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Poverty threshold

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	Topics Poverty threshold Topic Home The poverty threshold, or poverty line, is the minimum level of incomeIncome Income, generally defined, is the money that is received as a result of the normal business activities of an individual or a... deemed necessary to achieve an adequate standard of livingStandard of living The Standard of living refers to the quality and quantity of goods and services available to people and the way these servic... in a given country. In practice, like the definition of povertyPoverty Poverty is understood in many senses.... , the official or common understanding of the poverty line is significantly higher in developed countries than in developing countries. Almost all societies have some citizens living in poverty. The poverty threshold is useful as an economic tool with which to measure such people and consider socioeconomic reforms such as welfareWelfare (financial aid) Welfare is financial assistance paid by the government to certain entities or groups of people who are unable to support the... and unemployment insurance to reduce poverty. Determining the poverty line is usually done by finding the total cost of all the essential resources that an average human adult consumes in one year. This approach is needs-based in that an assessment is made of the minimum expenditure needed to maintain a tolerable life. This was the original basis of the poverty line in the United StatesPoverty in the United States Poverty in the United States refers to the condition of people whose annual family income is less than a "poverty line" set ... , whose poverty threshold has since been raised due to inflationInflation In mainstream economics, inflation is a rise in the general level of prices, as measured against some baseline of purchasing... . In developing countries, the most expensive of these resources is typically the rent required to live in an apartment. Economists thus pay particular attention to the real estate market and housing prices because of their strong influence on the poverty threshold. Individual factors are often used to account for various circumstances, such as whether one is a parent, elderly, a child, married, etc. The poverty threshold is adjusted each year. In 2007, in the United States of America, the poverty threshold for a single person under 65 was US$10,787; the threshold for a family group of four, including two children, was US$21,027. Defining poverty thresholds Poverty thresholds can be defined in different ways: Social SecuritySocial security Social security primarily refers to the system implemented by Franklin D.... benefit based. If a governmentGovernment A government is a body that has the authority to make and the power to enforce laws within a civil, corporate, religious, a... guarantees to make income up to some particular level then it may be presumed that that level is the poverty threshold. This is a problematic definition, because an uncharitable government may reduce the guaranteed income, thus reducing the incidence of poverty so defined while increasing the incidence of actual poverty. A relative income line, related to some fractionFraction (mathematics) In mathematics, a fraction is a way of expressing a quantity based on an amount that is divided into a number of equal-sized... of typical incomes. This excludes the wealthiest individuals from the calculation. For example, the OECD and the European UnionEuropean Union The European Union is an intergovernmental and supranational union of 25 democratic member states.... uses 60% of national medianMedian In probability theory and statistics, a median is a number dividing the higher half of a sample, a population, or a probabil... equivalised household income. A relative figure fixed in time and only adjusted for inflationInflation In mainstream economics, inflation is a rise in the general level of prices, as measured against some baseline of purchasing... - thus avoiding the possibility that if income inequality increases, then poverty may otherwise also increase. When the World BankWorld Bank World Bank is an internationally supported bank that provides financial and technical assistance to developing countries fo... calculates its "$1 a day" statistics, it uses a poverty threshold. Absolute poverty A measure of absolute poverty quantifies the number of people below a poverty threshold, and this poverty threshold is independent of time and place. For the measure to be absolute, the line must be the same in different countries, cultures, and technological levels. Such an absolute measure should look only at the individual's power to consume and it should be independent of any changes in income distribution. Such a measure is only possible when all consumed goods and services are counted and when PPP-exchange rates are used (see purchasing power parityPurchasing power parity In economics, purchasing power parity is a theory which says that the long-run equilibrium exchange rate of two currencies ... ). The intuition behind an absolute measure is that mere survival takes essentially the same amount of resources across the world and that everybody should be subject to the same standards if meaningful comparisons of policies and progress are to be made. Notice that if everyone's real income in an economy increases, and the income distributionIncome distribution Income distribution has always been a central concern of economic theory and economic policy.... does not change, absolute poverty will decline. Measuring poverty by an absolute threshold has the advantage