How is poverty measured?

In the EU people falling below 60% of median income are said to be “at risk of poverty”.

- Living below the poverty line
- Length of time living in poverty
- Poverty is not just about income
- Social benefits drastically reduce poverty
- Measuring deprivation
- Other methods
- Some key issues

Living below the poverty line 

Within the EU poverty is normally measured by using relative income poverty lines. This involves working out average or median equivalised household incomes in a country.

A poverty line is then set which is a percentage of that average income. Commonly these poverty lines range from 40-70% of household income. This gives one an overall picture of the risk of poverty rate but the figures can also be broken down by age, gender, household type and employment status to give a more detailed picture of who is at greatest risk. This means that one can examine the particular situation of specific groups such as children or older people or the unemployed.

In the EU people falling below 60% of median income are said to be “at-risk-of poverty”.

One of the limitations of a relative income poverty line is that choosing a cut off point is a rather arbitrary process. It tells us what proportion of people are poor but does not sufficiently take into account other factors that affect people’s situations such as how far below the poverty threshold they are or the length of time they have been poor.

Measuring the poverty gap can help to assess how poor people falling below a poverty threshold actually are, that is the intensity of poverty. The poverty gap measures the distance between the (median equivalised) income of people living below the poverty threshold and the value of that poverty threshold in terms of purchasing power...

 Length of time in poverty

Generally people who have been below an “at-risk-of poverty” line for several years are likely to be in a more extreme situation than those who are only in such a situation for a short time. It is thus also important to measure the length of time that people are living in poverty i.e. the duration and persistence of poverty.

However, at present at EU level and also in many countries, data do not exist covering several consecutive years and this thus limits the possibility to measure those who are longer term below the relative income poverty line and thus likely to be in a worse situation.

 Poverty is not just about income

Measuring only relative income poverty captures just part of the picture and does not fully describe the complexity of poverty. It is also important to measure other things that capture the multi-dimensional nature of poverty.

These include things such as the level of indebtedness, the level of unemployment and joblessness, the extent of poor health or educational disadvantage, the number of people living in inadequate housing and poor environmental conditions and the extent to which people have inadequate access to public services.

Most EAPN networks consider that more work needs to be done to capture the diverse reality of poverty from the perspective of those suffering from it, as part of the EU’s Open Method of Coordination process on Social Inclusion.

 Social benefits dratiscally reduce poverty

When measuring poverty it is interesting to look at levels of poverty before and after income transfers through a country’s social welfare system as this gives an indication of the effectiveness of a country’s system of redistribution.

In the EU Member States the risk of poverty rate would be considerably higher than it is in reality if there were no social transfers. In the most generous and efficient systems the poverty rate is reduced by social transfers by 50% or more whereas in the least efficient the rate is reduced by only 20% or less.

 Mesuring deprivation

Deprivation indicators are another important approach to measuring relative poverty. These are an attempt to move beyond just monetary indicators and to take better into account the actual standard of living that people enjoy.

Essentially the approach involves identifying goods or activities which are seen as basic necessities in the country someone is living. These can be things such as having new and not second hand clothes, adequate shoes, a meal with meat or fish once every two days, adequate heating, a television, being able to go to the pub or a social outing with friends once a week, having an annual holiday and so on. In some countries poverty is measured by combining relative income lines with deprivation indicators.

 Other methods

Other ways to measure poverty include:

- The Budget Standard Approach where poverty is calculated based on the cost of a specific basket of goods and services (i.e. covering things like food, clothing, personal care, health related costs, household goods and services, educational costs, housing , transport, fuel etc.) that are considered by experts or by society in general to represent a basic standard of living;

- The Food Ratio Method where the poor are distinguished from the non poor by how much of their income they spend on basic necessities such as food, clothes and shelter – generally research has shown that people on low incomes have to spend a higher proportion of their incomes on basic necessities leaving almost nothing for participating in normal social, recreational and cultural activities.

- The United Nations Poverty Index which combines measures such as life expectancy, literacy, long-term unemployment and relative income into a single composite measure. Read more here.

- The UNICEF Report Card on Child Well-Being which moves beyond just income poverty and combines indicators of material well-being, health and safety, educational well-being, family and peer relationships, behaviours
and risk and subjective well-being. Read more here.