The poverty threshold, or poverty line, is the minimum level of income Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received... in a given period of time." deemed necessary to achieve an adequate standard of living Standard of living is generally measured by standards such as real income per person and poverty rate. Other measures such as access and quality of health care, income growth inequality and educational standards are also used. Examples are access to certain goods (such as number of refrigerators per 1000 people), or measures of health such as life in a given country.^[1] In practice, like the definition of poverty Poverty is the lack of basic human needs, such as clean water, nutrition, health care, education, clothing and shelter, because of the inability to afford them. This is also referred to as absolute poverty or destitution. Relative poverty is the condition of having fewer resources or less income than others within a society or country, or compared, the official or common understanding of the poverty line is significantly higher in developed countries The term developed country is used to describe countries that have a high level of development according to some criteria. Which criteria, and which countries are classified as being developed, is a contentious issue and is surrounded by fierce debate. Economic criteria have tended to dominate discussions. One such criterion is income per capita; than in developing countries Developing country is a term generally used to describe a nation with a low level of material well being. There is no single internationally-recognized definition of developed country, and the levels of development may vary widely within so-called developing countries, with some developing countries having high average standards of living.^[2]

The common international poverty line has in the past been roughly $1 a day. In 2008, the World Bank World Bank is a term used to describe an international financial institution that provides leveraged loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty came out with a revised figure of $1.25 at 2005 purchasing-power parity (PPP).^[3]

Determining the poverty line is usually done by finding the total cost of all the essential resources that an average human adult consumes in one year.^[3] This approach is needs-based in that an assessment is made of the minimum expenditure needed to maintain a tolerable life. This was the original basis of the poverty line in the United States Poverty in the United States is cyclical in nature with roughly 13 to 17% living below the federal poverty line at any given point in time, and roughly 40% falling below the poverty line at some point within a 10-year time span. Most Americans will spend at least one year below the poverty line at some point between ages 25 and 75. There remains, whose calculation was simplified to be based solely on the cost of food and is updated each year.^{[citation needed]} In developing countries, the most expensive of these resources is typically the cost of housing. Economists An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are many sub-fields, ranging from the broad philosophical theories to the focused study of minutiae within specific markets, thus pay particular attention to the real estate market and housing prices because of their strong influence on the poverty threshold.^{[citation needed]}

Individual factors are often used to account for various circumstances, such as whether one is a parent, elderly, a child, married, etc. The poverty threshold may be adjusted each year.

The poverty threshold is useful as an economic tool with which to measure such people and consider socioeconomic reforms such as welfare Welfare or welfare work consists of actions or procedures — especially on the part of governments and institutions — striving to promote the basic well-being of individuals in need. These efforts usually strive to improve the financial situation of people in need but may also strive to improve their employment chances and many other aspects of and unemployment insurance Unemployment benefits are payments made by the state or other authorized bodies to unemployed people. It may be based on a compulsory para-governmental insurance system. Depending on the jurisdiction and the status of the person, those sums may be meager, covering only basic needs , or may compensate the lost pay somewhat proportionally to the^{[citation needed]} to reduce poverty.

Defining poverty thresholds

Poverty thresholds can be defined in different ways:

• Based on social security Social security is primarily a social insurance program providing social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to: and welfare Welfare or welfare work consists of actions or procedures — especially on the part of governments and institutions — striving to promote the basic well-being of individuals in need. These efforts usually strive to improve the financial situation of people in need but may also strive to improve their employment chances and many other aspects of benefits. If a government A government is the organization, or agency through which a political unit exercises its authority, controls and administers public policy, and directs and controls the actions of its members or subjects guarantees to make income up to some particular level, then it may be presumed that that level is the poverty threshold.^{[citation needed]} This is a problematic definition, because a government may reduce or increase the guaranteed income, thus reducing or increasing the incidence of poverty according to this definition, without changing the ability of individuals to buy food or pay for housing.
• A relative income line, related to some fraction A fraction is a number that can represent part of a whole of typical incomes. This excludes the wealthiest individuals from the calculation. For example, the OECD The Organisation for Economic Co-operation and Development is an international economic organisation of 32 countries. It defines itself as a forum of countries committed to democracy and the market economy, providing a setting to compare policy experiences, seeking answers to common problems, identifying good practices, and co-ordinating domestic and the European Union The European Union is an economic and political union of 27 member states which are located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht in 1993 upon the foundations of the European Communities. With over 500 million citizens, the EU combined generated an estimated 28% share (US$ 16.5 uses 60% of national median In probability theory and statistics, a median is described as the numeric value separating the higher half of a sample, a population, or a probability distribution, from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. If there is equivalised Equivalisation is a technique in economics in which members of a household receive different weightings. Total household income is then divided by the sum of the weightings to yield a representative income household The household is "the basic residential unit in which economic production, consumption, inheritance, child rearing, and shelter are organized and carried out"; [the household] "may or may not be synonymous with family" income.
• A basket of goods deemed necessary to live at the socially accepted minimum. Most developing countries and some developed ones (including the US) use this approach. This is commonly called a cost of basic needs The basic needs approach is one of the major approaches to the measurement of absolute poverty. It attempts to define the absolute minimum resources necessary for long-term physical well-being, usually in terms of consumption goods. The poverty line is then defined as the amount of income required to satisfy those needs poverty line, and varies according to the price of food, clothing, or other items in the "basket".
• An absolute figure based on the national poverty lines found in some group of countries which is then fixed in time and adjusted only for inflation In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit. When the World Bank World Bank is a term used to describe an international financial institution that provides leveraged loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty calculates its global poverty counts it uses the average poverty line found amongst the poorest countries.