of applying the same standard across different locations and time periods, making comparisons easier. On the other hand, it suffers from the disadvantage that any absolute poverty threshold is to some extent arbitrary; the amount of wealth required for survival is not the same in all places and time periods. For example, a person living in far northern Scandinavia requires a source of heat during colder months, while a person living on a tropical island does not. This type of measure is often contrasted with measures of relative poverty (see below), which classify individuals or families as "poor" not by comparing them to a fixed cutoff point, but by comparing them to others in the population under study. The term absolute poverty is also sometimes used as a synonym for extreme povertyExtreme poverty Extreme poverty is the most severe state of poverty, where people have minimal or very limited access to basic necessities, ... . According to a UN declaration that resulted from the World Summit on Social Development in Copenhagen in 1995, absolute poverty is "a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services." David Gordon's paper, "Indicators of Poverty & Hunger", for the United Nations, further explains that absolute poverty is the absence of any two of the following eight basic needs: Food: Body Mass IndexBody mass index Body mass index or Quetelet Index is a statistical measure of the weight of a person scaled according to height.... must be above 16. Safe drinking water: Water must not come from solely rivers and ponds, and must be available nearby (less than 15 minutes' walk each way). Sanitation facilities: Toilets or latrineLatrine A latrine is a method of disposal of human waste used in rural areas and much of the developing world.... s must be accessible in or near the home. Health: Treatment must be received for serious illnesses and pregnancy. Shelter: Homes must have fewer than four people living in each room. Floors must not be made of dirt, mud, or clay. Education: Everyone must attend school or otherwise learn to read. Information: Everyone must have access to newspapers, radios, televisions, computers, or telephones at home. Access to services: This item is undefined by Gordon, but normally is used to indicate the complete panoply of education, health, legal, social, and financial services. For example, a person who lives in a home with a mud floor is considered severely deprived of shelter. A person who never attended school and cannot read is considered severely deprived of education. A person who has no newspaper, radio, television, or telephone is considered severely deprived of information. All people who meet any two of these conditions — for example, they live in homes with mud floors and cannot read — are considered to be living in absolute poverty. Relative poverty See also: Relative deprivationRelative deprivation Summary Relative deprivation is the experience of being deprived of something to which one thinks he is entitled to [Walker & Smith ... A measure of relative poverty defines "poverty" as being below some relative poverty threshold. An example is when poverty is defined as households with an accumulated income less than 50% of the median income is a measure of relative poverty. Notice that if everyone's real income in an economy increases, but the income distributionIncome distribution Income distribution has always been a central concern of economic theory and economic policy.... stays the same, relative poverty will also stay the same. Relative poverty measurements can produce odd results in small or unusual populations. For example, if the medianMedian In probability theory and statistics, a median is a number dividing the higher half of a sample, a population, or a probabil... household in a wealthy neighborhood earns US$1 million each year, then a family that earns US$100,000 would be considered poor on the relative poverty scale. At the other end of the scale, if the median household in a very poor neighborhood earned only 50% of what it needs to buy food, then a person who earned that amount would not be considered poor on a relative poverty scale, even though the person is clearly poor on an absolute poverty scale. Measures of relative poverty are almost the same as measuring inequality: If a society gets a more equal income distribution, relative poverty will fall. Following this, some argue that the term 'Relative Poverty' is itself misleading and that 'Inequality' should be used instead. They point out that if society changed in a way that hurt high earners more than low ones, then 'relative poverty' would decrease, but every citizen of the society would be worse off. Likewise in the reverse direction: it is possible to reduce absolute poverty while increasing relative poverty. The phrase relative poverty can also be used in a different sense to mean "moderate poverty" – for example, a standard of living or level of income that is high enough to satisfy basic needs (like waterWater Water is a tasteless, odorless substance that is essential to all known forms of life and is known as the universal solve... , foodFood Food is any substance, usually comprised primarily of carbohydrates, fats, vitamins, water and/or proteins, that can be eate... , clothingClothing Clothing is defined, in its broadest sense, as coverings for the torso and limbs as well as coverings for the hands , feet ... , shelter, and basic health careHealth care Health care or healthcare is the prevention, treatment, and management of illness and the preservation of mental and p... ), but still significantly lower than that of the majority of the population under