Measuring poverty

There are many ways to define poverty, and many countries have their own definitions and methods designed to fit their internal policies. For example, during the 60's, the United States has defined poverty thresholds to develop social programs. These thresholds establish the necessary income to meet the basic needs of a family and are updated yearly. This kind of measure is custom-made and cannot easily be used for other countries. Others poverty indicators have been developed to allow comparisons worldwide.

There are two main poverty indicators used by the UNDP in its report on human development: One for the developing countries, the Human Poverty Index 1 (HPI-1), and one for the "developed countries" (OECD countries, Central and Eastern Europe and the CIS); Both are based on the Human Development Index (HDI), invented by the economists Amartya Sen (Nobel Prize) and Sudhir Anand.

The HDI measures the average achievements in a country in three basic dimensions of human development:

• A long and healthy life, as measured by life expectancy at birth.
  
• Knowledge, as measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary education gross enrolment ratio (with one-third weight).
  
• A decent standard of living, as measured by GDP per capita in purchasing power parity(PPP) terms in US dollars.

• vulnerability to death at a relatively early age, as measured by the probability at birth of not surviving to age 40.
  
• exclusion from the world of reading and communications, as measured by the adult illiteracy rate.
  
• lack of access to overall economic provisioning, as measured by the unweighted average of two indicators: the percentage of the population without sustainable access to an improved water source and the percentage of children under weight for age.

• vulnerability to death at a relatively early age, as measured by the probability at birth of not surviving to age 60.
  
• exclusion from the world of reading and communications, as measured by the percentage of adults (aged 16-65) lacking functional literacy skills.
  
• standard of living, as measured by the percentage of people living below the income poverty line (50% of the median adjusted household disposable income).
  
• social exclusion, as measured by the rate of long-term unemployment (12 months or more).

This chart shows that, over a period of 30 years, the HDI has improved in the different regions of the world except for Africa (click on charts to get a bigger image):

HDI evolution chart

We must notice that the progress has been very slow and that the gap between developed countries and developing countries is not narrowing.

HDI and GDP per capita table  

Poverty is also measured with a two thresholds indicator: the percentages of people earning respectively less than US$1 a day and less than US$2 a day (in purchasing power parity). Here are the figures:

World working poors figures

Will growth reduce poverty?

While the percentage of working poor in total employment has declined in the past ten years, the number of working people living on US$2 a day has continued to grow in absolute numbers, reaching 1.37 billion in 2006. So, will the employment generated by growth help to further reduce the gap and lift people out of poverty?

Well, probably not, according to the last ILO brief on global employment trends:

Strong global GDP growth in 2006 led to a stabilization of labour markets worldwide, with more people in work1 than in 2005. At the same time the total of 195.2 million unemployed was slightly higher than a year earlier, an all time high. The global unemployment rate changed little from a year earlier, and stood at 6.3 per cent in 2006 (see figure 1). This confirmed the trend of the past several years in which robust economic growth has failed to translate into significant reductions in unemployment or poverty among those in work.

The pattern looks set to continue in 2007, with a forecast growth rate of 4.9 per cent2 likely to ensure that unemployment remains at about last year's level. The persistence of joblessness at this rate is of concern, given that it will be difficult to sustain such strong economic growth indefinitely.

World unemployment figures

World unemployment chart

World labour market indicators

According to the ILO paper : Estimating growth requirements for reducing working poverty: Can the world halve working poverty by 2015?,  the reduction of poverty by half in 2015 (one of the millennium goals) mighted be attained for extreme poverty (working people whose income is less than US$ 1 a day, which is mere survival) nevertheless leaving around 500 millions of themstill under this threshold, but it will far from being attained for the people whose income is less than US$ 2 a day, of whom the number is still growing, even with high growth rates.

World poverty reduction chart

So what should be the annual GDP growth rates required in order to attain this objectives (reducing poverty by half in 2015?  

Required growth rates, World

10,4% for the developing countries whereas the 1995-2005 trend is between 5% and 5,4%

and if you exclude the faster growing  East Asia, the required annual growth rate is 12,2%, whereas the 1995-2005 trend is between 3,8% and 4,3%!

If we take a closer look at Africa, the picture is much worse:

Africa poverty reduction chart

Not only poverty has not been reduced, but the required annual growth rate to reduce it by half (from 87% of the working population) is 42,3%!

Required growth rates, Africa

So should we stick to the belief that stimulating growth is the only way to solve development problems and reduce poverty, or should we start thinking of other ways?