Absolute poverty

A measure of absolute poverty quantifies the number of people below a fixed real poverty threshold.^{[citation needed]} For the measure to be absolute, the line must be the same in different countries, cultures, and technological levels. Such an absolute measure should look only at the individual's power to consume and it should be independent of any changes in income distribution. Such a measure is possible only when all consumed goods and services are counted and when PPP-exchange rates are used (see purchasing power parity Purchasing power parity is a theory of long-term equilibrium exchange rates based on relative price levels of two countries. The idea originated with the School of Salamanca in the 16th century and was developed in its modern form by Gustav Cassel in 1918. The concept is founded on the law of one price; the idea that in absence of transaction).^{[citation needed]} The intuition behind an absolute measure is that mere survival takes essentially the same amount of resources across the world and that everybody should be subject to the same standards if meaningful comparisons of policies and progress are to be made. Notice that if everyone's real income in an economy increases, and the income distribution In economics, income distribution is how a nation’s total economy is distributed amongst its population. .Income distribution has always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus and David Ricardo were mainly concerned with factor income distribution, that is, the does not change, absolute poverty will decline.

Measuring poverty by an absolute threshold has the advantage of applying the same standard across different locations and time periods, making comparisons easier. On the other hand, it suffers from the disadvantage that any absolute poverty threshold is to some extent arbitrary; the amount of wealth required for survival is not the same in all places and time periods. For example, a person living in far northern Scandinavia requires a source of heat during colder months, while a person living on a tropical island does not.

This type of measure is often contrasted with measures of relative poverty (see below), which classify individuals or families as "poor" not by comparing them to a fixed cutoff point, but by comparing them to others in the population under study.^{[citation needed]}

The term absolute poverty is also sometimes used as a synonym for extreme poverty Extreme poverty is the most severe state of poverty. Many cannot meet basic needs for food, water, shelter, sanitation, and health care. To determine the affected population, the World Bank defines extreme poverty as living on less than USD $1.25 per day . The World Bank estimates that 1.4 billion people currently live under these conditions. Absolute poverty is the absence of enough resources (such as money) to secure basic life necessities.

According to a UN declaration that resulted from the World Summit on Social Development in Copenhagen in 1995, absolute poverty is "a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services."^[4]

David Gordon's paper, "Indicators of Poverty & Hunger", for the United Nations, further defines absolute poverty as the absence of any two of the following eight basic needs:^[4]

• Food: Body Mass Index The body mass index , or Quetelet index, is a statistical measure which compares a person's weight and height. Though it does not actually measure the percentage of body fat, it is used to estimate a healthy body weight based on a person's height. Due to its ease of measurement and calculation, it is the most widely used diagnostic tool to must be above 16.
• Safe drinking water: Water must not come from solely rivers and ponds, and must be available nearby (less than 15 minutes walk each way).
• Sanitation facilities: Toilets or latrines A latrine is a communal space with multiple toilets designed for defecation and urination. Latrines allow for safer and more hygienic disposal of human waste than open defecation. They are used in rural areas and low-income urban communities, with significant use in the developing world. Many variations exist, but at its simplest, the reason for must be accessible in or near the home.
• Health: Treatment must be received for serious illnesses and pregnancy.
• Shelter: Homes must have fewer than four people living in each room. Floors must not be made of dirt, mud, or clay.
• Education: Everyone must attend school or otherwise learn to read.
• Information: Everyone must have access to newspapers, radios, televisions, computers, or telephones at home.
• Access to services: This item is undefined by Gordon, but normally is used to indicate the complete panoply of education, health, legal, social, and financial (credit Credit is the provision of resources by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date. It is any form of deferred payment. The first party is called a) services.

