Measuring Poverty
Chapter- 02
Course Name: Poverty Studies
Course code: DEPS-305 & DEPS 325
First prepared in October, 2020
First revised in March, 2021
Lecture- 03
Prepared by-
Md. Hayder Khan Sujan
Lecturer
Department of Development and Poverty Studies
Sher-e-Bangla Agricultural University
Email: [email protected]
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Learning objectives
After completing this chapter we will be able-
1. To describe the steps in Measuring poverty
2. To discuss the key Survey issues and the common Survey problems
3. To know the process of choosing an Indicator of welfare
4. To decide which Indicator of welfare should choose: Income or
Expenditure?
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Steps in Measuring Poverty
Three steps need to be taken in measuring poverty:
i. Defining an indicator of welfare
ii. Establishing a minimum acceptable standard of that indicator to
separate the poor from the non-poor (the poverty line)
iii. Generating a summary statistic to aggregate the information from
the distribution of this welfare indicator relative to the poverty line.
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Measuring Poverty: Choosing an Indicator of Welfare
Candidate 1: Income
Income = Consumption + Change in net worth
Income tends to be understated for several reasons:
i. People forget about the money they may have received up to a year before
ii. People may be reluctant to disclose the full extent of their income, lest the
tax collector or a neighbor get wind of the details
iii. People may be reluctant to report income earned illegally
iv. Some parts of income are difficult to calculate, i.e., the value of cattle in
dairy farm, the value of machineries and equipments etc.
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Measuring Poverty: Choosing an Indicator of Welfare (Cont’d)
Candidate 2: Consumption Expenditure
Consumption is likely to be systematically understated for the following reasons:
i. Households tend to under-declare what they spend on luxuries or illicit items
ii. Measuring Durable Goods
iii. Measure the Value of Housing Services
iv. Weddings and Funerals
v. Accounting for Household Composition Differences
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Which Indicator of Welfare: Income or Expenditure?
Income
Pros: Cons:
• Easy to measure, given the limited • Likely to be underreported.
number of sources of income. • May be affected by short-term/seasonal fluctuations.
• Measures degree of household • Some parts of income are hard to observe (i.e., the income of
“command” over resources. informal sector, home agril. production, self-employment).
• Costs only a fifth as much to collect as • Link between income and welfare is not always clear.
expenditure data, so • Reporting period might not capture the “average” income.
• Sample can be larger.
Consumption
Pros: Con:
• Shows current actual material standard • Households may not be able to smooth consumption.
of living. • Consumption choices made by households may be misleading.
• Smoothes out irregularities, and so • Some expenses are not incurred regularly, so data may be
reflects long-term average well-being. noisy.
• Less understated than income, because • Difficult to measure some components of consumption. (i.e.,
expenditure is easier to recall. durable goods).
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Candidate 3. Other Measures of Household Welfare
• Calorie consumption per person per day
• Food consumption as a proportion of total expenditure
• Nutritional status as measured by stunting or wasting and
• Peer or observers assessment
However, there is no ideal measure of well-being, and analysts need to be
aware of the strengths and limitations of any measure they use.
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Household Surveys
Key Survey Issues
i. The sample frame
ii. The unit of observation
iii. The number of observations over time
iv. The principal living standard indicator collected
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Common Survey Problems
i. Survey Design
ii. Sampling
iii. Goods Coverage and Valuation
iv. Variability and the Time Period of Measurement
v. Comparisons across Households at Similar Consumption Levels
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Thank you
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