Poverty

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

The At Risk Of Poverty or Social Exclusion (AROPE) Composite Indicator

People are considered to be At Risk of Poverty or Exclusion if they are at risk of relative monetary poverty (AROP indicator) and/or severely materially deprived (SMD indicator) and/or living in households with very low work intensity. People are counted only once even if they fall under all of the three situations.

Living below the poverty line: the AROP indicator

Within the EU, relative poverty is measured by using relative-income poverty lines. This involves working out average or median equalized 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 monetary poverty”(AROP indicator).

One of the limitations of a relative income poverty line is that choosing a cutoff 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 in which state poor people falling below a poverty threshold actually are, that is the intensity of poverty. The poverty gap measures the distance between the (median equalized) income of people living below the poverty threshold and the value of that poverty threshold in terms of purchasing power.

Social benefits drastically reduce poverty

When measuring relative monetary 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 relative monetary poverty rate is reduced by social transfers by 50% or more (in Denmark, Ireland, Finland, as well as in Norway and Iceland) or more whereas in the least efficient the rate is reduced by only 20% or less (in Romania, Greece, Latvia, Poland and Italy, as well as in Turkey and in the forms Yugoslav Republic of Macedonia) source: Eurostat March 2017

Measuring deprivation: the Severe Material Deprivation (SMD) indicator

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.

In some countries poverty is measured by combining relative income lines with deprivation indicators.

At the EU level, extreme poverty is approached through the indicator of severe material deprivation (SMD). A person is considered as severely materially deprived when s/he cannot afford at least 4 of a list of 9 items considered to be necessary or desirable, namely: to pay rent or utility bills, to keep home adequately warm, to face unexpected expenses, to eat meat, fish or a protein equivalent every second day, to take a week’s holiday away from home, run a car, a washing machine, a colour TV, or a telephone.

This indicator presents some limitations linked to the small number of items in the list and the low relevance of some of them. It is being improved but because of the regulatory and data collection delays, it will be several years before an improved indicator can be made available at EU level.

Low work intensity

The work intensity of a household is the ratio of the total number of months that all working-age (18-59 years) household members have worked during the income reference year and the total number of months the same household members theoretically could have worked in the same period.

A household is considered to have a very low intensity when its work intensity falls below a threshold set at 0.20. This indicator attempts to capture how many people are living in job-less or nearly job-less households. In 2015, 10.5% of the European population lived in households with very low work intensity. That rate varies among the Member States: the indicator is 5.7% in Luxembourg, 5.8% in Sweden, 7.9% in Romania, 7.1% in Slovakia and 6.9% in Poland; it exceeds 14% in Belgium, Greece, Spain and Croatia (Eurostat update: November 2016).

Very low work intensity is most common in single-person households (23.5%) and single-person households with dependent children (27.1%). Eurostat update: November 2016.

Poverty is a more complex reality

The AROPE composite indicator captures just part of the picture and does not fully describe the complexity of poverty. It is important that its three components keep being monitored separately. It is also important to measure other elements that capture the multi-dimensional nature of poverty.

These include things such as the level of indebtedness, 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.

At the EU level, an extended set of indicators exists since 2001 in the framework of the Social Open Method of Coordination in the field of social protection and social inclusion* It includes a set of sixteen core indicators (including at risk-of-poverty rate, but also indicators on access to health, school dropout, in-work poverty….) as well as six contextual indicators (such as unemployment rate, life expectancy, social protection expenditure…). New indicators are being developed.

Existing indicators however -which are delayed in time-, cannot accurately reflect rapid changes in the situation of people.

Most EAPN networks consider that the dramatic deterioration of the living conditions of the most vulnerable due to the economic crisis and austerity policies wasn’t reflected by the EU indicators in a timely enough way. Official indicators should be complemented by quantitative and qualitative information gathered by NGOs working on the ground. For examples, the number of requests for food aid registered is a relevant alert signal of a degradation of the social situation.

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 Social Open Method of Coordination.

* See: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:em0011

Some key issues

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. Read
  • 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.

*This approach has been strongly endorsed by the Commission as part of the Social Investment Package published in February 2013, in the Active Inclusion Implementation Report, with proposals to support the development of a common methodology together with Member State representatives. See EC COM: Towards Social Investment for Growth and Cohesion including implementing the European Social Fund (2014-20).

Section

The use of equalized household income

The use of equalized household income, runs the danger of underrepresenting the situation of women or dependent adults within the household, as assumptions are made that income is equally distributed within the household i.e. that each partner in the family has access to the same amount of money. Women’s generally lower income is often hidden, which is the more serious where they have the direct responsibility for the expenditure for children or other dependents.

 

Key groups at very high risk

Overall, national and European data on relative income poverty (the at risk-of-poverty line) do not identify some key groups at very high risk such as people living in institutions, homeless people and other difficult to-reach groups such as black and minority ethnic people or migrants and asylum seekers. Thus more focused research is needed on these groups.

 

At-risk-of-monetary rate versus reality

The at-risk-of-monetary-poverty rate is a relative measure of poverty based on the median threshold. This threshold varies over time and in a number of Member States it has fallen in recent years due to the economic crisis, because of the general drop in household incomes. As a result the at-risk-of-monetary-poverty rate may have remained stable or even reduced (e.g. in Bulgaria) whereas the living conditions of the most vulnerable have actually deteriorated appallingly. This has made it difficult to highlight the social consequences of the crisis and of the austerity cuts. No indicator taken in isolation can depict the social situation in a given country. Analysis should take on board the broad context and build on the expertise of people in poverty themselves and the NGOs working with them on the ground.

 

The real value of the poverty threshold

Comparing monetary poverty rates between countries can hide significant differences in the real standard of living unless the actual value of the poverty threshold is taken into account, within each country. That is, when you look at how much money somebody has to live on if they are on the poverty line in different countries (the at-risk-of-poverty threshold) the differences can be stark. For instance, in 2015 a single person on the poverty line in Romania lives on less € 1,389 a year, € 1,999 in Bulgaria, and between €2,734 and €3,497 in Latvia, Lithuania, Hungary, Poland and Croatia. He/she would earn €21,162 in Luxemburg and €17,019 in Denmark. Source: Eurostat – SILC Database March 2017.

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