Drawing the Line | Measuring Poverty
Just as there is no one accepted definition of poverty, there is also no one measure of poverty. Measures of poverty are necessarily indicators or signposts: measures themselves are not poverty, but rather they point towards and attempt to quantify the condition described in the definition. Due to limitations of resources and feasibility, measures are imperfect proxies for concepts and definitions. Also like definitions, the way in which we measure poverty stems from our values, some even going so far as to call measurement “politics by other means.” Things often considered as facts, like GDP or the consumer price index (CPI), are embedded with moral assumptions that can be used to justify particular policies based on particular values. Our values then, shape not only how we see poverty but also how we attempt to quantify it and describe it to others.
REASONS FOR MEASURING POVERTY
Professor John Veit-Wilson, founding member of the UK’s Child Poverty Action Group, details seven reasons for measuring poverty:
- to describe the lifestyle and appearances which identify the ‘poor’;
- to count the numbers defined as ‘poor’;
- to explain why people seem to be poor or live ‘poor lifestyles’;
- to compare low levels of living over time and between groups;
- to prescribe a boundary measure on which people are or ought not to be ‘poor’, income line/ thresholds to reflect a minimum income standard, for example;
- to report what people would consider a minimum disposable cash income to avoid poverty as ordinary people experience it, people, say, that are ‘only just not poor’; and
- to discover what people consider to be the essentials of a minimally decent life which no one should be without.
As poverty is inherently unacceptable, we need to know when we are making progress towards reducing its incidence, severity and persistence. Good measurements should not only track this progress, but also inform our responses to poverty, directing resources and interventions to those most in need, for example. Good measurements will also clearly reflect the essence of poverty; be statistically robust; responsive to policy interventions; comparable across countries; and practical and timely. Measurements may also provide an insight into the causes and consequences of poverty, and help us to make a case for action against poverty and to keep it on the agenda. This case will only gain traction if the measurement used resonates with most people, so that it is “believed by those who may have an interest in disbelieving it.”
Measuring poverty, according to Statistics New Zealand, involves three issues: “defining and measuring material well-being in a statistically representative way; identifying the poor by setting a minimum acceptable standard of living; and then counting the number of poor in some way.” Identifying and counting the poor is what measurement has traditionally been all about, and reflects the two aspects of our definition above. In other words, measuring poverty involves establishing both an indicator and a standard to assess it by:
- First, an indicator must be decided upon. Indicators are things like household incomes and expenditure that can be measured. They are not poverty, but they can be used to indicate which households may be in poverty.
- Once an indicator has been decided, a poverty standard must be applied to it. This is often called the “poverty line,” where all those who fall below this standard are considered poor. Poverty lines are usually set in an attempt to find a “minimally adequate,” “minimally acceptable” or “decent minimum” level of living from a given definition of poverty. For many income-based measurements of poverty, some proportion of the median income of a state or population is often used as the standard—for instance, those earning less than 60 or 50 percent of the median income are considered to be living in poverty. This step inevitably involves value judgments in setting which particular threshold to use, with some methods more defensible and less arbitrary than others.
Different combinations of indicators and standards lead to distinct approaches to measuring poverty.These approaches fall under two main traditions: poverty line studies and living standards. Poverty line studies compare actual resources as an “input” into well- being with a minimum acceptable standard, while living standards compare actual experienced living standards or “outcomes.” Poverty line studies are often referred to as “indirect” because they focus on measuring what someone needs to avoid hardship (the indicator). Living standards, on the other hand, are often referred to as “direct” because they focus on how a person is actually living and whether they lack material goods, are having financial difficulties, or are in any other way unable to live a decent life. This situation is also known as experiencing deprivation or hardship.
Another problem with average income threshold measurements is that low incomes don’t necessarily indicate high levels of deprivation or exclusion. The resources and needs of different households vary: pensioners may draw more on savings and wealth rather than income, for example, and others, like those with a disability, may have a relatively high income but at the same time higher needs and expenses. This has led to the view that income threshold measures are better understood as poverty risks rather than as poverty rates.
So, while average income threshold measures should remain crucial to understanding poverty, their weaknesses must be taken into account. In fact, recent literature on poverty measurements has striven to move beyond the sole use of income measures. More and more people are turning either to measurements that resonate more directly with the “experiences and aspirations” of those living in poverty or to ones that are rooted in their community’s understanding of poverty.
Expenditure methods work like average income thresholds except that they assume that what households spend—their consumption—is a better indicator for poverty than what they earn.
