how to measure poverty

In 1795, David Davies, a British priest, published a study documenting the lives of laborers in his rural parish. In perhaps the first attempt to systematically measure poverty, he calculated an amount of money that would allow working-class families to live in “tolerable comfort”. More than two centuries later, the same concept underlies the definition of poverty around the world. Countries identify the minimum level of income needed to meet basic needs such as food, clothing and shelter. Those who have less are considered poor.

Surprisingly, these limits vary by country. For example, in the US, a person was considered poor by the government in 2022 if he earned less than about $41 a day; The same limit in Ethiopia is $2 per day. These definitions help governments identify who should benefit from policies to alleviate poverty. For example, in the US, how close or far families are from the poverty line determines their eligibility for health and social programs, such as Medicaid, the government-funded health-insurance plan.

Measures of poverty are also important for tracking policy effects. The World Bank, for example, uses an international poverty line to compare poverty across countries. Based on what poverty is in the 28 poorest countries, the threshold of $2.15 (expressed in 2017 prices and adjusted for currency differences) is the global benchmark for extreme poverty. By this measure, the proportion of the world’s population living in extreme poverty has fallen from more than 35% in 1990 to less than 10% in 2019. According to a study published in March 2023 by researchers at the Center for Global Development, a think-tank, this proportion could fall to 2% by 2050 with the right economic conditions.

Yet for many, such progress will not mean the near-elimination of poverty. The World Bank’s dollar measure, which defines the bare-minimum standard of living, tracks “absolute” poverty. It doesn’t account for inequality. Nevertheless, a person’s well-being, some scholars argue, depends on how their standard of living is compared to that of a person. People’s concept of the basic needs of others varies with place and time.

This is why the European Union calculates a “relative” poverty rate based on the share of people earning less than 60% of the median income in the bloc. The OECD, a grouping of mostly wealthy countries, defines poverty as living on less than half of the average household. The income of the country in question. By this measure, the world is a long way from eliminating poverty. According to the World Bank, which introduced the relative-poverty measure in 2018, in 2019 there were three times as many people living in “social poverty” as those in extreme poverty.

Increasingly, poverty measures take into account more than just income. The United Nations’ Multidimensional-Poverty Index uses ten indicators that measure education, health and sanitation. These can produce vastly different estimates. In Chad, 84% of the population was poor in 2019 by the United Nations measure. But according to the World Bank only 31% of people in Chad live in extreme poverty. In theory, a multidimensional measure could be used to guide policy more effectively. For example, households that lack access to medical care could be the focus of public-health policy.

Such initiatives work best if governments know exactly who needs help. Global benchmarks, such as the World Bank, are useful for picking up on trends, but national policymaking requires more detailed information to identify places and people struggling. Poor countries often lack the resources and know-how to collect such data. Their governments often spend money on flashy projects like new schools. Building statistical ability may not be glamorous. But it’s hard to help the poor when you don’t know who they are.

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From The Economist, published under license. Original content can be found at www.economist.com