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MEASURING POVERTY IN THE PHILIPPINES USING EQUIVALISED HOUSEHOLD INCOME
WERNER BENSON LAZARTE MOLANO
1st Semester, SY 2009-2010
Institute of Statistics College of Arts and Sciences, University of the Philippines Los Baños 1
INSTAT Catalog no. ____________________ Requests and inquiries concerning and reproduction and rights in this publication should be addressed to The Director Institute of Statistics College of Arts and Sciences University of the Philippines Los Baños By mail or telephone (049-536-2381) or email (email@example.com)
Views expressed in this paper are those of the author, and do not necessarily represent those of the Institute. Were quoted, they should be attributed clearly to the author.
Produced by the Institute of Statistics, College of the Arts and Sciences University of the Philippines Los Baños
CONTENTS ABSTRACT……………………………………………………………………………….4 1. INTRODUCTION…………………………………………………………………….5 2. REVIEW OF RELATED LITERATURE…………………………………………….7 3. THEORETICAL FRAMEWORK…………………………………………………….12 4. METHODOLOGY…………………………………………………….........................16 Data Sets used in the Study…………………………………………………................16 Data Analysis……………………………………………………………………….....17 5. RESULTS AND DISCUSSION…………………………………………………….....18 Characteristics of Filipinos in terms of their age and Employment Status……………18 Equivalised Household Income…………………………………………………...…...19 Measuring Poverty based on Different Measures of Annual Household Income……..22 6. SUMMARY AND CONCLUSION ……………………………………………….....23
The special problem attached hereto entitled MEASURING POVERTY IN THE PHILIPPINES USING EQUIVALISED HOUSEHOLD INCOME prepared and submitted by WERNER BENSON LAZARTE MOLANO in partial fulfillment of the requirements for the degree of BACHELOR OF SCIENCE in STATISTICS is hereby accepted.
__________________________ Zita VJ ALBACEA, Ph.D. Adviser
___________ Date Signed
Accepted as partial fulfillment of the requirements for the degree of BACHELOR of SCIENCE in STATISTICS.
________________________ ZITA VJ. ALBACEA, Ph.D. Director, INSTAT
___________ Date Signed
MEASURING POVERTY IN THE PHILIPPINES USING EQUIVALISED HOUSEHOLD INCOME1
WERNER BENSON LAZARTE MOLANO
Special Problem under the supervision of Zita VJ Albacea, Ph.D. submitted as partial fulfillment of the requirements in STAT 190, First Semester, School Year 2009-2010.
Four different methods of measuring income to be used in poverty measure were developed using the combined data of 2006 Family Income Expenditure Survey and Labor Force Survey. The first method used the OECD (Organization for Economic Co-operation and Development) scale which was already developed by other countries. The second method used the age classification while the third method used the employment status of household members as an equivalising scale. The last method studied considered the combined age class and employment status as an equivalising scale. To come up with a scale, estimated population distribution by age class, employment status and combined age class and employment status were obtained. Results showed that almost 46 out of 100 Filipinos aged from 22 to 65 years. It was also observed that majority or around 59% of Filipinos are not in the labor force. The income obtained using the four scales were compared to the per capita income which is the income measure used in official methodology of poverty measure. It was found that the equivalising scales affect the estimation of poverty measure in the country. Using the combined age class and employment status as a scale for computing equivalized household income resulted to a poverty incidence of only 3 percent compared to the official estimate of the National Statistical Coordination Board (NSCB) in 2006 which is 27.5 percent or almost 28 out of every 100 Filipino families are poor. Lastly, using the OECD, age class and employment status as an equivalizing scale resulted to a more equally distributed household income while per capita income has a more dispersed distribution of household income.
