Poverty Line

Within the contemporary era, many social scientists have come across the term 'poverty'. It is a delicate topic and surely an important one. Did you know that in some places, people are paid approximately 23$ per month as the minimum wage? Even in some countries, up to 44.5% of the population is living in extreme poverty1, 2. This is not just problematic from a nutrition perspective, but also there exists a correlation between poverty and crime, poorly functioning institutions, lower life expectancy, diseases, and the amount of education a citizen can get3 . Poverty is an ongoing problem for our civilization and it is affecting the very core of human beings’ existence, their satisfaction with life, and even their emotions. To understand this subject, as individuals linked to social sciences, we should unveil the metrics and support our views with measurements to build policy suggestions. In this article, we are covering one of the fundamental measurements used to understand poverty - the poverty line.

Poverty Line Poverty Line

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Table of contents

    The Poverty Line The Poverty Line StudySmarterFig. 1 - The poverty line4

    Poverty Line Definition

    The definition of the poverty line is the cost of the minimum amount of requirements for an adult to live in a specific country. Sometimes poverty line is called the poverty threshold.

    The poverty line or the poverty threshold is an abstract value that measures the minimum cost of necessities for an average adult to live in a country.

    Before the 2000s, the poverty line was settled at around a dollar per day. Nonetheless, due to inflation, the World Bank decided to calculate the poverty line as $1.90 per day in 2015, and currently, it is $2.15 per day. There are currently 648 million people that live below this threshold.6 This composition contains approximately 18 million individuals from developed countries contained in Europe, East Asia, and North America. The Sub-Saharan countries contain 389 million individuals under this threshold and they have the largest ratio of total individuals living under the poverty line5 .

    When we are trying to understand the poverty line, numbers can be shocking. Nonetheless, they may help us to realize and understand the world we are living in. In the following section, we are going to focus on the poverty line from an empirical perspective and try to create a landscape of the topic throughout the years.

    Poverty Line Examples

    We can elaborate on our understanding of the poverty line with examples. According to World Bank data, 648 million people are living under the poverty line in 20196 . We can see the proportions over the world within the following graph.

    The Poverty Line Population living under the poverty line StudySmarterFig. 2 - Population living under the poverty line. Source: The World Bank6

    As we can see, developing regions significantly suffer from poverty. This is rather a both-way relationship meaning that increased poverty will affect development, and lower development will cause increased poverty. In the economics literature, this is generally referred to as the poverty trap.

    The poverty trap is a vicious cycle that causes countries to suffer from continuous poverty.

    Countries in the poverty trap fail to satisfy basic human needs. Since citizens can’t contribute to society due to their situation, the social institutions and infrastructure of the country suffer. As a result of the failed infrastructure and institutions, people can’t satisfy their basic needs.

    Read our article on the Poverty Trap to learn more!

    Although it is believed that the poverty line is a crucial factor for our understanding of the world, its definition still stands on slippery ground.

    • If we analyze the definition we can add more questions to it like the following.
      • 'What are the necessities for a human being to survive?'
      • 'Is surviving the same thing as living?'
      • 'How can one measure the needs of an average adult individual?'

    These are all valid points, and even if the answers are not precise, they may lead us to at least some relative perspectives.

    Poverty Line Calculation

    Poverty lines can be calculated with different methods. In this section, we will cover the calculation of the most commonly used poverty lines. Nonetheless, it is beneficial to remember that poverty can be a tricky concept, and its calculation will require many perspectives. Instead of focusing on one methodology, we should consider different perspectives while developing policies to overcome poverty.

    Poverty Line Calculation: Subjective Poverty Lines

    While calculating subjective poverty lines, individuals’ judgments over poverty are taken into consideration. For creating subjective poverty lines, poverty is researched with surveys that include questions about their feeling of life fulfillment. Supporters of this approach assume that, at the end of the day, poverty is a subjective topic, and if individuals feel that they are not fulfilled with the standards of their life, they may be considered poor.

    Subjective poverty lines focus on self-assessments and judgments of individuals about what is socially acceptable and what are the minimum requirements for a fulfilling life.

    Subjective poverty lines can be calculated with survey questions like the following:

    “How much income can be considered socially acceptable?”“Can you say that your life quality and satisfaction of your needs is below the average of the society’s?”

    On the other hand, this approach may lead to only relative results and a wrong interpretation of the real poverty. Therefore, many international organizations and governments use objective measurement tools.

