Day 6: 7 November 2011 T Topic: Discussion of the CPI/HIES in - - PowerPoint PPT Presentation

Day 6: 7 November 2011 T i Di i f th CPI/HIES i T&T i th t t f Topic: Discussion of the CPI/HIES in T&T in the context of international guidelines and recommendations Presenter: Ms. Sharlene Jaggernauth, Statistician II, CSO

Concept of poverty Concept of poverty

European Union (Council Decision, December, 1984) European Union (Council Decision, December, 1984) December, 1984) “The poor shall be taken to mean persons, families and groups whose resources December, 1984) “The poor shall be taken to mean persons, families and groups whose resources families and groups whose resources (material, cultural and social) are so limited as to exclude them from the families and groups whose resources (material, cultural and social) are so limited as to exclude them from the limited as to exclude them from the minimum acceptable way of life in the member state in which they live ” limited as to exclude them from the minimum acceptable way of life in the member state in which they live ” member state in which they live. member state in which they live.

In measurement of poverty, basic assumption is

that there is exactly defined level of the living standard assigned as "poverty line", that should be reached if we don't want some persons to be be reached if we don t want some persons to be regarded as poor

Absolute poverty line Relative poverty line Subjective poverty line

Rowentree: considered a family to be living in poverty, if its earnings were insufficient to buy the minimum necessaries for the maintenance of physical efficiency (basic needs approach) physical efficiency (basic needs approach)

• Absolute poverty line is based on defining

absolute standard of existence for minimal expenditures.

• the determination of minimum necessaries or essential

d needs

• the quantitative assessment of these needs
• No generally accepted standard for essentials of living,

except food.

The proportion of income (or expenditures)

spent on food decreases when income p increases.

Establishes a relationship between

consumption of food and total income

Cost of food multiplied by the inverse of the

E l ffi i t i t li average Engel coefficient gives a poverty line in terms of income

Household A B C D E F G mean Household income 21000 15000 30000 27500 18000 35000 25000 24500 Household composition 2A+1C 2A 3A 1A 1A+2C 2A+3C 2A+2C Food expenditure 7000 6000 8000 4500 5000 9000 8000 6786 Engel coefficient 0.33 0.40 0.27 0.16 0.28 0.26 0.32 0.28 Minimum food outlays =5500 Average Engel coefficient=0.28 Inverse Engel Coefficient=1/0.28=3.57 Poverty line 3.57 * 5500 = 19643 Poor households: B, E

A certain food-income ratio is taken to be

poverty threshold

Expenditure patterns determine the poverty line,

and not a certain prescribed diet

Mean Engel coefficient - poverty threshold - 0.28 Poor households: Household A

Engel coefficient of 0 33

Household A

Engel coefficient of 0.33

Household B

Engel coefficient of 0.40

Household G

Engel coefficient of 0.32 g

Relative poverty line is based on establishing of

relative standard for existence defined as indispensable level of income (expenditures).

• Depends on the income distribution in the

society D d t t t d th hi t i l

• Depends to a great extend on the historical

development

Example 3 A ith ti

Arithmetic mean =

(21000+15000+30000+27500+18000+35000+25000)/7=24500 G t i

Geometric mean =

(21000*15000*30000*27500*18000*35000*25000) =23913

Median=25000

(15000,18000,21000,25000, 27500, 30000, 35000) Choice of cut-off point

Arbitrary (50% of mean, 80% of mean, 50% of median) Dual poverty lines (lower and upper poverty line)

Subjective poverty line is based on defining

subjective standard for existence which is f indispensable for avoiding the poverty according to the opinion of the population.

head count ratio income gap ratio poverty gap ratio poverty severity index

indicator of the incidence of poverty

ti f th l ti li i b l th t li

• proportion of the population living below the poverty line

(households or individuals , depending on the measurement unit chosen)

H q n =

• insensitive to differences between households or individuals in

the depth or severity of their poverty.

b f / b f / h h ld b l th t li q-number of poor / number of persons / households below the poverty line n- Total number of persons / households

– poverty gap per poor person in relation to the poverty

line

• measures the difference between the poverty line and

the mean income of the poor expressed as a ratio of the the mean income of the poor, expressed as a ratio of the poverty line (mean proportionate income shortfall per poor household)

− − y z q 1 − = z y z I ∑ = = − q i i y q y 1 * 1

• mean proportionate income shortfall for the total

population

∑ ⎟ ⎞ ⎜ ⎛ − ⋅ = q y z P 1

i

insensitive to the severity of poverty

∑ = ⎟ ⎠ ⎜ ⎝ i z n P 1

• insensitive to the severity of poverty

– minimum amount of income transfer that is necessary to alleviate poverty

q ) 1 (

∑

= − = q i i y z g 1 i

– attaches greater weight to the income gap of poorer households FGT (Foster-Greer-Thorbecke index) 2

⎞ ⎛

2

1 1 2

i

∑ = ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ − ⋅ = q i z y z n P 1 = ⎠ ⎝ i

Censuses Institutional evidence Household surveys

Most comprehensive data source on:

• demographic and socio-economic characteristics
• f the households
• income and expenditures

• the sample is rather small
• undercoverage of some population groups
• a high likelihood of measurement errors

because of the nature of the information collected collected

• lacks information on some variables - the

utilisation of public services such as utilisation of public services such as education and health facilities

For operationalisation of the poverty concept it is necessary to decide how living standard will be measured.

Income expenditures

OECD LIS OECD mod.

first adult

1.0 1.0 1.0

second adult

0.7 0.66 0.5

child

0.5 0.33 0.3

a) no information on household size

Household A B C D E F G Mean H-h income 21000 15000 30000 27500 18000 35000 25000 24500 Ranking order 5 7 2 3 6 1 4 Ranking order 5 7 2 3 6 1 4

• Household F - the richest
• Household B - the poorest
• Household B - the poorest

H-hd A B C D E F G Mean H-hd income 21000 15000 30000 27500 18000 35000 25000 2450 H composition 2A+1C 2A 3A 1A 1A+2C 2A+3C 2A+2C

• Equiv. income

7000 7500 10000 27500 6000 7000 6250 Ranking order 4 3 2 1 7 4 6

Household F - no longer the richest Household F no longer the richest Household B - no longer the poorest

OECD Equivalence scale (1.0; 0.7; 0.5)

H hd A B C D E F G M H-hd A B C D E F G Mean H income 21000 15000 30000 27500 18000 35000 25000 24500 H-hd comp. 2A+1C 2A 3A 1A 1A+2C 2A+3C 2A+2C H-hd equiv. 2.2 1.7 2.4 1 2 3.2 2.7 Equiv income 9545 8824 12500 27500 9000 10938 9259 12509 Equiv.income 9545 8824 12500 27500 9000 10938 9259 12509

• Rank. order

4 7 2 1 6 3 5

Household D - the richest Household F - third Household B - the poorest

Modified OECD equivalence scale (1.0; 0.5; 0.3)

Household A B C D E F G Mean H-hd income 21000 15000 30000 27500 18000 35000 25000 24500 H-hd comp. 2A+1C 2A 3A 1A 1A+2C 2A+3C 2A+2C H-hd equiv. 1.8 1.5 2 1 1.6 2.4 2.1 Equiv Inc 11667 10000 15000 27500 11250 14583 11905 14558

• Equiv. Inc.

11667 10000 15000 27500 11250 14583 11905 14558 Ranking order 5 7 2 1 6 3 4

Households A and F change places D g p Household F - third Household B - the poorest