A budget standards approach seeks to create a basket of goods, services and activities—like food, medical care and visiting friends—that represent a particular standard of living, usually a “minimum acceptable” standard. The threshold is then set at the cost of this basket, so income is our indicator once again. Those who fall under this threshold are considered to be in poverty.
Component and multiplier
More commonly known as the food ratio method, the component and multiplier approach is based on the idea that the higher the proportion of a household’s income is spent on food, the likelier it is that that household is in poverty. The component and multiplier approach takes a minimum food budget established by experts, like the budget standards method, and multiplies it to allow for other non-food expenses to set a threshold.
There are a few variations of subjective measures. The first is where the standard is based on what people consider to be the minimal acceptable income that they could live on and participate in society; a line could then be drawn at the average of these responses. Another is where people are asked to evaluate whether they are poor or not, and the percentage of respondents who claim they are poor sets the standard. The latter is rarely used, however the former has been used in New Zealand as one aspect of living standards courtesy of a question asked by the Economic Living Standards Index (ELSI) survey.
Benefit-based or statutory measures take the level of financial support provided by the government as the standard, assuming that the safety net is enough for people to get by on.
MULTI-DIMENSIONAL MEASUREMENT OF POVERTY, DEPRIVATION OR SOCIAL EXCLUSION
Multi-dimensional measurements of poverty, deprivation or social exclusion attempt to capture a broader sense of poverty across multiple domains like health and education, including the causes and consequences. MSD recognises that it is the “cumulative impact of multiple disadvantage across different domains” that is more likely to lead to poor outcomes and opportunities than low income alone. Accordingly, this approach takes indicators—usually indirect, but they can be direct too—like low income alongside other factors known to be related to poverty like joblessness, teenage pregnancy, housing conditions and addiction. The Poverty Indicators Project in New Zealand used the number of people using the foodbanks as an indicator for poverty, while access to special needs grants from Work and Income New Zealand (WINZ) has also been used. This set of indicators can also be tallied up in a process called aggregation to create a standard, however this is rarely done in practice because it is an complex task fraught with judgment calls.
We have canvassed eight distinct approaches to measuring poverty under the two traditions of poverty line studies (average income threshold, consumption expenditure, budget standards, component and multiplier, subjective measures and benefit-based/ statutory measures) and living standards (material deprivation indices) and a combination of the two (multi-dimensional measurement of poverty, deprivation or social exclusion). Figure 9 summarises the eight approaches, allowing for a comparison of their indicators, their standards, and who decides what the indicators and standards will be.
USING MEASUREMENTS TOGETHER
We saw in the preceding subsections that there are broadly two approaches to measuring poverty: tracking inputs into well-being, like income, or tracking actual outcomes that point to deprivation, like not being able to eat two solid meals per day. When the relationship between income and deprivation are investigated, some very curious and important results follow.
Combining income and deprivation measurements
Income and deprivation measures give reasonably similar headcounts of poverty when compared, they identify reasonably similar percentages of New Zealanders as living in poverty. Figure 10 shows this in its breakdown of the percentage of New Zealand children living in poverty according to a range of different income-based and deprivation-based measurements:
those who have a low income are not necessarily the same as those who are materially deprived.
In New Zealand’s case, only around half of the people identified with a low income are also suffering material hardship, so that the overlap group consists of around six percent of the population as a whole and ten percent of children. Given this reality, some researchers have suggested focussing on areas of overlap—where those identified as poor according to both income and deprivation measures overlap to find the “truly” or “consistent” poor. Some researchers have also added a third subjective dimension to the mix: whether people feel poor or not. The “core” poor group where all three dimensions overlapped were much more likely to be poor than those who only featured in one dimension.
As we have seen, different measures tell different stories. No single method is sufficient. We must use a range of approaches, paired with a keen understanding of what we are actually measuring and what we are trying to do. “Endless trouble has been caused, especially to the poor,” argues Veit-Wilson, “by misusing measures devised for one purpose for others for which they were not intended or suited.” Why we are measuring—the “purpose”— is often forgotten or confused with the means itself. The danger is that the measures in turn become the reality they are trying to express. Even worse, interventions based on flawed measures may at best be inefficient and at worst, harmful. We risk letting those suffering hardship fall through the cracks, as well as overlooking the causes that led them there. We can’t afford to let this happen, so it’s important we get this measurement business right. However, merely identifying the poor does little to change their circumstances.
For this change to occur, we need to act. Regardless of which measurement we use, there are far too many New Zealanders suffering the ill-effects of poverty. Hopefully this paper has created a platform to discuss the problem of poverty with greater clarity so we can intervene with greater effectiveness. We believe a common language or shared understanding of concepts, definitions and measurements will go a long way towards this goal. Together, we can truly give those living in poverty the help they need and deserve. We look forward to your engagement.
