There are multiple ways to measure poverty, but they all fall between two types of poverty indicators such as:
- Single indicators, including:
- International poverty lines
- Minimum income standards
- Composite indicators, including the Multidimensional Poverty Index(MPI).
Single indicators
Single indicators focus on one measure of poverty, typically income or consumption, to define the poverty level.
International poverty lines
- International poverty lines are standardised benchmarks used to compare poverty levels across countries.
- These lines are set by global organisations like the World Bank to define the minimum income required for basic subsistence.
- They allow for consistent measurement of extreme poverty globally, especially in developing countries, where national poverty lines might not exist or vary significantly.
- The current global poverty line is $1.90 per day (adjusted for purchasing power parity, PPP).
Minimum income standards
- Minimum income standards define the income necessary for an acceptable standard of living, relative to a specific country or region.
- These standards are tailored to reflect local living costs and expectations for a decent life.
- Minimum income standards are calculated by determining a basket of goods and services that a person should be able to purchase to live an acceptable lifestyle.
- Then, a monetary value is assigned to each product and to the basket, which shows the total minimum income required to meet the minimum income standards.
- Note that the minimum income standards (MIS), can be useful not only for showing:
- The proportion of population living below MIS.
- The degree of importance of each good/service in the basket of goods.
- But also it provides insights for governments to see:
- How the MIS changes over time.
- This way, policymakers can come up with more effective policies to deal with poverty.
Composite indicators
Composite indicators take multiple dimensions of poverty into account, offering a broader perspective.
Multidimensional Poverty Index(MPI)
MPI, being a composite indicator, measures poverty beyond income by assessing multiple factors, grouped in three main pilars:
- Health:
- Child mortality.
- Nutrition.
- Education:
- Years of schooling.
- School attendance.
- Living Standards:
- Cooking fuel.
- Sanitation.
- Drinking water.
- Electricity.
- Housing.
- Assets.
Why use composite indicators?
- Single indicators are simple but may not capture the full scope of the factors contributing to poverty.
- Composite indicators provide a more comprehensive understanding of poverty, helping to design targeted policies for poverty alleviation.
The MPI is measured through a score between 0 and 1, where:
- The closer the value to 0, the lesser the poverty.
- The closer the value to 1, the higher the poverty.
Throughout the IB Economics syllabus, several indices are used, where the values of 0 and 1 change. Pay attention to what the extremes (0 and 1) represent in each index.
