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

FGT
1
=
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 FGT
0
? and FGT
1
?

FGT
2
can be rewritten as HCR [IGR
2
+ (1-IGR)
2
C
p
2
] where C
p
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 Consumption
Y/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 worlds
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 dIvoire; 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.
1/7
th
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