Keywords: equivalising scales, poverty measure, poverty incidence
Income refers to the sum of all the wages, salaries, profits, interest payments, rents and other forms of earnings received in a given period of time. Philippines uses income as an indicator of poverty. Despite the economic growth and industrial development in the Philippines, the National Statistical Coordination Board (NSCB) estimated in 2006 that the poverty incidence in the country is equal to 32.9 percent. In other words, almost 33 out of 100 Filipinos are considered poor. The increase in poverty incidence is reported to be caused by scarcity of job opportunities, social and economic exclusion, poor economic policies and weak governance. The effects of poverty incidence have dimensions on educational attainment, health and crime rate. These effects drive the need to fight poverty. The Philippines as a member of the United Nations (UN) together with 148 other countries formulated the Millennium Development Goals (MDG) and one of these goals is to eradicate extreme poverty. For the purpose of monitoring the progress towards eradicating poverty, there is a need to identify who is poor that will allow the estimation of its incidence. The Social Weather Station (SWS) poverty indicator is the proportion of household heads who rate their own families as mahirap, which is Tagalog for ‘poor’. This measure of poverty is subjective from the viewpoint of the family, not the researcher, and is thus capable of being validated by independent surveys using the same approach (Mangahas, 2004). In comparison to the SWS, the government through the NSCB has an objective approach in identifying the poor. The NSCB defined the poor as to individuals and families whose incomes fall below the official poverty threshold defined by the government or those who cannot afford to provide in sustained manner for their minimum basic needs for food, health, education housing, and other social amenities of life. Thus, an ideal
indicator of poverty is one that focuses on whether people are getting enough income to meet their needs. Different measures of poverty are being used by the different government agencies. In the official methodology followed by the NSCB for poverty assessment, the family per capita income from the Family Income and Expenditures Survey (FIES) conducted by the National Statistics Office (NSO) is compared with the poverty line. When one’s income is below the poverty line, the family is considered poor (Virola, 2005). Some issues arise in the implementation of the existing methodologies. Although the total number of household members, size N, is a logical candidate for the divisor in computing per capita income, an underestimation of the real per capita income might occur. Consider household A that is composed only of two members both have a job and household B with 4 members and only two of them have a job. If the two households have the same monthly income, the per capita income of household B might be underestimated since its income will be divided into four even though only two of them have a job. The underestimation can be corrected and one way to do this is by developing a scale that will allow a comparison of household income across household types and can also be used to equivalize annual household income with respect to household composition. Thus, the general objective of the study is to model the Philippine income distribution using equivalised income. Specifically, this study aims to:
develop an equivalising scale for the family income of Filipinos; construct the Philippine income distribution using per capita income and equivalised income;
compare the characteristics of the constructed income distributions; and
use equivalised income to compute poverty incidence.
Accurate measure of the income distribution in the Philippines will result to an accurate measure of the state of poverty in the country. The methodology would prove to be most helpful to the government and other Non-Government Organizations (NGOs) whose primary concern is extending aid to the less fortunate since the computed estimates will be more accurate and reliable. The government and NGO’s would have information on which areas of the country need to be prioritized in terms of livelihood support, employment and other forms of community development or where the government’s resources must go first. Estimates about the poor households and how the numbers change through the years can also help the policy makers in making the right decisions. Equivalised income will also tackle the problem