Measurement
of Poverty:
Poverty is generally measured in terms of poverty
line. Income is most commonly used indicator for measuring poverty. Therefore,
objectively poverty can be measured in terms of the extent of currently agreed
upon basic 'necessities' that income can fulfil. Generally there are two
standard measures of poverty (i) Head Count, and (ii) Poverty gap.
(i)
Head Count Ratio of Poverty:
The Head
count ratio (Po) is the proportion of a population that
exists, or lives, below the poverty line. Traditionally, this is done simply by just counting the number of poor,
defined in a specific way and then expressing poverty as the ratio of the
number of the poor to the total number of people in the society in question. In
other words, head-count measure gives the ratio of the persons below the
poverty line m to the total population 'n* the index (m/n) being known as the
head count-measure, H. This is the common measure of overall poverty, and has
been widely used by the economists to compare the poverty between two period of
times. The
headcount index (P0) measures the proportion of the population that is poor. It
is popular because it is easy to understand and measure. But it does not
indicate how poor the poor are?
Po=Np/N
Where:
Np is the number of poor and N is the total population.
The head-count measure of poverty pays no attention
whatsoever to the extent of income shortfall of those who fall below the
’poverty line’: it matters not at all whether someone is just below the poverty
line, or very far from it in starvation, acute misery and hunger.
(ii)
Poverty Gap Ratio
In this measure the aggregate shortfall of income of
all the poor from the poverty line is calculated. In other words, poverty gap
measure defines poverty in the ratio of the average income below the poverty
line to the poverty line income, subtracted from unity. The poverty gap
indicator is produced by the World Bank Development Research
Group. It measures poverty by looking at household per capita income
and consumption. The poverty gap index (P1) measures the extent to
which individuals fall below the poverty line (the poverty gaps) as a
proportion of the poverty line. The sum of these poverty gaps gives the minimum
cost of eliminating poverty, if transfers were perfectly targeted. The measure
does not reflect changes in inequality among the poor.
Gi
= ( z - yi ), I (yi < z) then the poverty gap index may be written asP1= 1/N ∑_(i=1)^n▒Gi/Z
Where: Gi is
poverty gap z = poverty line y is the actual income for poor individuals
(iii)
Squared poverty gap (“poverty severity”) index
To
construct a measure of poverty that takes into account inequality among the
poor, some researchers use the squared poverty gap index. This is simply a
weighted sum of poverty gaps (as a proportion of the poverty line), where the
weights are the proportionate poverty gaps themselves; a poverty gap of (say)
10% of the poverty line is given a weight of 10% while one of 50% is given a
weight of 50%; this is in contrast with the poverty gap index, where they are
weighted equally. Hence, by squaring the poverty gap index, the measure
implicitly puts more weight on observations that fall well below the poverty
line.
Formally:
P2= 1/N ∑_(i=1 )^n▒〖(G/Z〗)2
This
table shows how the poverty gap is computed, divided by the poverty line,
squared, and averaged to give P2, the squared poverty gap index.
(iv) Sen Index.
Sen
(1976) has proposed an index that sought to combine the effects of the number
of poor, the depth of their poverty, and the distribution of poverty within the
group. The index is given by
P = Po
( 1- ( 1- G P ) µp/ z)
Where:
P0 is the headcount index, µp
is the mean income (or expenditure) of the poor, and G p is
the Gini coefficient of inequality among the poor. The
Sen index has been widely discussed, and has the virtue of taking the income
distribution among the poor into account but its uses are mostly academic in
nature.
(v) Shorrocks-Thon (SST) index
The
Sen index has been modified by others, and perhaps the most compelling version
is the Sen-Shorrocks-Thon (SST) index which is the product of the headcount
index, the poverty gap index (applied to the poor only), and a term with the
Gini coefficient of the poverty gap ratios (i.e. of the Gn’s) for the whole
population.
(vi) Watts index
The
first distribution-sensitive poverty measure was proposed in 1968 by Watts.
Watts index is computed, by dividing the poverty line by income, taking logs,
and finding the average over the poor.
The
Watts index is attractive in that it satisfies all the theoretical properties
that one would want in a poverty index, and is increasingly used by researchers
in generating such measures as the poverty incidence curve
