The poverty threshold, poverty limit or poverty line is the minimum level of income deemed adequate in a particular country. In practice, like the definition of poverty, the official or common understanding of the poverty line is significantly higher in developed countries than in developing countries. In 2008, the World Bank came out with a figure (revised largely due to inflation) of $1.25 a day at 2005 purchasing-power parity (PPP). In October 2015, the World Bank updated the international poverty line to $1.90 a day. The new figure of $1.90 is based on ICP purchasing power parity (PPP) calculations and represents the international equivalent of what $1.90 could buy in the US in 2011. The new IPL replaces the $1.25 per day figure, which used 2005 data. Most scholars agree that it better reflects today's reality, particularly new price levels in developing countries. The common international poverty line has in the past been roughly $1 a day. At present the percentage of the global population living under extreme poverty is likely to fall below 10% according to the World Bank projections released in 2015.
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. The largest of these expenses is typically the rent required to live in an apartment, so historically, economists have paid particular attention to the real estate market and housing prices as a strong poverty line affector. 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 annually.
Charles Booth, a pioneering investigator of poverty in London at the turn of the 20th century, popularised the idea of a poverty line, a concept originally conceived by the London School Board. Booth set the line at 10 (50p) to 20 shillings (£1) per week, which he considered to be the minimum amount necessary for a family of four or five people to subsist on. Benjamin Seebohm Rowntree (1871–1954), a British sociological researcher, social reformer and industrialist, surveyed rich families in York, and drew a poverty line in terms of a minimum weekly sum of money "necessary to enable families … to secure the necessaries of a healthy life", which included fuel and light, rent, food, clothing, and household and personal items. Based on data from leading nutritionists of the period, he calculated the cheapest price for the minimum calorific intake and nutritional balance necessary, before people got ill or lost weight. He considered this amount to set his poverty line and concluded that 27.84% of the total population of York lived below this poverty line. This result corresponded with that from Charles Booth's study of poverty in London and so challenged the view, commonly held at the time, that abject poverty was a problem particular to London and was not widespread in the rest of Britain. Rowntree distinguished between primary poverty, those lacking in income and secondary poverty, those who had enough income, but spent it elsewhere (1901:295–96).
The term "absolute poverty" is also sometimes used as a synonym for extreme poverty. Absolute poverty is the absence of enough resources 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."
- Food: Body mass index must be above 16.
- Safe drinking water: Water must not come solely from rivers and ponds, and must be available nearby (fewer than 15 minutes' walk each way).
- Sanitation facilities: Toilets or latrines 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 soil, 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) services.
The basic needs approach is one of the major approaches to the measurement of absolute poverty in developing countries. 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. The 'basic needs' approach was introduced by the International Labour Organization's World Employment Conference in 1976. "Perhaps the high point of the WEP was the World Employment Conference of 1976, which proposed the satisfaction of basic human needs as the overiding objective of national and international development policy. The basic needs approach to development was endorsed by governments and workers' and employers' organizations from all over the world. It influenced the programmes and policies of major multilateral and bilateral development agencies, and was the precursor to the human development approach."
A traditional list of immediate "basic needs" is food (including water), shelter, and clothing. Many modern lists emphasize the minimum level of consumption of 'basic needs' of not just food, water, and shelter, but also sanitation, education, and health care. Different agencies use different lists.
In 1978, Ghai investigated the literature that criticized the basic needs approach. Critics argued that the basic needs approach lacked scientific rigour; it was consumption-oriented and antigrowth. Some considered it to be "a recipe for perpetuating economic backwardness" and for giving the impression "that poverty elimination is all too easy". Amartya Sen focused on 'capabilities' rather than consumption.
Relative poverty means low income relative to others in a country; for example, below 60% of the median income of people in that country. It is the "most useful measure for ascertaining poverty rates in wealthy developed nations". Relative poverty measure is used by the United Nations Development Program (UNDP), the United Nations Children's Fund (UNICEF), the Organisation for Economic Co-operation and Development (OECD) and Canadian poverty researchers. In the European Union, the "relative poverty measure is the most prominent and most–quoted of the EU social inclusion indicators."
"Once economic development has progressed beyond a certain minimum level, the rub of the poverty problem – from the point of view of both the poor individual and of the societies in which they live – is not so much the effects of poverty in any absolute form but the effects of the contrast, daily perceived, between the lives of the poor and the lives of those around them. For practical purposes, the problem of poverty in the industrialized nations today is a problem of relative poverty (page 9)."
