Measuring poverty

Benefits:

1. Easy to measure (normally less incomes than expenditure)
2. Measures degree control over finance of household
3. Cheaper collecting of data

.. Help in the allocation of resources by the government

Disadvantages:

1. Probably income will be underreported
2. May be affected by short-term fluctuations (for example, the seasonal works), so reporting period might not catch right information
3. Some parts of income are hard to survey (self-home production or self-employment income)
4. Link between income and welfare can be confusing[11]

Benefits:

1. Report actual material standard of living.
2. For long term measuring is better and more precisely
3. Less understated so expenditures are easier to recall

Disadvantages:

1. Consumption of household could be unevenly (for example borrowing money)
2. Consumption choices couldn't be rational. People who spend less, could save or live humbly
3. Data could be damaged, because of untruly information
4. Difficult to measure durable goods in some period of research.[11]

Some economists, such as Guy Pfeffermann, say that other non-monetary indicators of "absolute poverty" are also improving. Life expectancy has greatly increased in the developing world since World War II and is starting to close the gap to the developed world where the improvement has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy increased from 30 years before World War II to a peak of about 50 years — before the HIV pandemic and other diseases started to force it down to the current level of 47 years. Child mortality has decreased in every developing region of the world.[12] The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the 1990s. Between 1950 and 1999, global literacy increased from 52% to 81% of the world. Women made up much of the gap: Female literacy as a percentage of male literacy has increased from 59% in 1970 to 80% in 2000. The percentage of children not in the labor force has also risen to over 90% in 2000 from 76% in 1960. There are similar trends for electric power, cars, radios, and telephones per capita, as well as the proportion of the population with access to clean water.[13]

Headcount index (Po) is a widely-used measure, which simply indicates the proportion of the poor population. Although it does not indicate how poor the poor are.

Formula: ${\displaystyle Po={\frac {Np}{N}}}$, where Np is the number of poor and N is the total population.

Example: If 10 people are poor in a survey that samples 1000 people, then Po = 10/1000 = 0.01 = 1%

Its often helpful to rewrite:

${\displaystyle Po={\frac {1}{N}}\sum _{i=1}^{N}I(yi<z)}$ , Here, I(·) is an indicator function that takes on a value of 1 if the bracketed expression is true, and 0 otherwise. So if expenditure (yi) is less than the poverty line (z), then I(·) equals 1 and the household would be counted as poor.

This index is easy to understand, but has few disadvantages. It does not show the poverty rate. In addition, the headcount index does not show how poor the poor are. Moreover, this estimate is made on households and not on individuals.[16]

The Poverty gap index is the mean distance below the poverty line as a proportion of the poverty line where the mean is taken over the whole population, counting the non-poor as having zero poverty gap.

Using the index function, we have: ${\displaystyle Gi=(yi-z)\times I(yi<z)}$, where define the poverty gap (Gi) as the poverty line (z) less actual income (yi) for poor individuals; the gap is considered to be zero for everyone else.

Could be rewrite: ${\displaystyle P1={\frac {1}{N}}\sum _{k=1}^{N}{\frac {Gi}{z}}}$

The poverty gap index denotes the extent to which individuals fall below the poverty line (poverty gap) as a proportion of the poverty line. By summing these poverty gaps we derive the minimum cost of eliminating poverty.[17]

This method is only reasonable if the transfers could be made perfectly efficiently, which is unlikely.[16]

The squared poverty gap index is conducted by averaging the squares of the poverty gaps relative to the poverty line. This measure emphasizes extreme poverty and gives it a greater weight than less poverty. One of its benefits is the possibility of variation in the weight of income level of the poorest part of society. The Poverty severity index can also be disaggregated for population subgroups.[17]

The Sen index connects the number of poor with the size of their poverty and the distribution of poverty in the sample.[16]

${\displaystyle Ps-Po(1-(1-G^{p}){\frac {U^{P}}{4}}}$

The Sen-Shorrocks-Thon index (sometimes referred to as SST index) is an improved version of the Sen index.[16]

${\displaystyle Psst=PoP_{1}^{p}(1+G^{p})}$

The Sen-Shorrocks-Thon index takes into perspective measures of the proportion of poor people, the extent of their poverty and the distribution of welfare among the poor. This index enables us to decompose poverty into three components and answer these questions: Are there more poor? Is their depth of poverty worsening? Is there higher inequality among the poor?[17]

Other point of view defines poverty and in terms of assets. These asset-based measures may consider the real financial asset holdings, access to the credit market and poverty related to a household’s wealth. An example of those may be income net worth measures, asset-poverty and financial vulnerability.

