Poverty

Poverty is the deprivation of food, shelter, money

and clothing when people can’t satisfy their
basic needs. Poverty can be understood simply
as a lack of money or more broadly in terms of
barriers to everyday human life.
According to Mobile Orshansky who developed
the poverty measurements used by the U.S.
government, “ Poor is to be deprived of those
goods, services and pleasures which others around
us take for granted.”
According to David Kurten , Poverty also
involves social disintegration and environmental
degradation which he describe as forming the
threefold human crisis in the world today.
Poverty is the other economic problem
facing most of the
nations in the world. There is no unique
definition of poverty.
This is based on the national definition as well as
the international standards of US $1/day/person
and US $2/day/person. Lately the poverty
definition is changing to US $4/day/person.
 Types Of
Poverty
(1) Absolute Poverty : (Destitution) It refers to the
state of severe deprivation of basic
human needs.

(2) Relative Poverty : It is defined contextually as

Economic inequality in location or society in
which people live.
 Lorenz curve
In economics ,the Lorenz
curve is a graphical
representation of the
cumulative distribution
function of the empirical
probability distribution of
wealth; it is a graph
showing the proportion
of the distribution
assumed by the bottom y
% of the values.
It is often used to represent income distribution,
where it shows for the bottom x% of households,
what percentage y% of the total income they have.
The percentage of households is plotted on the x-
axis, the percentage of income on the y-axis.
 It can also be used to show distribution of assets.
In such use, many economists consider it to be a
measure of social inequality. It was developed by
Max O. Lorenz in 1905 for representing inequality
of the wealth distribution.
Greater the curvature of Lorenz line, greater will be
the relative degree of inequality.
Four Possible Lorenz curves
The concept is useful in describing inequality
among the size of individuals in ecology, and in
studies of biodiversity, where cumulative
proportion of species is plotted against cumulative
proportion of individuals. It is also useful in
business modeling.
E.g. In consumer finance, to measure the actual
delinquency Y% of the X% of people with worst
predicted risk scores.
 Facts And Figures
The world bank estimated that ,
1) Around 1.29 billion people were in
absolute poverty in 2008.
2) About 400 million people in absolute poverty in
India and 173 million people in china.
3) Sub-saharan Africa at 47% had the highest
incidence rate of absolute poverty in
2008.
4) Between 1990 and 2010, about 663 million
people moved above the absolute poverty level.
5) Every year 11 million children living in poverty
die before their 5th birthday.
6) 1.02 billion people go to bed hungry every night.
The World bank’s “Voice of the poor” , based
on research with over 20,000 poor people in
23 countries, identifies a range of factors
which poor people identify as part of poverty
are :