    Poverty Line Calculation: Objective Poverty Lines

    Instead of subjective measurement, objective measurement uses quantifiable metrics to analyze poverty such as income and consumption.

    Objective poverty lines use quantifiable metrics such as income, consumption, or nutrition to create a scale and point out the minimal needs.

    Organizations or institutions measure the objective poverty line with two approaches. The most well-known approach used by the World Bank is the absolute poverty line. Nonetheless, some organizations like the OECD prefer to use relative poverty lines.

    Absolute Poverty Lines

    Absolute poverty lines depend on fixed values, such as the minimum amount of nutrition or the cost of basic needs.

    Absolute poverty lines use necessities like food to stay alive, and set their thresholds according to these necessities. Currently this value is $2.15 in less developed countries.6

    For measuring this, a threshold value is selected with respect to different approaches.For example, some absolute poverty lines set their threshold value with respect to direct calorie intake.

    • Commonly used absolute poverty lines can be measured with different methodologies like:
      1. Direct Calorie Intake (DCI);

      2. Food Energy Intake (FEI);

      3. Food-Share;

      4. Cost of Basic Needs (CBN).

    All of the absolute poverty line measures depend on food. They are pretty similar in their approaches and they justify their thresholds with respect to the minimum amount of food required to survive.

    For example, CBN creates a food basket that is necessary to survive for an adult human being in a specific country and estimates its cost. Thus, the CBN approach sticks with the rest of the group while calculating the necessity as the required amount of food intake.

    Many times this approach is criticized due to its lack of interest outside of basic human needs. We can ask ourselves what is necessary to stay alive and what is necessary for a life worth living. Most citizens in developed countries may assume that the internet or a car is a necessity to live, albeit the fact that in some countries, even clean water is a luxury.

    Therefore, some institutions prefer to measure objective poverty with relative poverty lines specific to a region or a country.

    Relative Poverty Lines

    Relative poverty lines use the median income to compare different individuals in the same economy to decide on a threshold.

    Relative poverty lines set their threshold according to the incomes of individuals in a specific country and how an individual’s income differs from the rest of the society.

    Thus, this approach decides if an individual is poor by comparing it to different individuals in the same society. This approach can be seen as similar to the absolute poverty line while considering inequality in a society. Relative poverty lines are a strong tool for measuring individual poverty of people with lower income than the society they are living in.

    Indeed, an individual in a European country can earn a higher income than an individual in the Sub-Saharan region. Nonetheless, this individual may be excluded from options or opportunities due to the individual’s relatively low income in the economy in which he or she is living.

    Poverty Line Implications

    Implications of the poverty line are as important as the poverty line itself for policy suggestions. Until now, we have focused on what the poverty line is and how to measure poverty lines. Nonetheless, as individuals linked to social sciences, we should consider the meaning of the term. This is rather different from asking what is it. What conclusions can be drawn from poverty lines?

    Since we know the general aspects of poverty lines, we can say that they are vital for understanding the current poverty problems. Nonetheless, we also know how they are calculated and even within different methods, there exist some internal debates.

    In addition to that, there exist many criticisms of poverty line calculations outside of the traditional methodologies. Especially the data collection process can lead to the wrong conclusions.

    For example, only 33% of the World Bank data comes from real surveys.7

    Data collection problems may lead to false projections and misunderstandings.

    Another important aspect is the philosophical dimension of the whole process. As we have mentioned before, some questions, especially questions with subjective answers, are hard to justify with objective measurements. One of the prominent arguments against the absolute poverty line is its calculation of the threshold value. Why are we taking the minimum amount of nutrition as the deciding value for the poverty line threshold? What about necessities like education?

    On the other hand, we should keep in mind that poverty also is a crucial concept. Poverty lines can be a guiding factor for future and current policies. Not just for international agendas, but also in domestic policies, poverty lines are used for resource allocation.

    As many as 648 million people live under the poverty line.6 This means that they can’t satisfy their basic needs, and they suffer from malnutrition. In such societies, both political and economical institutions fail. This leads to increased crime rates, lack of economic growth, and, most of the time, more autocratic regimes. Since these factors cause poverty, a poverty trap manifests itself as a vicious cycle.