For example, a person who lives in a home with a mud floor is considered severely deprived of shelter. A person who never attended school and cannot read is considered severely deprived of education. A person who has no newspaper, radio, television, or telephone is considered severely deprived of information. All people who meet any two of these conditions — for example, they live in homes with mud floors and cannot read — are considered to be living in absolute poverty.

Relative poverty

See also: Income inequality Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and is related to the idea of equality of opportunity and Relative deprivation It has important consequences for both behavior and attitudes, including feelings of stress, political attitudes, and participation in collective action. It is relevant to researchers and students in social psychology, sociology, economics, politics, animal ethics, and other social sciences, especially those interested in prejudice, social

A measure of relative poverty defines "poverty" as being below some relative poverty threshold. For example, the statement that "households with an accumulated income less than 50% of the median income are living in poverty" uses a relative measure to define poverty. In this system, if everyone's real income in an economy increases, but the income distribution In economics, income distribution is how a nation’s total economy is distributed amongst its population. .Income distribution has always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus and David Ricardo were mainly concerned with factor income distribution, that is, the stays the same, then the rate of relative poverty will also stay the same.

Relative poverty measurements can sometimes produce odd results, especially in small populations. For example, if the median In probability theory and statistics, a median is described as the numeric value separating the higher half of a sample, a population, or a probability distribution, from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and picking the middle one. If there is household in a wealthy neighborhood earns US$1 million each year, then a family that earns US$100,000 would be considered poor on the relative poverty scale, even though such a family could meet all of its basic needs and much more. At the other end of the scale, if the median household in a very poor neighborhood earned only 50% of what it needs to buy food, then a person who earned the median income would not be considered poor on a relative poverty scale, even though the person is clearly poor on an absolute poverty scale.

Measures of relative poverty are almost the same as measuring income inequality Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and is related to the idea of equality of opportunity: If a society gets a more equal income distribution, relative poverty will fall. Following this, some argue^[who?] that the term relative poverty is itself misleading and that income inequality should be used instead.^{[citation needed]} They point out that if society changed in a way that hurt high earners more than low ones, then relative poverty would decrease, but every citizen of the society would be worse off. Likewise in the reverse direction: it is possible to reduce absolute poverty while increasing relative poverty.

The term relative poverty can also be used in a different sense to mean "moderate poverty" –- for example, a standard of living or level of income that is high enough to satisfy basic needs (like water Water is a chemical substance with the chemical formula H2O. Its molecule contains one oxygen and two hydrogen atoms connected by covalent bonds. Water is a liquid at ambient conditions, but it often co-exists on Earth with its solid state, ice, and gaseous state, water vapor or steam, food Food is any substance or material eaten to provide nutritional support for the body or for pleasure. It usually consists of plant or animal origin, that contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals, and is ingested and assimilated by an organism to produce energy, stimulate growth, and maintain life, clothing A feature of all modern human societies is the wearing of clothing, a category encompassing a wide variety of materials that cover the body. The primary purpose of clothing is functional, as a protection from the elements. Clothes also enhance safety during hazardous activities such as hiking and cooking, by providing a barrier between the skin, shelter, and basic health care Health care or healthcare is the treatment and prevention of illness. Health care is delivered by professionals in medicine, dentistry, nursing, pharmacy and allied health), but still significantly lower than that of the majority of the population under consideration.^{[citation needed]}