consideration. Basic needs Some measurements combine certain aspects of absolute and relative measures. For example, the Fraser InstituteFraser Institute The Fraser Institute is a libertarian think tank based in Canada.... publishes a basic needsBasic needs The "basic needs" model in development discourse focuses on the elimination of poverty in the shortest amount of time.... poverty measure for CanadaCanada Canada is the world's second-largest country by total area, occupying most of northern North America.... . According to the Fraser Institute, "the basic-needs approach is partly absolute (the list [of necessities] is limited to items required for long-term physical well-being) and partly relative, reflecting the standards that apply in the individual's own society at the present time." The Fraser Institute's list of necessities for living creditably in Canada includes not only foodFood Food is any substance, usually comprised primarily of carbohydrates, fats, vitamins, water and/or proteins, that can be eate... , shelter, clothingClothing Clothing is defined, in its broadest sense, as coverings for the torso and limbs as well as coverings for the hands , feet ... , and health careHealth care Health care or healthcare is the prevention, treatment, and management of illness and the preservation of mental and p... , but also personal careHygiene Hygiene is commonly understood as preventing infection through cleanliness.... , furnitureFurniture Furniture is the collective term for the movable objects which may support the human body , provide storage, or hold objects... , transportation, communicationCommunication Communication is the process of sharing information.... , laundryLaundry Laundry can be:* items of clothing and other textiles that require washing,... , and home insuranceHome insurance Home insurance, or homeowners insurance, is an insurance policy that combines various personal insurance protections w... . It is criticized for not including any entertainment items like cable televisionCable television Overview Cable television or Community Antenna Television is a system of providing television, FM radio programming and other... , daily newspapers, and tickets to movies or sporting events. Criticisms Using a poverty threshold is problematic because having an income marginally above it is not substantially different from having an income marginally below it: the negative effects of poverty tend to be continuous rather than discrete, and the same low income affects different people in different ways. To overcome this problem, poverty indices are sometimes used instead; see income inequality metricsIncome inequality metrics Summary Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution... . A poverty threshold relies on a quantitativeQuantitative A quantitative property is one that exists in a range of magnitudes, and can therefore be measured.... , or purely numbers-based measure of income. If other human development-indicators like health and education are used, they must be quantified, which is not a simple (if even achievable) task. Public and private charitable gifts are not counted when calculating a poverty threshold. For example, if a parent pays the rent on an apartment for an adult daughter, that money does not count as income to the daughter. If a church or non-profit organization gives food to an elderly person, that also does not count as income. Rea Hederman, a senior policy analyst in the Center for Data Analysis at the Heritage FoundationHeritage Foundation The Heritage Foundation is an influential public policy research institute based in Washington, D.C., in the United States.... , in the United StatesUnited States The United States of America, also known as the United States, the U.S., the U.S.A., and America, is... , complained, The official poverty measure counts only monetary income. It considers antipoverty programs such as food stamps, housing assistance, the Earned Income Tax CreditFacts About Earned income tax credit The United States federal Earned Income Tax Credit is a refundable tax credit that reduces or eliminates the taxes that low... , MedicaidMedicaid Medicaid is the US health insurance program for individuals and families with low incomes and resources.... and school lunches, among others, "in-kind benefits" -- and hence not income. So, despite everything these programs do to relieve poverty, they aren't counted as income when Washington measures the poverty rate. See also Measuring povertyMeasuring poverty Although the most severe poverty is in the developing world, there is evidence of poverty in every region.... List of countries by percentage of population living in povertyList of countries by percentage of population living in poverty Summary There are two lists of countries of the world sorted by poverty.... Poverty in ChinaPoverty in China Poverty in China refers to people whose income is less than a poverty line of $1 per day set by the World Bank benchmark .... Poverty in IndiaPoverty in India Despite notable improvements in the standard of living in India in recent years, poverty in India is a severe endemic problem.... Poverty in the United StatesPoverty in the United States Poverty in the United States refers to the condition of people whose annual family income is less than a "poverty line" set ... External links by Tom Gentle, Oregon State University. Debraj RayDebraj Ray Debraj Ray is Julius Silver Professor of Economics and Director of Graduate Studies in Economics at New York University.... 1998, Development Economics, Princeton University Press, ISBN 0-691-01706-9. , United Nations , Takis Fotopoulos, , vol.4, no.1, (January 2008).