Definition and Measurement of Poverty

The World Bank has defined poverty as the deprivation of basic amenities. It measures poverty using the Multi-Dimensional Poverty Index, World Bank Poverty Line, and World Poverty Clock. The World Bank provides open and accessible data on its websites about the deprived population, its increase or decrease, and trends in the past years.

People living below a poverty line don’t have enough to meet their basic needs. Countries typically define national poverty lines, and we use the lines of a group of the poorest countries to define the international extreme poverty line of $1.90 per day

In this article, we have discussed Poverty and its measurement by World Bank, along with poverty measurement techniques, and challenges.

Poverty and its Types

The World Bank officially describes poverty as ‘deprivation of well-being’. People living below the international poverty line ie. $1.90 per day is considered extremely poor. Poverty is a multifaceted phenomenon. It can be viewed from different perspectives; hence, there are six types of poverty:

• Objective Poverty: Visible poverty regarding income and assets proves the living conditions might not be decent.
• Monetary Poverty: Monetary Poverty is calculated solely based on financial inputs and resources.
• Relative Poverty: It defines whether someone lives in poverty or not through comparisons made among a surveyed population.
• Absolute Poverty: It indicates whether someone lives in poor conditions or poverty by calculating their income via the international poverty line.
• Non-Monetary Poverty: Deprivation from basic amenities other than financial such as schooling, healthcare, and basic food needs.
• Subjective Poverty: Subjective poverty is the individual’s perception of whether their living conditions are poor. This can vary from person to person, depending on the person’s self-satisfaction. It can only be calculated through direct surveys and house-to-house interviews.

Measurement of Poverty by World Bank: Multidimensional Poverty Index (MPI)

• This index views poverty from different facets of life and captures the true essence of poverty and its root causes. The United Nations Development Programme (UNDP) and Oxford University developed the multidimensional poverty index.
• The November 2023 revision introduces the sixth iteration of the Multidimensional Poverty Measure (MPM) by the World Bank. The MPI has three basic dimensions and 6 parameters on which the dimensions are measured; the higher the scores, the more deeply rooted the poverty is in a population.

S. No.	Dimension	Parameter	Weight
1	Monetary	Daily consumption or income is less than $2.15 per person.	1/3
2	Education	At least one school-age child up to grade 8 is not enrolled.	1/6
		No adult in the household (age of grade 9 or above) has completed primary education.	1/6
3	Access to basic infrastructure	The household lacks access to limited-standard drinking water.	1/9
		The household lacks access to limited-standard sanitation.	1/9
		The household has no access to electricity.	1/9

Table 1: MPI (Multidimensional Poverty Index Calculations)

• Global Monitoring Database (GMD) is one of the many data sources the World Bank uses to measure Poverty. The GMD’s synchronized microdata are presently employed in the Poverty and Inequality Platform (PIP), as well as the World Bank’s Multidimensional Poverty Measure (MPM), the Global Database of Shared Prosperity (GDSP), and the Poverty and Shared Prosperity Reports.

Definition and Measurement of Poverty: The Lorenz Curve and the Gini Coefficient

• The Lorenz curve is the curve that depicts the income distribution. The Gini coefficient is a number on the Lorenz curve that shows income disparity or unequal distribution of wealth among the population.
• The Gini coefficient has values between 0 and 1, 0 being the number where the income is distributed equally between every individual. The value of the Gini coefficient as 1 depicts a scenario where one individual of the population possesses all the income.
• Perfect equality is depicted as 0, whereas perfect inequality is shown as 1.

World Bank Poverty Measurement Strategy

Assessing poverty and conveying progress in poverty alleviation have been enduring focuses for the World Bank. In 2015, the World Bank established a Commission on Global Poverty to offer guidance on enhancing the comprehensive measurement and tracking of poverty.

• The Commission put forward 21 suggestions. These encompassed expanding the range of metrics to encompass non-monetary indicators, implementing a broader societal headcount measure for global poverty, and issuing a comprehensive global profile of impoverished populations.
• The World Bank has pledged to embrace the majority of these proposals. In 2017, we introduced two supplementary global poverty thresholds. These serve as reference points for nations worldwide, especially those where the International Poverty Line of $2.15 per day may not be applicable due to varying levels of development.
• The World Bank Group releases Poverty and Equity Briefs every six months, shedding light on poverty, shared prosperity, and inequality patterns in individual nations. Since September 2019, these briefs have expanded their coverage to encompass multidimensional poverty indicators, progressively extending to 144 countries. 

