Poverty threshold

Graph of global population living on under 1, 1.25 and 2 equivalent of 2005 US dollars daily (red) and as a proportion of world population (blue) based on 1981–2008 World Bank data

The poverty threshold, poverty limit, poverty line or breadline[citation needed] is the minimum level of income deemed adequate in a particular country.[1] Poverty line is usually calculated by finding the total cost of all the essential resources that an average human adult consumes in one year.[2] The largest of these expenses is typically the rent required for accommodation, so historically, economists have paid particular attention to the real estate market and housing prices as a strong poverty line affect.[3] Individual factors are often used to account for various circumstances, such as whether one is a parent, elderly, a child, married, etc. The poverty threshold may be adjusted annually.

In practice, like the definition of poverty, the official or common understanding the poverty line is significantly higher in developed countries than in developing countries.[4][5]

In October 2015, the World Bank updated the International Poverty Line (IPL), a global absolute minimum, to $1.90 per day.[6]

By this measure, the percentage of the global population living in absolute poverty fell from over 80% in 1800 to 10% by 2015, according to United Nations estimates, which found roughly 734 million people remained in absolute poverty.[7][8]

Charles Booth, a pioneering investigator of poverty in London at the turn of the 20th century, popularised the idea of a poverty line, a concept originally conceived by the London School Board.[9] Booth set the line at 10 (50p) to 20 shillings (£1) per week, which he considered to be the minimum amount necessary for a family of four or five people to subsist on.[10] Benjamin Seebohm Rowntree (1871–1954), a British sociological researcher, social reformer and industrialist, surveyed rich families in York, and drew a poverty line in terms of a minimum weekly sum of money "necessary to enable families … to secure the necessaries of a healthy life", which included fuel and light, rent, food, clothing, and household and personal items. Based on data from leading nutritionists of the period, he calculated the cheapest price for the minimum calorific intake and nutritional balance necessary, before people get ill or lose weight. He considered this amount to set his poverty line and concluded that 27.84% of the total population of York lived below this poverty line.[11] This result corresponded with that from Charles Booth's study of poverty in London and so challenged the view, commonly held at the time, that abject poverty was a problem particular to London and was not widespread in the rest of Britain. Rowntree distinguished between primary poverty, those lacking in income and secondary poverty, those who had enough income, but spent it elsewhere (1901:295–96).[11]

The term "absolute poverty" is also sometimes used as a synonym for extreme poverty. Absolute poverty is the absence of enough resources to secure basic life necessities.

To assist in measuring this, the World Bank has a daily per capita international poverty line (IPL), a global absolute minimum, of $1.90 a day as of October 2015.[13]

The new IPL replaces the $1.25 per day figure, which used 2005 data.[14] In 2008, the World Bank came out with a figure (revised largely due to inflation) of $1.25 a day at 2005 purchasing-power parity (PPP).[15] The new figure of $1.90 is based on ICP purchasing power parity (PPP) calculations and represents the international equivalent of what $1.90 could buy in the US in 2011. Most scholars agree that it better reflects today's reality, particularly new price levels in developing countries.[16] The common IPL has in the past been roughly $1 a day.[17]

These figures are artificially low according to Peter Edward of Newcastle University. He believes the real number as of 2015 was $7.40 per day.[18]

Using a single monetary poverty threshold is problematic when applied worldwide, due to the difficulty of comparing prices between countries.[citation needed] Prices of the same goods vary dramatically from country to country; while this is typically corrected for by using purchasing power parity (PPP) exchange rates, the basket of goods used to determine such rates is usually unrepresentative of the poor, most of whose expenditure is on basic foodstuffs rather than the relatively luxurious items (washing machines, air travel, healthcare) often included in PPP baskets. The economist Robert C. Allen has attempted to solve this by using standardized baskets of goods typical of those bought by the poor across countries and historical time, for example including a fixed calorific quantity of the cheapest local grain (such as corn, rice, or oats).[19]

The basic needs approach is one of the major approaches to the measurement of absolute poverty in developing countries. It attempts to define the absolute minimum resources necessary for long-term physical well-being, usually in terms of consumption goods. The poverty line is then defined as the amount of income required to satisfy those needs. The 'basic needs' approach was introduced by the International Labour Organization's World Employment Conference in 1976.[20][21] "Perhaps the high point of the WEP was the World Employment Conference of 1976, which proposed the satisfaction of basic human needs as the overriding objective of national and international development policy. The basic needs approach to development was endorsed by governments and workers' and employers' organizations from all over the world. It influenced the programmes and policies of major multilateral and bilateral development agencies, and was the precursor to the human development approach."[20][21]

