5.

2 Measuring Absolute
Poverty
Absolute Poverty
• The situation of being unable or only barely able to meet
the subsistence essentials of food, clothing, and shelter

• It is sometimes measured by the number, or “headcount”,

H, of those whose incomes fall below the absolute poverty
line, Yp
Headcount Index: H/N
• The proportion of a country’s living below the poverty
line

• Where H is the number of persons who are poor and N is

the total number of people in the economy
Total Poverty Gap (TPG)
• The sum of the difference between the poverty line
and actual income levels of all people living below
that line

𝐻
TPG = 𝑖=1(𝑌𝜌 − 𝑌𝑖)
• Where Yp is the absolute poverty line; and Y𝑖 is the
income of the 𝑖th poor person
Average Poverty Gap (APG)
𝑇𝑃𝐺
APG =
Ν

• Where N is the number of the persons in the

economy
• TPG is total poverty gap
Normalized Poverty Gap (NPG)
Often we are inverted in the size of the poverty in the
size of the poverty gap in relation to the poverty line, so we
would use as our income shortfall measure the normalized
poverty gap.

𝐴𝑃𝐺
NPG=
𝑦𝑝
This measure lies between 0 and 1 and so can be useful
when we want a unit less measure of the gap for easier
comparisons.
Average Income Shortfall (AIS)
𝑇𝑃𝐺
AIS=
𝐻
• Poverty gap divided by the headcount of the poor
• It tells us the average amount by which the income of a poor person falls
below the poverty line

Normalized Income Shortfall (NIS)

𝑁𝐼𝑆
NIS=
𝑦𝑝
• Average Income Shortfall divided by the poverty line
Faster-Greer-Thorbecke (FGT) Index
1 𝐻 𝑌𝑝 −𝑌𝑖 𝑎
P𝛼= 𝑖=1
𝑁 𝑦𝑝

• Where N is the number of persons, H is the number of poor

persons, and a ≥ 0 is a parameter
• When a=0, we get the headcount index measure
• When a=2, we get the “P2” measure
• A class of measures of the level of absolute poverty
The Multidimensional Poverty Measurement
• Identification of poverty status through a dual cutoff:

 First, cutoff levels within each dimension(analogous to falling below a poverty line
for example $1.25 per day for income poverty)

 Second, cutoff in the number of dimensions on which a person must be deprived

(below a line) to be deemed multidimensionally poor

• MPI focuses on deprivations in health, education, and standard

of living; and each receive equal (that is one-third of the overall
total) weight
 MPI Indicators
• Health (1/3)
 Whether any child has died in the family. (1/6)
 Whether any adult or child in the family is malnourished. (1/6)

• Education (1/3)
 Whether not even one household member has completed five years of
schooling. (1/6)
 Whether any school-age child is out of school for grades one through
eight. (1/6)
 MPI Indicators
• Standard of Living (1/3)
 Lack of electricity (1/8)
 Insufficiently safe drinking water (1/8)
 Inadequate sanitation (1/8)
 Inadequate flooring (1/8)
 Unimproved cooking fuel (1/8)
 Lack of more than one of 5 assets- telephone, radio, TV, bicycle, and
motorbike (1/8)
Computing the MPI
The MPI for the country (or region or group) is then computed
• A convenient way to express the resulting value is H*A, i.e.,
• The product of the headcount ratio H (the percent of people living in
multidimensional poverty), and the average intensity of deprivation A
(the percent of weighted indicators for which poor households are
deprived on average).

• HA satisfies some desirable properties. Important example-

• Dimensional monotonicity: If a person already identified as poor becomes
deprived in another indicator she is measured as even poorer- not the
case using a simple headcount ratio.