of underestimation. Compared to per capita income which only uses the arithmetic mean to compute for the income of each household member, the equivalised income will adjust the household income to account for the fact that there are economies of scale in larger households and that adults usually have greater needs than children. II. REVIEW OF LITERATURE Between 1997 and 2000, the distribution of the poor across provinces slightly became more in accordance with the distribution of the population as the Adjusted Geographic Concentration Index (AGCI) went down from 0.2295 to 0.2223. Major contributors to the concentration are the rich regions of NCR, Region III, and Region IV, which have much lower shares of the poor than of the population and the poor region of Bicol, which has a much higher
share of the poor than of the population. Against a national poverty incidence of 33% of the population in 1997 and 43% in 2000, NCR had 6.5% in 1997 and 7.6% in 2000. The provinces with the lowest poverty incidences for both years are Bulacan, Rizal, Bataan and Cavite while those with the highest are Sulu, Masbate and Ifugao (Virola et al., 2004). In the same study, Virola et al. have found that the distribution of income with respect to the population is not so uneven. The Philippines annual per capita income grew from, Php 24,431 in 1997 to Php 28,808 in 2000 at an annual rate of 5.6%. In a survey conducted by the SWS on September 2003, 79% of households in Mindanao considered themselves poor, 64% in Visayas and 58% in Luzon (Mangahas, 2004). The 2006 official poverty statistics as presented by the NSCB also indicated that there was an increase in the number of Filipino individual and families that can be considered poor. Based on the 2006 FIES, poverty incidence in the country increased from 30 percent in 2003 to 32.9 percent or almost 33 percent in 2006. They have also estimated that from around 4 million poor families in the country in 2006 grew to about 4.7 million. There was also an increase in the poverty threshold in the country. In 2003, the NSCB estimated that a typical Filipino family that is composed of five or six members needs Php 5,129 per month in order to stay out of poverty, but in 2006 it is already Php 6,274. Based on the study of poverty trends by the Asian Development Bank (ADB) in 2005, using comparable data, it was shown that while the income poverty incidence fell from 1985 to 2000, the number of poor people increased dramatically. The poverty incidence of families in the Philippines declined from 44.2% in 1985 to 31.8% in 1997 and increased to 33.7% in 2000. Similarly, the poverty incidence of individuals decreased from 49.2% in 1985 to 36.9% in 1997 before rising to 39.5% in 2000.
The ADB also reported that there is an inconsistency in measuring poverty in the Philippines. Despite a long tradition of poverty measurement in the Philippines, trends in income poverty are not straightforward as one might hope. The most important issue is that there have been two major methodology changes since the poverty incidence was first estimated for 1985. The first major change occurred in 1992, and the second in 2003. In essence, there are three different poverty series in existence for the Philippines. Almost the same issue was raised by Albert and Collado in 2004. They said that official poverty measurement actually started in 1985, but the measurement system has undergone a number of changes since then. The latest changes in the official methodology involve the generation of poverty lines for urban/rural areas of each province based on estimating per capita minimal food and non-food requirements in order to meet data users’ demands for more disaggregated statistics. A specific model refinement can be in terms of assuming some “economies of scale” thus clarifying the relationship between household size and membership to poverty status (Coudel, Hentschel & Wodon, 2002 as cited by Reyes, 2004). Equivalised household income is the sum of total household income adjusted with the use of an equivalence scale to take into account the composition of a household. The income that a household needs depends or varies on its size. For example, a larger household needs to have a higher level of income in order to attain the same standard of living of a smaller household. For example, a one-adult household with a median annual household income of $35,000 is likely to be able to access a higher standard of living than a two-adult, two-child household with the same income (Jensen ,1988 as cited by Statistics New Zealand, 2004).