Basic needs

Some measurements combine certain aspects of absolute and relative measures. For example, the Fraser Institute The Fraser Institute is a fiscally conservative think tank based in Canada that espouses free market principles. Its stated mandate is to advocate for freedom and competitive markets. It generally opposes public policy solutions based on government spending, taxes, deficits, and regulation . Some of the public policy stands taken by the Institute publishes a basic needs The basic needs approach is one of the major approaches to the measurement of absolute poverty. It attempts to define the absolute minimum resources necessary for long-term physical well-being, usually in terms of consumption goods. The poverty line is then defined as the amount of income required to satisfy those needs poverty measure for Canada The land occupied by Canada was inhabited for millennia by various groups of Aboriginal peoples. Beginning in the late 15th century, British and French expeditions explored, and later settled, along the Atlantic coast. France ceded nearly all of its colonies in North America in 1763 after the Seven Years' War. In 1867, with the union of three. According to the Fraser Institute, "the basic-needs approach is partly absolute (the list [of necessities] is limited to items required for long-term physical well-being) and partly relative, reflecting the standards that apply in the individual's own society at the present time."^[5] The Fraser Institute's list of necessities for living creditably in Canada includes not only food Food is any substance or material eaten to provide nutritional support for the body or for pleasure. It usually consists of plant or animal origin, that contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals, and is ingested and assimilated by an organism to produce energy, stimulate growth, and maintain life, shelter, clothing A feature of all modern human societies is the wearing of clothing, a category encompassing a wide variety of materials that cover the body. The primary purpose of clothing is functional, as a protection from the elements. Clothes also enhance safety during hazardous activities such as hiking and cooking, by providing a barrier between the skin, and health care Health care or healthcare is the treatment and prevention of illness. Health care is delivered by professionals in medicine, dentistry, nursing, pharmacy and allied health, but also personal care Hygiene is an old concept related to medicine, as well as to personal and professional care practices related to most aspects of living. In medicine and in home and everyday life settings, hygiene practices are employed as preventative measures to reduce the incidence and spreading of disease. In the manufacture of food, pharmaceutical, cosmetic, furniture Furniture is the mass noun for the movable objects intended to support various human activities such as seating and sleeping in beds, to hold objects at a convenient height for work using horizontal surfaces above the ground, or to store things. Storage furniture such as a nightstand often makes use of doors, drawers, shelves and locks to contain,, transportation Transport or transportation is the movement of people and goods from one location to another. Modes of transport include air, rail, road, water, cable, pipeline, and space. The field can be divided into infrastructure, vehicles, and operations, communication Communication is a process of transferring information from one entity to another. Communication processes are sign-mediated interactions between at least two agents which share a repertoire of signs and semiotic rules. Communication is commonly defined as "the imparting or interchange of thoughts, opinions, or information by speech, writing,, laundry Laundry is a noun that refers to the act of washing clothing and linens, the place where that washing is done, and/or that which needs to be, is being, or has been laundered, and home insurance. It is criticized for not including any entertainment items like cable television, daily newspapers, and tickets to movies or sporting events.^[5][6]

National poverty lines

National estimates are based on population-weighted subgroup estimates from household surveys. Definitions of the poverty line may vary considerably among nations. For example, rich nations generally employ more generous standards of poverty than poor nations. Thus, the numbers are not comparable among countries.

In 2009, in the United States of America, the poverty threshold for a single person under 65 was US$11,161; the threshold for a family group of four, including two children, was US$21,756.^[7]

In the UK, "more than five million people – over a fifth (23 per cent) of all employees – were paid less than £6.67 an hour in April 2006. This is based on a low pay rate of 60 per cent of full-time median earnings, equivalent to a little over £12,000 a year for a 35-hour working week. In April 2006, a 35 hour week would have earned someone £9,191 a year - before tax or National Insurance" ^[8][9]

India's official poverty level, on the other hand, is split according to rural vs. urban thresholds. For urban dwellers, the poverty line is defined as living on less than 538.60 rupees (approximately USD $12) per month, whereas for rural dwellers, it is defined as living on less than 356.35 rupees per month (approximately USD $7.50).^[10] By this measure, only 27.5% of Indians live in poverty,^{[citation needed]} whereas by the World Bank standard of $1.25 per day, 42% of Indians live in poverty^{[citation needed]} - this is the third highest rate in South Asia after Bangladesh and Bhutan. (Map needs to be updated).

Criticisms

Using a poverty threshold is problematic because having an income marginally above it is not substantially different from having an income marginally below it: the negative effects of poverty tend to be continuous rather than discrete, and the same low income affects different people in different ways. To overcome this problem, poverty indices are sometimes used instead; see income inequality metrics.

A poverty threshold relies on a quantitative, or purely numbers-based, measure of income. If other human development-indicators like health and education are used, they must be quantified, which is not a simple (if even achievable) task.

Overstating poverty

In-kind gifts, whether from public or private sources, are not counted when calculating a poverty threshold. For example, if a parent pays the rent on an apartment for an adult daughter directly to the apartment owner, instead of giving the money to the daughter to pay the rent, then that money does not count as income to the daughter. If a church or non-profit organization gives food to an elderly person, the value of the food is not counted as income to the elderly person. Rea Hederman, a senior policy analyst in the Center for Data Analysis at the Heritage Foundation, said

The official poverty measure counts only monetary income. It considers antipoverty programs such as food stamps, housing assistance, the Earned Income Tax Credit, Medicaid and school lunches, among others, "in-kind benefits" -- and hence not income. So, despite everything these programs do to relieve poverty, they aren't counted as income when Washington measures the poverty rate.^[11]

Studies measuring the difference between income before and after taxes and government transfers, however, have found that without these programs poverty would be roughly 30% to 40% higher than the official poverty line indicates, despite many of their benefits not being counted as income.^[12][13]

