Nathan, Hippu Salk Kristle (2014). 'Measuring poverty – Do we need to cut the cake in two haves?' Paper presented at the annual conference of the HDCA, 2-5 September 2014, Athens, Greece.
Simplicity can be one of the motivations behind cutting the populace cake into two haves as 'poor' and 'non-poor'. This dividing line is popularly known as 'poverty line'. Poverty measurement based on this discrete division of people into two groups leads to the following three shortcomings. First, people close to this poverty line on either side are forced to categorize themselves poor and non-poor though they do not have any significant difference in their living standard or lifestyles. Second, the poverty measure becomes very sensitive to poverty line; frequent change (rise or fall) in the line gives the poverty picture differently with millions of people going in and out of the poverty. Thirdly, the poverty line, being generally low, is often criticized as the line of starvation.
To get rid of the above limitations, this paper proposes to replace poverty line with two lines – 'line of sustenance' and 'line of affluence'. Line of sustenance corresponds to the income required to sustain oneself; below which a person's mental or physical well-being gets seriously endangered. People below the line of sustenance can be designated as 'impoverished'. A higher level of income is posited as 'line of affluence', which corresponds to the income required to lead a comfortable life; above which a person can avail the goods and services for a decent standard of living. People above the line of affluence can be designated as 'affluent'. Both these 'line of sustenance' and 'line of affluence' can be determined on the normative basis (like poverty line) by deciding on the goods and services needed, respectively, for sustenance and comfortable life.
In this proposed scenario, for poverty rate calculations, a score of 'unity' (or 1) can be assigned to 'impoverished' individuals, 'zero' (or 0) to affluent individuals, and normalized score for individuals having intermediate income (i.e. between line of sustenance and affluence) through max-min normalization (i.e. (max-actual)/(max-min)); where 'max' and 'min' corresponds to income representing the 'line of affluence' and 'line of sustenance', respectively. The poverty rate is the average poverty score of the populace. Poverty rate so determined will not be highly sensitive to changes in 'line of sustenance' or 'line of affluence', as the scores are not discrete as in the case of single poverty line (where non-poor is given 'zero' and poor is given 'unity' and there is no intermediate score). Also, the continuous nature of poverty score (unlike stepwise movement in poverty line case) does not make any significant difference in the score for the population on either side of 'line of sustenance' or 'line of affluence'.
The paper revisits the axioms of poverty measure to evaluate the appropriateness of the proposed measure based on 'line of sustenance' or 'line of affluence' vis-à-vis the simple measure of poverty based on poverty line. The axiom characterization for the two measures is systematically presented. The proposed measure turns out to be better in terms of continuity and monotonicity axioms. Being more coincident to the actual income distribution of the population, the proposed measure has more practical significance. Additionally, the new measure gives the policy makers the target to take all the people above the line of affluence. An empirical illustration is carried out to demonstrate the advantages of the new measure.