 26%.

• The estimated # of people living on less than $2 per day has increased slightly over this period, from 2.5 to 2.6 billion people, although the proportion living below the poverty line has declined from 70% to 48%.

Headcount Ratio

Income Gap Ratio

Poverty Map: Ghana

The Economic Life of the Poor Banerjee and Duflo

• Large family size & Young: median 7and 8 (vs 2.5 in US); 2 and 4 children by women 21-50 in household; 6 children per old person (vs 1 in US).

• Among our 13 countries, food typically represents 56-78 % among rural households, and 56 - 74 % in urban areas.

• Relatively high alcohol and tobacco consumption in some places (ex: 5% Udaipur; 6% Indonesia, 8.1% in Mexico)

• Relatively high spending on festivals• Little spending on other forms of

entertainment.• Ownership of radio or TV varies widely:

Udaipur radio 11% almost no TV; Nicaragua 60% radio and almost 50% TV.

• Low asset ownership:Land: 4% in Mexico, 1.4 % in South Africa; 30 % in

Pakistan, 37 % in Guatemala, 50 % in Nicaragua and Indonesia, 63 % in Cote d’Ivoire; 65 % in Peru; and 85 % in Panama. Small plots

• Malnutrition and poor health prevails:• Udaipur: only 57% had enough to eat, 65% of

adult men and 40 % of adult women have BMI<18.5, (underweight);

72% report at least one symptom of disease & 46 % report illness in the month

34 % of adults under 50 have difficulty with 1+ of their “activities of daily living”, Diarrhea is extremely frequent among children.

1/7th of the poor have vision problems

• High stress level, often due to illness or food problems

• Poor are entrepreneurs, often multiple occupations.

• Little skill and little specialization, small scale• Short term migration common