The equivalence scales used in research on income poverty in Britain have recently changed. Originally, from the 1970s onwards, the McClements scale was used, named after the government economist who derived it using econometric analysis of household expenditure data (McClements, 1978 as cited by Bradshaw, 2008). According to the Department of Work and Pensions (2004), the McClements scale points assignment for each household members are as follows: Head Spouse Other second adult Third adult Subsequent adults 0.61 0.39 0.46 0.42 0.36
and for each dependent aged: 0 to 1 2 to 4 5 to 7 8 to 10 11 to 12 13 to 15 16 or over 0.09 0.18 0.21 0.23 0.25 0.27 0.36
Equivalised household income is the total household income divided by the total or the
sum of the equivalising scale, in equation form:
where W is the equivalised
income, H is the total household income, Ni is the size of each type k of components of the household (adult, adolescent, children), and αi is the relative weight given to them (Figini, 1998). The equivalence scale most commonly used outside the UK was the OECD (Organization for Economic Co-operation and Development) scale, which was originally derived as a
consensus of scales used by national governments. It had no basis in science. As if to underline this, when economists at the OECD working on the Luxembourg Income Study noticed that the square root of the number of people in the household produced very similar results, they adopted this as the preferred option (Bradshaw, 2008). Equivalised household income is derived by calculating an equivalence factor according to the 'modified OECD' equivalence scale, and then dividing income by the factor. The equivalence factor is built up by allocating points to each person in a household (1 point to the first adult, 0.5 point to each additional person who is 15 years and over, and 0.3 to each child under the age of 15) and then summing the equivalence points of all household members (ABS, 2006). The Australian Bureau of Statistics (2006) also defined equivalised household income as a measure of the economic resources available to each member of the household. Mean equivalised household income is, therefore, usually calculated by adding the equivalised household income of all persons, and then dividing by the number of persons. This enables people in large households to have the same contribution to the mean as people living alone. Another scale was developed by Jensen (1988). This scale is made so that a two-adult household has a rating of 1; households with fewer members score less than 1, those with more members score more than 1. The scale also considered the fact that minor members of a household are likely to require less income than adults to maintain a similar standard of living. A study that was conducted by Norfolk County Council in 2006 showed that across the United Kingdom, although the distribution of total and equivalised household income is only slightly different, there is a clear pattern to these differences. The effect of equivalising the data is to increase the income measure of the highest income groups (£85,000 and over) and the
groups in the £5,000-£35,000 range (many of these will be young adults without dependants). The most significant reduction is in the lowest income groups of all, those earning less than £5,000, and in the middle income ranges (reflecting the fact that many households will comprise couples with dependent children).
III.THEORETICAL FRAMEWORK The National Statistical Coordination Board is currently using the household per capita income in determining whether a household is poor or not. Household per capita income is computed by
where: Yj – jth household per capita income, Xij- income of the ith member in the jth household, and nj- total number of members in the jth household.
This measure of household income is commonly used in economic analysis but it does not take into account the fact that there are different economies of scale depending to the household size. Many countries have already come up with different scales that can be used to adjust for these economies of scale. In the Philippines, such scales are still under study. In this study, the four age classification, employment status and the combined age classification and employment status were considered and the estimated population distributions that were obtained were used as equivalising scales.
The four-age classification used was defined as:
These age classifications were based from the labor code of the Philippines. As stated in Article 139.b, Chapter II, Title III, Book III “No child below fifteen (15) years of age shall be employed, except when he works directly under the sole responsibility of his parents or guardian, and his employment does not in any way interfere with his schooling” (Philippine Labor Code, 1974). The age distribution was computed by:
where: wj – weight/distribution of the jth age classification, nj- number of persons belonging in the jth age classification, and N- total number of persons considered in the analysis.