Understating poverty

The U.S. poverty threshold in particular has been criticized for understating poverty, by using an outdated "basket of goods" to set the standard. While cost of these goods is adjusted for inflation every year, the basket of goods itself remains the same. It excludes the cost of items that were rare among poor Americans in the 1950s, but which are now common, such as a telephone, a car and a microwave oven. Mollie Orshansky, who devised the original goods basket and methodology to measure poverty, used by the U.S. government, in 1963-65, suggested an updated list in 2000. She found that the point where a person is excluded from the nation's prevailing consumption patterns, is roughly 170% of the official poverty threshold.^[14]

Furthermore, in developed countries, such as the U.S., poverty tends to be cyclical. Thus, the poverty line indicates only how many people are poor at any one point in time. It does not report the number of people who will experience poverty during their lifetimes. In the U.S. for example, roughly 12%-13% fall below the poverty line in any given year, but roughly 40% will experience poverty at some point over a ten-year timespan.^[15]

See also

• Measuring poverty
• List of countries by percentage of population living in poverty
• Poverty in China
• Poverty in India
• Poverty in the United Kingdom
• Poverty in the United States

References

1. ^ {Poverty Lines-Martin Ravallion, in The New Palgrave Dictionary of Economics, 2nd Edition, London: Palgrave Macmillan}
2. ^ {Dollar a day Revisited-Martin Ravallion, Shaohua Chen and Prem Sangraula World Bank Economic Review Volume 23,Number 2-2009-Pages 163-184}
3. ^ ^{a b} {Dollar a day Revisited-Martin Ravallion, Shaohua Chen and Prem Sangraula World Bank Economic Review Volume 23,Number 2-2009-Pages 163-184}
4. ^ ^{a b} "Indicators of Poverty and Hunger". http://www.un.org/esa/socdev/unyin/documents/ydiDavidGordon_poverty.pdf. Retrieved 2008-02-14.
5. ^ ^{a b} Poverty in Canada: 2006 Update, Fraser Institute, November 2006, URL accessed 14 February 2008
6. ^ "Defining and Re-Defining Poverty: A CCSD Perspective", October 2001, Canadian Council On Social Development
7. ^ "Poverty Thresholds 2008". http://www.census.gov/hhes/www/poverty/threshld/thresh09.html. Retrieved 2010-04-23.
8. ^ Working out of Poverty: A study of the low paid and the working poor by Graeme Cooke and Kayte Lawton
9. ^ IPPR Article: "Government must rescue ‘forgotten million children’ in poverty"
10. ^ "POVERTY ESTIMATES FOR 2004-05". http://planningcommission.gov.in/news/prmar07.pdf. Retrieved 2009-11-19.
11. ^ "Poor poverty yardsticks", Rea S. Hederman, Jr., September 8, 2006, The Heritage Foundation
12. ^ Kenworthy, L. (1999). Do social-welfare policies reduce poverty? A cross-national assessment. Social Forces, 77(3), 1119-1139.
13. ^ Bradley, D., Huber, E., Moller, S., Nielson, F. & Stephens, J. D. (2003). Determinants of relative poverty in advanced capitalist democracies. American Sociological Review, 68(3), 22-51.
14. ^ Schwartz, J. E. (2005). Freedom reclaimed: Rediscovering the American vision. Baltimore: John Hopkins University Press.
15. ^ Zweig, Michael (2004) What's Class Got to do With It, American Society in the Twenty-first Century. ILR Press. ISBN 978-0801488993

• Shepard, Jon; Robert W. Greene (2003). Sociology and You. Ohio: Glencoe McGraw-Hill. pp. A-22. ISBN 0078285763. http://www.glencoe.com/catalog/index.php/program?c=1675&s=21309&p=4213&parent=4526.

External links

• Alan Gillie, "The Origin of the Poverty Line", Economic History Review, XLIX/4 (1996), 726
• History of the U.S. Poverty Line by Tom Gentle, Oregon State University.
• United States Department of Health and Human Services Poverty Guidelines, Research, and Measurement
• 2007 United States Department of Health and Human Services Poverty Guidelines
• Debraj Ray 1998, Development Economics, Princeton University Press, ISBN 0-691-01706-9.
• World Summit for Social Development Agreements, United Nations
• The "elimination" of poverty , Takis Fotopoulos, The International Journal of Inclusive Democracy, vol.4, no.1, (January 2008).
• Fisher, Gordon (2005-12-16). "Relative or Absolute —New Light on the Behavior of Poverty Lines Over Time". Department of Health and Human Services. http://aspe.hhs.gov/POVERTY/papers/relabs.htm. Retrieved 2008 -01-16.

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