This is an extract from Kieran’s research series “The Heart of Poverty | Matching Passion with Precision for Struggling New Zealanders” Issues Paper. (Released 2014)
 Or as Stein Ringen puts it: “An indicator is a small piece of information that is recognised to be far less than a full measure of the underlying thing but which there are good reasons to accept as indicative of it.” S. Ringen, “Poverty – The Rowntree Project Revisited,” 8.
 M. Bovens, P. Hart and S. Kuipers, “The politics of policy evaluation” in The Oxford handbook of public policy, (Oxford: Oxford University Press, 2006), 319.
 J. Boston, A. Bradstock, D. Eng. eds. “Ethics and public policy” In Public Policy: Why ethics matters, J. Boston, A. Bradstock, D. Eng. (Australia and New Zealand School of Government, 2010).
 J. Veit-Wilson, “Horses for Discourses: Poverty, Purpose and Closure in Minimum Income Standards Policy,” in Breadline Europe: The Measurement of Poverty, D. Gordon and P. Townsend eds. (Bristol: The Policy Press, 2000), 141-164. It’s worth noting that the final two steps, reporting and discovering, are “empirical” according to Veit-wilson.
 T. Atkinson et. al., Social Indicators: The EU and Social Exclusion, 21-25. See Bradshaw (2001), Methodologies to Measure Poverty – More than One is Best (Symposium paper), 5-11 for more evaluation criteria.
 J. Haughton and S. Khandker, Handbook on poverty and inequality, 1-2. Or, as Saunders writes, “If one of the goals of poverty research is to bring about change, then it is important that the instruments of research (and hence its findings) have legitimacy among those who set policy.” P. Saunders, “Measuring Wellbeing using non-monetary Indicators,” Family Matters 78 (2008), 8.
 Stein Ringen calls this the called this idea the “cautionary principle.” The alluring temptation to exaggerate or “oversell” the problem of poverty, according to Ringen’s principle, does more harm than good. It is wise then to use definitions and measurements that resonate with most people. An editorial in the New Zealand Herald made this point, arguing that rather than repeating the claim that one in four children in poverty using solely an income measure, one in ten (the overlap of income and deprivation measures) would be more believable and subsequently a more potent catalyst for action that could not be ignored. S. Ringen, “Poverty – The Rowntree Project Revisited”; New Zealand Herald, Editorial: Child poverty figure needs more clarity to target relief, http://www.nzherald.co.nz/nz/news/article. cfm?c_id=1&objectid=11171004 (Accessed on 14th January, 2013)
 Statistics New Zealand, Measuring Child Poverty in New Zealand: Issues and Practicalities, 11.
 B. Nolan and C. Whelan, Resources, deprivation, and poverty, 11.
 R. Lister notes that standards broadly fall into two categories: purportedly scientific (grounded in expert or democratic approximations of needs) and arbitrary (unrelated to need or deprivation). R. Lister, Poverty, 41.
 P. Saunders, “Poverty” in The Routledge Handbook of the Welfare State, 63. Living standards can be used to draw a poverty line, however this is rarely done in practice.
 S. Ringen, Direct and indirect measures of poverty (Cambridge University Press, 1988). Measurements may also be monetary and non-monetary, see R. Boarini and M. d’Ercole, Measures of Material Deprivation in OECD Countries, Social, Employment and Migration Working Paper No. 37 (Paris: OECD 2006). See also Expert Advisory Group, Working Paper 4 – International Approaches and Comparisons (Office of the Children’s Commissioner, 2012).
 R. Layte, B. Nolan and C. Whelan, “Reassessing Income and Deprivation Approaches to the Measurement of Poverty in the Republic of Ireland” The Economic and Social Review 32, No. 3 (2001), 239–261; B. Nolan and I. Marx. “Economic inequality, poverty, and social exclusion” in The Oxford Handbook of Economic Inequality (Oxford: Oxford University Press, 2009): 319; P. Saunders, “Poverty” in The Routledge Handbook of the Welfare State, 64.
 P. Saunders, “Poverty” in The Routledge Handbook of the Welfare State, 65. See also T. Atkinson et. al., Social Indicators: The EU and Social Exclusion, 78.
 P. Saunders, “Measuring Wellbeing using non-monetary Indicators,” Family Matters 78 (2008), 10.
 P. Spicker, S. Leguizamon and D. Gordon, eds. Poverty: an international glossary, (Zed Books: 2007), 24. A range of standards from subsistence to luxurious could be developed too, however a minimal acceptable standard is more relevant to poverty studies. J. Bradshaw ed. Budget Standards for the United Kingdom (Aldershot: Avebury, 1993).
