The advantages and
disadvantages of using a concept such as an international poverty line... Do you agree that a real
annual income of $370 in, say, Mexico
has the same meaning as in, say, Nigeria
or Thailand?
The International Poverty Line is a number decided by the World Bank in
1985 to measure the number of people living in extreme poverty. It represents the minimum level of income necessary to achieve an adequate standard of living in a given country. 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. This approach is needs-based in that
an assessment is made of the minimum expenditure needed to maintain a tolerable
life. An international figure for this was
calculated by documenting each country's individual standards for poverty and
converting the number to dollars. This amount came to between $275 and $370 per
year, or around $1 a day, leading to the name "the dollar-a-day
line." Hence internationally, people earning below a dollar a day are
considered to be under extreme poverty line.
The number was revised to $1.08 PPP (Purchasing Power Parity) in 1993.
Purchasing power parity is the number of units of foreign currency required to
purchase the identical quantity of goods and services in the local market as $1
would buy in the United States. This is
only an estimated number since PPP varies greatly depending on the value of
currency and cost of goods and services in a country.
The advantages
of the concept of poverty line is that it is useful as an economic tool with
which to measure such people and consider socioeconomic reforms such as welfare and unemployment insurance to reduce
poverty.
However,
using a poverty line is problematic because having an income marginally above
it is not substantially different from having an income marginally below it.
This may lead to assuming that the population slightly above the poverty line
as not being poor might induce negative assumptions about the condition of the
country. To overcome this problem, poverty indices are sometimes used instead.
A poverty threshold relies on a quantitative, or purely numbers-based, measure of income. If
other human development-indicators like health and education are used, they
must be quantified, which is not a simple (if even achievable) task.
Another
disadvantage of poverty line is limiting definition of poverty to lack of
income in cash. In-kind gifts,
whether from public or private sources, are not counted when calculating a
poverty threshold. For example, if a parent pays the rent on an apartment for
an adult daughter directly to the apartment owner, instead of giving the money
to the daughter to pay the rent, then that money does not count as income to
the daughter. If a church or non-profit organization gives food to an elderly
person, the value of the food is not counted as income to the elderly
person. The official poverty measure
counts only monetary income. It considers antipoverty programs such as food stamps, housing assistance, the earned income
tax credit, medical aid and school lunches, among others, "in-kind benefits" -- and
hence not income. So, despite everything these programs do to relieve poverty,
they aren't counted as income.
Poverty
line has another disadvantage in particular for understating poverty, by using
an outdated "basket of goods" to set the standard. While cost of
these goods is adjusted for inflation every year, the basket of goods itself remains
the same. It excludes the cost of items that were rare among poor Americans in
the 1950s, but which are now common, such as a telephone, a car and
a microwave oven.
Furthermore,
poverty tends to be cyclical. Thus, the poverty line indicates only how many
people are poor at any one point in time. It does not report the number of
people who will experience poverty during their lifetimes. Even in developed
countries such as U.S. for example, roughly 12%-13% fall below the poverty line
in any given year, but roughly 40% will experience poverty at some point over a
ten-year time span.
Real
annual income of $370 in, say, Mexico
does not have the same meaning as in, say, Nigeria
or Thailand
because of the differences in exchange rates and purchasing power of the
country. Although expressed as fixed
amount of $370, the differences in exchange rates of each country will alter
the value in the corresponding national currency. For instance, 1 US $ at
current is 12.5 Mexican Peso, 150 Nigerian Naira and 32.2 Thai Bahts which are different amounts relative to the
living standards and per capita income of each country. Further more, use of that particular amount
may not be able to purchase similar goods of similar quantity, in other words
may not have same purchasing power. For
example, a particular TV set that sells for 8,000 Nepali Rupees (NRs) in
Kathmandu should cost 5,000 Indian Rupees (IRs) in Delhi when the exchange rate
between Nepal and India is 1.6 NRs/IRs. However in reality due to conditions of
transportation, taxes and income status of people, the price of that same TV
increases in Nepal and thus the purchasing capacity of Nepalese decreases. As
such 8000, NRs which amounts to 107 US$ does not have the same meaning in Nepal
as in India or in any other country elsewhere.
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