World Bank Reports on Poverty 

Poverty at a Glance Report

• According to the biennial Poverty and Shared Prosperity Report published by the World Bank, nearly 700 million individuals worldwide are enduring extreme poverty, surviving on less than $2.15 per day, the benchmark for extreme poverty. A little over half of this population resides in Sub-Saharan Africa.
• Following several decades of consistent global poverty reduction, significant crises, and shocks led to approximately three years of regression between 2020 and 2022.
• Despite progress in poverty reduction, low-income countries, which experienced a rise in poverty during this period, have yet to recover and are struggling to close the poverty gap.

Poverty and Shared Prosperity 2022

• Within low- and middle-income nations, fiscal policy has the potential to safeguard individuals’ well-being during a crisis, albeit with certain constraints.
• In less affluent nations, impoverished households frequently experience a reduced income even after accounting for taxes and receiving transfers.
• Allocating fiscal resources effectively, especially within budget limitations, presents a formidable challenge.

Poverty and Equity Brief (India) South Asia April 2020

• Poverty and Equity Brief is a report published by the World Bank elaborating on India’s progress in poverty alleviation. Since the 2000s, India has demonstrated remarkable progress in reducing absolute poverty. 
• From FY2011/12 to 2015, poverty decreased from 21.6 to an estimated 13.4 per cent at the international poverty line of $1.90 per person per day (2011 PPP), continuing the historical trend of significant poverty reduction.

Improving Poverty Measurement Techniques

• Household surveys play a crucial role in assessing and tracking poverty and equity. They offer comprehensive and representative insights into living conditions, aiding in identifying vulnerable demographics and facilitating the estimation of poverty and equity levels. 
• Consequently, policymakers required timely and pertinent data on the crisis’s effects and the efficacy of implemented policies to safeguard lives and livelihoods. 
• To address this need, the World Bank spearheaded the implementation of telephone surveys, monitoring COVID-19’s repercussions on individuals across 89 countries spanning all developing regions.
• Household surveys are a fundamental component for leveraging the data revolution. Their data serves as a vital input for testing and refining the utilization of big data and artificial intelligence (AI) in real-time poverty monitoring, informing decision-making during periods of uncertainty and crisis.
• Recognizing their significance, the World Bank extends technical support to countries in this endeavour, having aided 75 nations, including 50 IDA countries, in the previous year.

Challenges in the Measurement of Poverty

• There is an equitable distribution of resources within the household. Monetary poverty measures only assess if the household can afford the minimum consumption basket without providing insights into the actual purchases made by the household.
• It is common for households that are not classified as poor to experience caloric deficits. Societal factors determine the poverty line and vary based on country and time.
• Different societies may adhere to varying norms, which can evolve due to changes in income levels, relative prices, technology, and preferences. Given that consumption patterns evolve, it is crucial to update the poverty line, ideally every decade, periodically.

Summary – Definition and Measurement of Poverty

The World Bank defines poverty as not having enough to meet basic needs and uses the international extreme poverty line of $1.90 per day to measure it. This line is based on the poorest countries’ poverty thresholds. Poverty is complex, seen through various lenses like monetary, absolute, and non-monetary poverty. The World Bank uses the Multidimensional Poverty Index (MPI) and other tools to get a deeper understanding of poverty, focusing on factors beyond just income. Despite progress in reducing global poverty, challenges remain, including equitable resource distribution within households and the need for updated poverty lines to reflect changing societal norms and consumption patterns. The World Bank is working on improving poverty measurement techniques, such as using household surveys and telephone surveys, to better understand and address poverty’s multifaceted nature.

FAQs on Definition and Measurement of Poverty

What is the implicit assumption regarding resource distribution within households?

The implicit assumption is that resources within households are distributed equitably.

What do monetary poverty measures indicate?

Monetary poverty measures determine whether households can afford the minimum consumption basket without revealing their purchases.

Do non-poor households sometimes experience caloric deficits?

Yes, it’s common for non-poor households to face caloric deficits despite not being classified as poor.

How is the poverty line determined?

The poverty line is socially determined and varies depending on country and time.

Can societal norms and poverty measures change over time?

Society norms and poverty measures can evolve due to shifts in income levels, relative prices, technology, and preferences.

What is the cause of poverty?

The primary causes of poverty are inequality in income distribution, food crises, unemployment, and inaccessible healthcare.