Another procedure that was considered is the use of the distribution of the household members by employment status. The employment status of the household members is defined as:
This can be estimated by:
where: wj – weight/distribution of the jth employment status, nj- number of persons belonging in the jth employment status, and N- total number of persons considered in the analysis. Lastly, the combined age class and employment status was obtained by cross-tabulating the four age classifications and employment status of household members. The equivalising scale can be also written as:
where the sum of the ei‘s is the denominator that will be used to compute for the equivalised household income. With an equivalising scale under the Philippine setting, the equivalised income is computed by summing up the income of household and dividing it by the sum of the equivalising scale that was given to each member of the household. Mathematically, the equivalised household income is then computed as
where: Ej – equivalised household income of the jth household, Xij- income of the ith member in the jth household, eij- equivalised scale/ weight that will be given to the ith member of the jth household, and nj- total members of the jth household. After deriving the equivalised household income, income classifications were constructed and the number of families whose equivalised income and per capita income fell in a particular income class was observed in order to model the Philippine income distribution. In the Philippines, these income groups or also known as income classes are defined as follows: Income Class 1st income class 2nd income class 3rd income class 4th income class 5th income class Per Capita Income and or Equivalised Income Under 40,000 40,000 – 59,999 60,000 – 99,999 100,000 – 249,999 250,000 and over
The income distributions obtained using different equivalising scales and per capita income were compared using gini coefficient. The Gini coefficient is based on the Lorenz curve, a cumulative frequency curve that compares the distribution of a specific variable with the uniform distribution that represents equality. This equality distribution is represented by a diagonal line, and the greater the deviation of the Lorenz curve from this line, the greater the inequality (PAHO, 2001). The coefficient ranges from zero to one. A coefficient of zero means complete equality and one indicates complete inequality (one person has all the income or consumption, all others have none). Poverty incidence is the proportion of families with per capita incomes below the poverty threshold or poverty line to the total number of families (NSCB, 2000). This can be estimated by:
can be obtained by:
where: Yj- equal to 1 if the jth household is poor, and 0 otherwise; - survey weight of the jth household; and n- total number of households in the sample,
IV. METHODOLOGY A. Data Sets Used in the Study The data that were used to model the Philippine income distribution were obtained from the combined 2003 Family Income and Expenditure Survey (FIES) and Labor Force Survey (LFS). The FIES is a household survey that is being conducted by the NSO every three years. It
gathers information about the income and expenditure from the sampled households. On the other hand, the LFS gathers information about the individual members (gender, age, employment status, etc.) of the sampled household. There is a need to use the combined data set since there are certain variables needed in the study that are not included on the FIES or LFS if each data set is treated separately. For example, if only the FIES data will be used, variables such as household member’s age and gender are not included and these variables are needed in the computation of the equivalised household income. Conversely, if only LFS data will be used, the total income of a household is not included and such information is also needed in this study. B. Data Analysis
The equivalised income was constructed as discussed in the Theoretical Framework. After the equivalised income was estimated, the per capita income of the Philippine households was also measured. Descriptive statistics like the mean, median and measures of variability such as variance and standard deviation were obtained and the characteristics of the income distribution obtained using equivalised and per capita incomewere compared. Furthermore, gini coefficient was estimated per type of income used in the construction of the income distribution. Poverty incidence for each type of income constructed was also computed. The effects of changing the measure of income on the estimation of poverty measure like poverty incidence and gini coefficient were further studied.
RESULTS AND DISCUSSION
A. Characteristics of Filipinos in terms of their Age and Employment Status Table 1 shows the age distribution of the Filipinos using the four age groupings and employment status, respectively. It shows that the third and fourth age class has the highest and lowest share of population, respectively. It can be seen that about 45 percent of the Filipinos belong to the third age class or the working class while only 3.8 percent of the Filipinos belong to the fourth age class. With majority of the Filipinos are in the working class, it can also be seen in Table 1 that almost 92 out of every 100 Filipinos in the labor force are employed. Moreover, 59 out of every 100 are considered not in the labor force and only around 8 out of every 100 Filipinos in the labor force are unemployed. These numbers indicate that majority of the country’s population belongs to the dependent age. Table 1. Estimated percentage distribution of Filipinos by age and employment status. Age Classification Estimated Proportion 14 years old and below 36.00 15 to 21 years old 14.30 22 to 65 years old 45.90 66 years old and above 3.80 Employment Status Employment Rate 92.09 Unemployment Rate 7.91 Not in the Labor Force 58.91
Table 2 presents the estimated percentage distribution by age group and employment status of Filipinos. The cross-tabulation is consistent with the distribution obtained in Table 1. It can be observed that high percentages of distribution are found at the first and third age classes and at those not in the labor force. Table 2 also shows that there are cases of child labor in the country. There are households with members who are 14 years old and below and employed at the same time. Looking at Table 2 it can be seen that 2.09% of Filipinos in the working age (22 to 65 years old) are in the labor force and at the same time unemployed. This shows that there is still a scarcity in job opportunities in the country. It is also evident that almost 12 out of every 100 Filipinos who belong to the working age group are not in the labor force. These Filipinos may either already gave up in searching for a job or they did not try to find a job at all thinking that there is a lack of job opportunities in the country. Table 2. Estimated percentage distribution by age classification and employment status.