 P. Saunders, “Poverty” in The Routledge Handbook of the Welfare State, 64.
 T. Atkinson et. al., Social Indicators: The EU and Social Exclusion, 34-35.
 A. Haagenars, The Perceptions of Poverty (Amsterdan: North Holland Publishing Company, 1986).
 Statistics New Zealand, Household Economic Survey (Wellington: Statistics New Zealand, 2013), 10.
B. Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012, 3. Berger-Schmitt and Noll (2000), 16. Statistics New Zealand also realised “if measures are to aid understanding of child poverty, they need to capture the multi-dimensional and dynamic effects of poverty, including the causes and consequences.” Stats NZ, EAG report
 B. Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012, 3. Treasury recognises this too, see: Ministerial Committee on Poverty, Six Monthly Report of the Ministerial Committee on Poverty. 3.
 For correlations between low income and these outcomes see UNICEF Innocenti Research Centre, An Overview of Child Wellbeing, 6.
 New Zealand Christian Council of Social Services, Poverty Indicators Project Update: A Snapshot Comparative Analysis of Foodbank Use, http://www.nzccss.org.nz/ site/page.php?page_id=277 (accessed 2 May, 2014).
 The UK government recently proposed a new measure of which included social indicators, however it was criticised heavily for aggregating them together with income and deprivation. B. Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012, 91; HM Government, Measuring Child Poverty: A consultation on better measures of child poverty, (Great Britain Stationery Office, 2012).For an example of a multi-dimensional index, see S. Alkire, “The capability approach: mapping measurement issues and choosing dimensions” in N. Kakwani and J Silber eds, The Many Dimensions of Poverty (Basingstoke: Palgrave-Macmillan, 2008).
 Fixed line measures use 2007 as the reference point. For more details on the particular measures and indices used, see B. Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012, 15-17, 105-106. Since this paper was written, Statistics New Zealand found an error in their income datasets which underestimated the number in poverty primarily due to a double-counting of the Accommodation Supplement. Up-to-date figures and explanation can be found on Statistics New Zealand website, http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/monitoring/household-incomes/ index.html (accessed March 22, 2014)
 B. Perry, “The mismatch between income measures and direct outcome measures of poverty,” Social Policy Journal of New Zealand, 19 (2002), 101-127, B. Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012, 181-2; J. Bradshaw and N. Finch, “Overlaps in dimensions of poverty,” Journal of social policy 32, no.4 (2003), 513-525; R. Berthoud, M. Bryan and E. Bardasi, The Dynamics of Deprivation: the relationship between income and material deprivation over time, (London: Department for Work and Pensions, 2004). Income and consumption (what people spend) also doesn’t overlap as much as we might expect. S. Ringen, Direct and indirect measures of poverty, 87.
 B. Perry, Household incomes in New Zealand: Trends in indicators of inequality and hardship 1982 to 2012, 18, 181. This relationship broadly holds internationally too. C. T. Whelan, R. Layte and B. Maitre, “Multiple deprivation and persistent poverty in the European Union,” Journal of European Social Policy 12, no.2 (2002), 91-105.
 Ireland uses this approach for their official poverty line, labelling those who both fall below an income threshold and who are deprived as living in “consistent poverty.” The UK’s child poverty targets also include a combined measure, as does Labour’s proposed Child Poverty Measurement Bill. See: R. Layte, B. Nolan and C. T. Whelan, “Targeting poverty: lessons from monitoring Ireland’s national anti-poverty strategy,” Journal of Social Policy 29, no.4 (2000), 553-575; B. Nolan and C. Whelan, Resources, deprivation, and poverty.
 Feeling poor, the logic goes, is a necessary but not sufficient condition for being poor. Jonathan Bradshaw and Naomi Finch noted that “false consciousness” could be a problem with subjective measures like this, however. Some may feel poor when they aren’t income poor or suffering hardship, while others may have “a limited understanding of relative living standards” and not realise they are poor. They found that “5 per cent of the sample said that they felt poor without being poor on any of the other dimensions and 1.8 per cent did not feel poor despite being poor on both the other dimensions.” J. Bradshaw and N. Finch, “Overlaps in dimensions of poverty,” Journal of social policy 32, no.4 (2003), 518.
 J. Bradshaw and N. Finch, Core Poverty, (London: Centre for the Analysis of Social Exclusion, LSE, 2001).
 R. Lister, Poverty, 50.
 J. Veit-Wilson, Setting Adequacy Standards, (Bristol: Policy Press, 1998), 39-40.