Being asset poor does not imply being income poor and vice versa. For example, the importance of being asset wealthy is lower in countries with secure employment as it ensures stable living standards, while in other countries it may be needed as a cushion against uncertainties and shocks. [18]

Real-time information on poverty and people’s well-being has not been yet well developed. There has already been and incentive to conduct a few pilot projects with the help of mobile phones by the World Bank in South Soudan,[19] Peru or Tanzania.[20]

The Multidimensional Poverty Index (MPI) in Mexico is a comprehensive approach to assessing poverty that considers a variety of indicators beyond just income. Mexico was the first country to introduce an official multidimensional poverty measure, an index which, in addition to considering the lack of economic resources, includes other dimensions that social policy must address. The National Council developed the MPI in Mexico for the Evaluation of Social Development Policy (CONEVAL), which is the agency responsible for evaluating poverty and social policy in Mexico.[23]

The MPI in Mexico measures poverty on eight poverty indicators: income, education lag, access to healthcare services, access to social security, access to food, housing quality, and space, access to basic housing requirements, and degree of social cohesion. The measurement considers income and six dimensions in a social rights approach. It is complemented by the inclusion of social cohesion, recognising the importance of contextual and relational factors, which may be analysed in terms of their impact on society and vice-versa.[23]

The MPI considers various factors contributing to poverty and deprivation, offering a more complex understanding of poverty than traditional income-based measurements. The Mexican government uses it to track progress in eradicating poverty over time and target social services and policies to those most in need. Every two years, the national and state governments in Mexico measure poverty. Municipalities measure poverty every five years.

Mexico's MPI has been a helpful instrument for assessing poverty and promoting social progress. Nonetheless, it has its drawbacks and critics, just like any method of measuring poverty. Several opponents contend that the MPI understates the severity of the poverty and marginalisation of particularly marginalised groups, such as indigenous peoples and residents of rural areas. Nonetheless, the Multidimensional Poverty Measure in Mexico is a valuable model for other countries trying to develop comprehensive and multidimensional perspectives to measuring poverty.

Community-based Drinking Water Supply and Sanitation Program or Penyediaan Air Minum dan Sanitasi Berbasis Masyarakat (PAMSIMAS) approach in Indonesia is an excellent example of measuring poverty since it acknowledges how poor sanitation impacts general health conditions and their social and economic aspects. [24] The PAMSIMAS approach motivates individuals to participate in community development by integrating themselves into identifying and fixing their sanitation problems. As a result, the PAMSIMAS approach offers a comprehensive approach to reducing poverty, considering income and assets and the more extensive social and environmental variables contributing to measuring poverty.

This approach is founded on the idea that local communities are more suited to identify and handle their sanitation requirements than traditional top-down approaches to development. This method involves working with communities to identify practices that lead to poor sanitation, such as open defecation, and promote awareness of the necessity of sanitation. In addition to technical assistance to strengthen the community's role through capacity building, planning, procurement, and management, including community monitoring with a web-based and mobile monitoring system, the project offers grants directly to communities for local water and sanitation infrastructure. Facilitators and districts are also given access to training and consulting services to help them develop better sanitation and hygiene habits. Then, the facilitators assist communities in creating options for further development.[25]

The PAMSIMAS approach in Indonesia has successfully reduced open defecation and improved access to sanitation facilities in rural areas. According to the World Bank,[24] the percentage of communities targeted for available defecation-free status increased significantly from 0% to 58%, and roughly 81% of those schools improved their sanitation and hygiene initiatives. For instance, the institutional sustainability of the PAMSIMAS approach also became more assertive, with 97% of districts replicating it outside of the project's target neighborhoods and 86% of communities increasing their spending on ensuring everyone has access to clean water and sanitation.

In 2005, India launched a national-anti poverty program, Mahatma Gandhi National Rural Employment Guarantee Act (NREGA). It is a flagship program of the Indian government to provide employment opportunities to rural households in the country. The scheme was launched in 2005, and it guarantees 100 days of wage employment to every rural household that demands work.[26]

The NREGA is a demand-driven program, meaning that households must apply for work under the scheme. The government is then obligated to employ within 15 days of the application. The scheme offers a minimum wage for workers, set by the central government, and varies from state to state.

The NREGA is intended to give rural households work opportunities during the slow agricultural season when those opportunities are few. The program attempts to decrease poverty and raise rural income by hiring rural households. The program also intends to encourage sustainable development in rural areas by creating job opportunities in forestry, water conservation, and infrastructure building.

Nonetheless, the NREGA has been widely recognised as an effective tool for poverty reduction and rural development in India. In 2020, the scheme was extended to cover 116 districts affected by the COVID-19 pandemic, providing much-needed employment opportunities to vulnerable households in rural areas.[27]

In conclusion, the NREGA is a significant social welfare program in India that provides employment opportunities to rural households, promotes social inclusion and contributes to rural development. While the scheme has challenges, its positive impact on poverty reduction and rural development must be considered.