Employment Status Age Classification 14 years old and below 15 to 21 years old 22 to 65 years old 66 years old and above Total Employed 0.72 4.49 31.27 1.35 37.84 Unemployed 0.04 1.09 2.09 0.02 3.25 Not in the Labor Force 35.64 8.90 11.96 2.41 58.91 Total 36.40 14.48 45.33 3.79 100.00
B. Equivalised Household Income Table 3 shows the descriptive statistics for the different equivalised income and per capita income computations. Results showed that the per capita income has the lowest mean at Php35,677.27 while the equivalised income using the age classification by employment has the highest mean at Php84,058.13. Considering OECD definition as the preferred option as quoted
from the study of Bradshow in 2008, the equivalised income computation from the employment status has the nearest mean value to the computed mean using the OECD scale while the mean per capita income is the farthest. Looking at the coefficient of variation (CV) of each estimate, all of them range from one to two percent which shows that there is only a small variation of income for every method that was used. It can also be seen that the per capita income has the highest computed kurtosis while equivalised income computed by combined age class and employment status has the lowest kurtosis. This implies that the variability of the computed income using per capita income is due to a few extreme differences in the mean while the variability of income using the combined age class and employment status is due to a frequent modest differences from the mean. Table 3. Descriptive Statistics of different income measures. Descrip tive Statisti cs
Mean Median Min Max Range CV Std. Error Kurtosis Skewness Equivalized Income Computed Using: Age Age Classificati OECD Employme Classificati on by Definition nt Status on Employme nt Status 64,193.29 70,174.91 59,286.57 84,058.13 35,827.96 39,276.46 31,973.39 47,254.29 757.67 834.32 534.84 897.74 8,488,434 11,915,792 7,841,769 14,343,671 .00 .00 .00 .00 8,487,676 11,914,957 7,841,234 14,342,773 .00 .69 .00 .26 1.1654 1.1930 1.1966 1.2067 748.14 837.20 709.43 1,014.30 1,646.69 3,126.25 1,506.62 3,372.61 25.13 36.73 24.46 38.83 Per Capita Income 35,677.27 19,723.67 1,257.00 8,064,012. 00 8,062,755. 00 1.2580 448.84 5,548.55 53.68
Figure 1 presents the income distribution using the different equivalised income and per capita income computations. The results reveal that in all five (5) computations majority of the respondents belong to the first income class (i.e. under 40,000). This means that it is probable to
have a high poverty incidence in the country based on per capita income since many if not majority of the Filipinos belong to the first income class and the poverty line is also found in this income class. Furthermore, Figure 1 also reveals that computing the Philippine income using the combined age class and employment status as an equivalising scale resulted to the fewest number of Filipinos that belong to the first income class. Overlapping the five income distributions, it can be seen that there is a similar decreasing trend in the distribution as the income class increases. Worth noting is that the distributions as one moves from income class 2 to income class 4 in the equivalised income using age and employment status are almost equal. Although all the five computations show income distributions which are skewed to the left, the per capita income distribution which is most skewed to the left. Figure 1 also shows that per capita income has the most peaked distribution while the computed equivalised income using combined age class and employment status has the least peaked distribution.