(1) Precious livelihoods

(2) Excluded location
(3) Physical limitation
(4) Gender relationship
(5) Lack of security
(6) Problems in social relationship
(7) Weak community organization
(8) Limited capabilities
 Poverty line
 The poverty threshold or poverty line is the
minimum level of incomedeemed adequate in a given
country.
 In practice, like the definition of poverty, the official or
common understanding of the poverty line is significantly
higher in developed countries than in developing
countries.
 The common international poverty line has in the past
been roughly $1 a day. In 2008, the World Bank came out
with a revised figure of $1.25 at 2005 purchasing-power
parity (PPP).
 Determining the poverty line is usually done by
finding the total cost of all the essential resources that
an average human adult consumes in one year.
 The largest of these expenses is typically the rent
required to live in an apartment, so
historically, economists have paid particular attention
to the real estate market and housing prices as a strong
poverty line affector.
 Gini coefficient
The Gini coefficient is usually defined
mathematically based on the Lorenz curve , which
plots the proportion of the total income of the
population (y axis) that is cumulatively earned by
the bottom x% of the population. The line at 45
degrees thus represents perfect equality of
incomes.
Gini Coefficient &
Aggregate measures of
inequality
The Gini coefficient can then be thought
of as the ratio of the area that lies between
the line of equality and the Lorenz curve
over the total area under the line of
equality .
The Gini coefficient can theoretically range from
0 to 1; it is sometimes expressed as a percentage
ranging between 0 and 100. In practice, both
extreme values are not quite reached.
A low Gini coefficient indicates a more equal
distribution, with 0 corresponding to complete
equality, while higher Gini coefficients indicate
more unequal distribution, with 1 corresponding to
complete inequality.
 Characteristics of Poverty
 Effects of poverty also be causes and creating a “Poverty
cycle” operating across multiple
levels, individual, national, global.
(1) Health : one third of deaths are due to poverty
related causes. . Those living in poverty suffer
from life expectancy.
 According to the World Health Organization, hunger
and malnutrition
are the single gravest threats to the world's public health
and malnutrition is by far the biggest contributor to child
mortality , present in half of all cases.
Almost 90% of maternal deaths during childbirth
occur in Asia and sub-Saharan Africa, compared to
less than 1% in the developed world.
(2) Hunger : Rises in the living cost making poor
people less able to afford items. Poor people spend
most of the portion of their budget on to food than
richer person.
(3) Education : Poor children are suffering from hunger,
irritability,headache,viral infection, colds. It is safe to
state that children who live at or below the poverty level
will have far less success educationally than children who
live above the poverty line.
• Poor children have less healthcare and this
ultimately results in many absences from the academic
year.
• Additionally, poor children are much more likely to
suffer from hunger, fatigue, irritability, headaches,
ear infections, flu, and colds. These illnesses could
potentially restrict a child or student's focus and
concentration.
(4) Housing : Poverty increases the risk of
homelessness. Slum-dwellers, who make up a
third of the world's urban population, live in
poverty. According to a report by the United
Nations, there are over 100 million street
children worldwide.
 (5) Violence : According to the reports, many
women become victims of trafficking. The most
common form of which is Prostitution as a mean
of survival and economic desperation.
• Deterioration of living conditions can often
compel children to abandon school in order
to contribute family income.
E.g. Slavery and Human trafficking.
• E.g. In Zimbabwe, no. of girls are turning
to prostitution for food to survive because
of increasing poverty.
 Measures of poverty
There are Various measures of the extent of
poverty .
 The head count index.
 The poverty gap index.
 The squared poverty gap (poverty severity) index.
 Head count index
• The most widely used measure is the headcount
index.
• It simply measures the proportion of the
population that is counted as poor.

Head count index = No. of poor

/Total no. of
p
o
p
u
 Weaknesse
s
• It does not take the intensity of poverty
into account.
• Survey does not indicate how poor the poor
are, and hence does not change if people
below the poverty line become poorer.
• The poverty estimates should be calculated
for individuals and not the households.
 Significance
The most common method of measuring and
reporting poverty is the headcount ratio, given as the
percentage of population that is below the poverty
line.
 One of the undesirable features of the headcount
ratio is that it ignores the depth of poverty; if the
poor becomes poorer, the headcount index does not
change.
Poverty gap index provides a clearer perspective on
the depth of poverty.
 Poverty gap index
Poverty gap index is a measure of the intensity of
poverty. It is defined as the average poverty gap in
the population as a proportion of the poverty line.
The poverty gap index is an improvement over the
poverty measure headcount ratio which simply
counts all the people below a poverty line, in a given
population, and considers them equally poor.
 Poverty gap index estimates the depth of poverty
by considering how far, on the average, the poor are
from that poverty line.
 Calculation
Poverty gap index
(PGI) is calculated as,

where is the total population of poor who are living

at or below the poverty line and is the income of
the poor household .
• In this calculation, all households whose income
is above the poverty line are not considered,
because PGI is a measure of depth of poverty
below the poverty line .
 By definition, poverty gap index is a percentage
between 0 and 100%.
 Sometimes it is reported as a fraction,
between 0 and 1. A theoretical value of zero
implies that all the extremely poor people are
exactly at the poverty line.
 A theoretical value of 100% implies all the
extremely poor people have zero income. In
some literature, poverty gap index is reported as
while headcount ratio is reported as .
 Squared poverty gap index
 Squared poverty gap index, also known
poverty severity index or , is related to poverty
gap index.
 It is calculated by averaging the square the poverty
gap ratio. By squaring each poverty gap data, the
measure puts more weight the further a poor
person's observed income falls below the poverty
line.
 The squared poverty gap index is one form
of a weighted sum of poverty gaps, with the
weight proportionate to the poverty gap.
Sen index, sometimes referred to , is related to
poverty gap index (PGI).It is calculated as
follows:

Where H is the headcount ratio and Gz is the income

Gini coefficient of only the people below the poverty
line.
 Poverty Reduction
 Increasing supply of basic needs.
 Increasing supply of food and other goods.
 Increasing supply of healthcare and education,
water and energy utilities.
 Removing constraints on govt. services
 Reversing brain drains.
 Controlling overpopulation.
 Increasing personal income.