    No matter how we calculate the poverty line, poverty itself is a real problem and surely hard to describe with the statistical tools at hand. While driving conclusions, we should carefully consider perspectives on poverty, and even using different methodologies may be useful for more suitable policy suggestions.

    Poverty Line: Government Assistance

    Government assistance is a crucial concept for increasing the poverty line threshold. We are inseparable from the society that we are living in. Our lives are linked to a complex social network. Therefore, overcoming poverty is not just vital for improving the quality of life of others, but also ours. Both national and international results of poverty affect the world we are living in as individuals. Therefore, every step toward the solution will lead us to a better society, a better nation, and a better world. As we all know, international organizations are making an effort to overcome poverty, but what can our governments do?

    Government policies are crucial for stabilizing society. Especially in developed countries, government policies can cause a better distribution of wealth. Increased taxes, taken from the more wealthy layers of society, can lead to a more equal wealth distribution if it is made by strong institutions and a working inspection mechanism.

    In the United States, government programs made a significant impact, especially between the 1970s and the late 2010s.8 The child poverty of minorities fell by a significant amount, which led to a more equal society. The main role of the governments in this crisis is to create equal opportunities for the poor and minorities. This mission requires a strong statistical understanding and continuous communication between governments and the public.

    Government policies are vital for solving contemporary problems.

    If you want to learn about their impact, feel free to check the Poverty and Government Policy section!

    The Poverty Line - Key takeaways

    • The poverty line or the poverty threshold is an abstract value that measures the minimum cost of necessities for an average adult to live in a country.
    • The poverty line can be measured with different methods. These methods can be grouped under subjective and objective measurements.
    • Subjective measurements focus on people’s ideas and feelings about their position in society.Subjective poverty line measurements are made by surveys.
    • Objective measurements can be grouped under two approaches, one is absolute or fixed poverty line measurements and the others are relative poverty line measurements.
    • Absolute poverty lines contain a fixed threshold, generally focusing on the necessary food intake for an adult human being.Relative poverty lines, in addition to absolute poverty lines, focus on inequalities in society too.

    References

    1. https://www.ceicdata.com/en/kyrgyzstan/official-minimum-wages/national-minimum-wage
    2. https://www.concern.net/news/worlds-ten-poorest-countries
    3. https://www.elibrary.imf.org/view/journals/001/2021/068/article-A001-en.xml
    4. Poverty: 'Damaged Child,' Oklahoma City, OK, USA, 1936. (Colorized) (https://www.flickr.com/photos/kellyshort6/7718281594) by Kelly Short6 (https://www.flickr.com/photos/kellyshort6/) is marked with Public Domain Mark 1.0.
    5. https://www.worldbank.org/en/news/factsheet/2022/05/02/fact-sheet-an-adjustment-to-global-poverty-lines
    6. https://pip.worldbank.org/home
    7. https://www.wider.unu.edu/publication/above-or-below-poverty-line
    8. https://www.cbpp.org/research/poverty-and-inequality/economic-security-programs-reduce-overall-poverty-racial-and-ethnic
    Frequently Asked Questions about Poverty Line

    What is poverty line in economics?

    The poverty line or the poverty threshold is an abstract value that measures the minimum cost of necessities for an average adult to live in a country.

    How the poverty line is calculated?

    Poverty lines can be calculated in many different ways. For example, subjective poverty lines are calculated with surveys. On the other hand, objective poverty lines are calculated with quantifiable metrics. Commonly used absolute poverty line measurements focus on the calorie and food intake of individuals, and they calculate a minimum value accordingly.

    How does the government determine the poverty line?

    Generally, governments do not determine the poverty lines. Global poverty lines are calculated by international organizations such as OECD and World Bank. Governments can create policy implications to solve these problems. But if a government decides to measure an absolute poverty line, it can calculate the necessary food intake or develop an index that measures the cost of basic needs.

    What is the significance of poverty line?

    Poverty lines can be a useful guide to measure the global scale of poverty. Institutions and organizations can create trajectories and measure the effects of their policies throughout the years.


    Who comes under poverty line?

    This varies with regard to how the poverty line is measured. We can generalize and say that individuals who are not able to intake the necessary calories to survive come under the poverty line.

    Test your knowledge with multiple choice flashcards

    True/False: Absolute poverty lines change with respect to the rate of development in a country.

    True/False: Relative poverty lines can only be calculated for less developed countries.

    Which one of the following is not an absolute poverty line measurement methodology?

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