However, some have argued that as relative poverty is merely a measure of inequality, using the term 'poverty' for it is misleading. For example, if everyone in a country's income doubled, it would not reduce the amount of 'relative poverty' at all.
History of the concept of relative poverty
In 1776, Adam Smith argued that poverty is the inability to afford "not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without."
In 1958, John Kenneth Galbraith argued, "People are poverty stricken when their income, even if adequate for survival, falls markedly behind that of their community."
In 1964, in a joint committee economic President's report in the United States, Republicans endorsed the concept of relative poverty: "No objective definition of poverty exists. ... The definition varies from place to place and time to time. In America as our standard of living rises, so does our idea of what is substandard."
In 1965, Rose Friedman argued for the use of relative poverty claiming that the definition of poverty changes with general living standards. Those labelled as poor in 1995, would have had "a higher standard of living than many labelled not poor" in 1965.
In 1979, British sociologist, Peter Townsend published his famous definition: "individuals... can be said to be in poverty when they lack the resources to obtain the types of diet, participate in the activities and have the living conditions and amenities which are customary, or are at least widely encouraged or approved, in the societies to which they belong (page 31)."
Brian Nolan and Christopher T. Whelan of the Economic and Social Research Institute (ESRI) in Ireland explained that "poverty has to be seen in terms of the standard of living of the society in question."
Relative poverty measures are used as official poverty rates by the European Union, UNICEF and the OEDC. The main poverty line used in the OECD and the European Union is based on "economic distance", a level of income set at 60% of the median household income.
Relative poverty compared with other standards
A measure of relative poverty defines "poverty" as being below some relative poverty threshold. For example, the statement that "those individuals who are employed and whose household equivalised disposable income is below 60% of national median equivalised income are poor" uses a relative measure to define 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, food, clothing, housing, and basic health care), but still significantly lower than that of the majority of the population under consideration.
National poverty lines
National estimates are based on population-weighted subgroup estimates from household surveys. Definitions of the poverty line do vary considerably among nations. For example, rich nations generally employ more generous standards of poverty than poor nations. Even among rich nations, the standards differ greatly. Thus, the numbers are not comparable among countries. Even when nations do use the same method, some issues may remain.
In United States, the poverty thresholds are updated every year by Census Bureau. The threshold in United States are updated and used for statistical purposes. In 2015, in the United States, the poverty threshold for a single person under 65 was an annual income of US$11,770; the threshold for a family group of four, including two children, was US$24,250. According to the U.S. Census Bureau data released on 13 September 2011, the nation's poverty rate rose to 15.1 percent in 2010.
In the UK, "more than five million people – over a fifth (23 percent) of all employees – were paid less than £6.67 an hour in April 2006. This value is based on a low pay rate of 60 percent 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".
India's official poverty level, on the other hand, is split according to rural versus urban thresholds. For urban dwellers, the poverty line is defined as living on less than 538.60 rupees (approximately US$12) per month, whereas for rural dwellers, it is defined as living on less than 356.35 rupees per month (approximately US$7.50).
Using a poverty threshold is problematic because having an income slightly above or below is not substantially different; 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, a poverty index or indices can be 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.
Using a single monetary poverty threshold is problematic when applied worldwide, due to the difficulty of comparing prices between countries. Prices of the same goods vary dramatically from country to country; while this is typically corrected for by using purchasing power parity (PPP) exchange rates, the basket of goods used to determine such rates is usually unrepresentative of the poor, most of whose expenditure is on basic foodstuffs rather than the relatively luxurious items (washing machines, air travel, healthcare) often included in PPP baskets. The economist Robert C. Allen has attempted to solve this by using standardized baskets of goods typical of those bought by the poor across countries and historical time, for example including a fixed calorific quantity of the cheapest local grain (such as corn, rice, or oats).
In addition to wage and salary income, investment income and government transfers such as SNAP (Supplemental Nutrition Assistance Program, also known as food stamps) and housing subsidies are included in a household's income. Studies measuring the differences between income before and after taxes and government transfers, have found that without social support programs, poverty would be roughly 30% to 40% higher than the official poverty line indicates.
Further, the U.S. Census Bureau calculates the poverty line the same throughout the U.S. regardless of the cost-of-living in a state or urban area. For instance, the cost-of-living in California, the most populous state, was 42% greater than the U.S. average in 2010, while the cost-of-living in Texas, the second-most populous state, was 10% less than the U.S. average. In 2017, California had the highest poverty rate in the country when housing costs are factored in, a measure calculated by the Census Bureau known as "the supplemental poverty measure".
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