Generally, the term poverty is used as if its definition is clear, but this is not so.
Definition of Poverty
Poverty is “The state or conditions of having little or no money, goods, or means of supporting oneself; the condition of being in want of something that is needed.”
Absolute Poverty
- Definition: Absolute poverty refers to a condition where individuals or households lack the basic necessities for survival, such as food, clean water, shelter, healthcare, and education. The poverty line in absolute terms is typically set at a specific income level (e.g., $1.90 per day, as defined by the World Bank) that is considered the minimum needed to meet these basic needs.
- Characteristics:
- This is a static standard that is not changed based on a country’s economic conditions.
- It is frequently used in developing countries where many people lack essential things.
- The focus is on survival and meeting basic needs.
- Absolute poverty is often a long-term condition.
Relative Poverty
- Definition: Relative poverty is defined in relation to the economic status of other people in society. It suggests that individuals or households are poor if their income is significantly lower than the average income in their society. It reflects inequalities in income distribution.
- Characteristics:
- It varies from country to country and is often set at a certain percentage (e.g., 50%) of the median income in a society.
- It emphasizes social inclusion and equality of access to opportunities.
- It is more relevant in developed countries where the focus is on maintaining a standard of living relative to others.
Measures of Poverty
Headcount Ratio (HCR)
- Definition: The headcount poverty ratio or index measures the proportion of a population that lives below the poverty line. It is calculated by dividing the number of people living below the poverty line by the total population and then multiplying by 100 to get a percentage.
- Formula:
HCR = (Number of people below poverty line / Total population) * 100 - Limitations:
- It does not account for the depth or severity of poverty.
- It treats all individuals below the poverty line equally, regardless of how far below the line they are.
Poverty Gap Ratio (PGR)
- Definition: The Poverty Gap Ratio measures the intensity of poverty by calculating the average shortfall of the poor relative to the poverty line, expressed as a percentage of the poverty line. It indicates how far, on average, the poor are from the poverty line.
- Formula:
PGR = (1/N) * Σ(z - yi / z)Where:- N is the total population
- q is the number of people below the poverty line
- z is the poverty line
- yi is the income of the i-th poor person
- Interpretation:
- A higher PGR indicates that the poor are, on average, further below the poverty line.
- It provides insight into the depth of poverty, not just the incidence.
These measures help policymakers and governments understand the scope, scale, and severity of poverty, allowing them to tailor interventions accordingly.