Figure 1. Income distribution using per capita income and different equivalising scales Table 4 shows indeed that majority of the respondents belong to the first income class except if their income will be computed using age class and employment status as an equivalising scale. Using the per capita income resulted to the highest percentage in the first income group which is equal to 77.13% of the respondents while equivalised income using age class and employment status resulted to the lowest percentage in the first income class. Table 4. Percentage of each estimated income class of different income computations
Equivalized Income Computed Using: Income Class OECD Definition 54.96% 15.45% 15.08% 12.07% 2.44% Age Classification 50.76% 16.39% 16.23% 13.68% 2.95% Employment Status 59.08% 14.57% 13.60% 10.56% 2.20% Age Classification by Employment Status 42.63% 17.42% 18.27% 17.35% 4.33% Per Capita Income
Under 40,000 40,000 – 59,999 60,000 – 99,999 100,000 – 249,999 250,000 and over
77.13% 10.47% 7.58% 4.22% 0.60%
C. Measuring Poverty based on Different Measures of Annual Household Income The poverty incidence was computed using the five different annual income measures (i.e. using the OECD, age, employment status, combined age and employment status as a scale and the household per capita income). The highest estimate of poverty incidence was estimated using the per capita income which is 24 percent while the lowest estimate of poverty incidence was obtained using the equivalising scale that considered the combined age class and employment status of household members (see Table 5). Using this equivalising scale, it was estimated that only 3 out of every 100 households are considered poor. It must be noted also that among all the estimation procedures, this latter estimate resulted to the lowest standard error. Results show that the current poverty estimation procedure (using per capita income) that is being used might overestimate the incidence in the country. Moreover, all the computed income using different equivalising scales resulted to a lower poverty incidence. It can be seen that using the combined age class and employment status as an estimator for household income has the lowest estimate of gini coefficient. This implies that the equivalised income obtained using the combined age class and employment status as a scale is
more equally distributed compared to the other procedures of obtaining household income. Furthermore, the per capita income resulted to the highest gini coefficient. It means that using per capita as an estimator, the distribution of household income obtained was more unequal or more dispersed compared to the other methods.
Table 5. Poverty Incidence using the three equivalising scale and household per capita Income Poverty Gini Coefficient Incidence 0.24 Per Capita Income 0.54 (0.003287) Equivalised Income using OECD scale Equivalised Income using Age Class Equivalised Income using Employment Status Equivalised Income using combined Age Class and Employment Status *Standard Error of the estimate 0.08 (0.001789)* 0.06 (0.001577)* 0.11 (0.002143)* 0.03 (0.001190)* 0.47 0.47 0.47
VI. SUMMARY and CONCLUSION A “poor” household is defined as a household whose income is below the poverty threshold. For the purpose of identifying households that classified as “poor” four different methods of computing household income were compared (i.e. using the OECD, age, employment status, combined age and employment status as a scale and the household per capita income). The four different scales assign weights to the household members and the sum of these weights for every household was used as a divisor for the household’s total income.
To obtain the equivalized household income, equivalising scales were first constructed. Equivalising scales were computed by looking at the population distribution of the country. Household members who belong to the third age group or the working class were given the highest weights while household members who belong to the last age group were given the lowest weights using age class as the equivalising scale. It was found that 37.84 percent of Filipinos are employed, so using the employment status as an equivalising scale, household members who are employed were given the highest weights while unemployed household members were given the lowest equivalising weight. Lastly, using the combined age class and employment status, household members that belong to the third age class and considered employed were given the highest equivalising weight. Results showed that using the combined age class and employment status as an equivalising scale resulted to the lowest estimate of poverty incidence in the country which is equal to three percent. Thus, only 3 out of every 100 households in the country are considered poor. Moreover, using the OECD scale, age class and employment status of household members as an equivalising scale resulted to a more equal income distribution of households while using the per capita income resulted to a more unequal distribution among the other estimation procedures. The study shows that the estimation method using per capita income resulted to a higher estimate of poverty incidence in the country. An alternative is the use of the equivalised income using OECD scale that was developed by other countries and the three other equivalising scales
which give poverty measures that are more reliable since they considered the age and employment status of each household member.
VII. LITERATURE CITED
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