Poverty - Types and Indicators

Poverty can be of different types like absolute poverty and relative poverty. There may be many other classifications like urban poverty, rural poverty, primary poverty, secondary poverty and many more. Whatever be the type of poverty, the basic reason has always been lack of adequate income. Here comes the role of unemployment behind poverty.

Lack of employment opportunities and the consequential income disparity bring about mass poverty in most of the developing and underdeveloped economies of the world.

Absolute Poverty

Poverty is usually measured as either absolute or relative poverty (the later being actually an index of income inequality). Absolute poverty refers to a set standard which is consistent over time and between countries.

The World Bank defines extreme poverty as living on less than US $1.25 (PPP) per day, and moderate poverty as less than $ 2 a day (but note that a person or family with access to subsistence resources, e.g. subsistence farmers, may have low cash income without a correspondingly low standard of living - they are not living on their cash income but using it as a top up). It estimates that in 2001, 1.1 billion people had consumption level below 1$ a day and 2.7$ billion lived on less than $2 a day.

Relative Poverty

Relative poverty views poverty as socially defined and dependent on social context, hence relative poverty is a measure of income inequality. Usually, relative poverty is measured as the percentage of population with income less than some fixed proportion of median income. There are several other income inequality metrics, for example for Gini coefficient or the Theil Index.

Relative poverty measures are used as official poverty rates in several developed countries. As such these poverty statistics  measure inequality rather than material deprivation or hardship. The measurements are usually based on a person's yearly income and frequently take no account of total wealth. The main poverty line used in the OECD and the European Union is based on 'economic distance' a level of income is set at 60% of the medial household income. 

Multidimensional Poverty Index

The multidimensional Poverty Index (MPI) was developed in 2010 ny Oxford Poverty and Human Development Initiative and the United Nations Development Program. The MPI is an index of acute multidimensional povety. It reflects deprivations in very rudimentary services and core human functioning for people across 104 countries. Although deeply constrained by data limitations, MPI reveals a different pattern of poverty than income poverty, as it illuminates a different set of deprivations.

The MPI has three dimensions - health, education, and standard of living. These are measured using ten indicators. Each dimension and each indicator within a dimension is equally weighted.

These 10 indicators are used to calculate the MPI:

Education (each indicator is weighted equally at 1/6)

• Years of Schooling - Deprived if no household member has completed five years of schooling.
• Child Enrollment - Deprived if any school aged child is not attending school in years 1 to 8.

Health (each indicator is weighted equally at 1/6)

• Child Mortality - Deprived if any child has died in the family
• Nutrition - Deprived if any adult or child for whom there is nutritional information is malnourished.

Standard of Living (each indicator is weighted equally at 1/18)

• Electricity - Deprived if the household has no electricity.
• Sanitation - Deprived if they do not have an improved toilet or if their toiled is shared (MDG Definition).
• Drinking Water - Deprived if the household does not have access to clean drinking water or clean water is more than 30 minutes walk from home (MDG Definition).
• Floor - Deprived if the household has dirt, sand or dung floor.
• Cooking Fuel - Deprived if they cook with wood, charcoal or dung.
• Assets - Deprived if the household does not own more than one of radio, TV, telephone, bike or motorbike.

A person is considered poor if they are deprived in at least 30% of the weighted indicators. The intensity of poverty denoted the proportion of indicators in which they are deprived.