A traditional list of immediate "basic needs" is food (including water), shelter, and clothing.[22] Many modern lists emphasize the minimum level of consumption of 'basic needs' of not just food, water, and shelter, but also sanitation, education, and health care. Different agencies use different lists. According to a UN declaration that resulted from the World Summit on Social Development in Copenhagen in 1995, absolute poverty is "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information. It depends not only on income, but also on access to services."[23]

David Gordon's paper, "Indicators of Poverty and Hunger", for the United Nations, further defines absolute poverty as the absence of any two of the following eight basic needs:[23]

In 1978, Ghai investigated the literature that criticized the basic needs approach. Critics argued that the basic needs approach lacked scientific rigour; it was consumption-oriented and antigrowth. Some considered it to be "a recipe for perpetuating economic backwardness" and for giving the impression "that poverty elimination is all too easy".[24] Amartya Sen focused on 'capabilities' rather than consumption.

In the development discourse, the basic needs model focuses on the measurement of what is believed to be an eradicable level of poverty.

Relative poverty means low income relative to others in a country[25]: for example, below 60% of the median income of people in that country.

Relative poverty measurements unlike absolute poverty measurements take the social economic environment of the people observed into consideration. It is based on the assumption that whether a person is considered poor depends on its income share relative to other people’s income shares that are living in the same economy.[26] The threshold for relative poverty is considered to be at 50% of a country’s median equivalised disposable income after social transfers. Thus, it can vary greatly from country to country even after adjusting for purchasing power standards (PPS).[27]

A person can be poor in a relative term but not in absolute term as the person might be able to meet its basic needs, but it is not able however to enjoy the same standards of living as other people in the same economy are enjoying.[28] Relative poverty is thus a form of social exclusion that can for example effect peoples access to decent housing, education or job opportunities.[29]

The relative poverty measure is used by the United Nations Development Program (UNDP), the United Nations Children's Fund (UNICEF), the (OECD) and Canadian poverty researchers.[30][31][32][33][34] In the European Union, the "relative poverty measure is the most prominent and most–quoted of the EU social inclusion indicators."[35]

"Relative poverty reflects better the cost of social inclusion and equality of opportunity in a specific time and space."[36]

"Once economic development has progressed beyond a certain minimum level, the rub of the poverty problem – from the point of view of both the poor individual and of the societies in which they live – is not so much the effects of poverty in any absolute form but the effects of the contrast, daily perceived, between the lives of the poor and the lives of those around them. For practical purposes, the problem of poverty in the industrialized nations today is a problem of relative poverty (page 9)."[36][37]

However, some[who?] have argued that as relative poverty is merely a measure of inequality, using the term 'poverty' for it is misleading. For example, if everyone in a country's income doubled, it would not reduce the amount of 'relative poverty' at all.

In 1776, Adam Smith argued that poverty is the inability to afford "not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without."[38][39]

In 1958, John Kenneth Galbraith argued, "People are poverty stricken when their income, even if adequate for survival, falls markedly behind that of their community."[39][40]

In 1964, in a joint committee economic President's report in the United States, Republicans endorsed the concept of relative poverty: "No objective definition of poverty exists. ... The definition varies from place to place and time to time. In America as our standard of living rises, so does our idea of what is substandard."[39][41]

In 1965, Rose Friedman argued for the use of relative poverty claiming that the definition of poverty changes with general living standards. Those labelled as poor in 1995, would have had "a higher standard of living than many labelled not poor" in 1965.[39][42]

In 1967, American economist Victor Fuchs proposed that "we define as poor any family whose income is less than one-half the median family income." [43] This was the first introduction of the relative poverty rate as typically computed today [44][45]

In 1979, British sociologist, Peter Townsend published his famous definition: "individuals... can be said to be in poverty when they lack the resources to obtain the types of diet, participate in the activities and have the living conditions and amenities which are customary, or are at least widely encouraged or approved, in the societies to which they belong (page 31)."[46]

Brian Nolan and Christopher T. Whelan of the Economic and Social Research Institute (ESRI) in Ireland explained that "poverty has to be seen in terms of the standard of living of the society in question."[47]

Relative poverty measures are used as official poverty rates by the European Union, UNICEF and the OEDC. The main poverty line used in the OECD and the European Union is based on "economic distance", a level of income set at 60% of the median household income.[48]

A measure of relative poverty defines "poverty" as being below some relative poverty threshold. For example, the statement that "those individuals who are employed and whose household equivalised disposable income is below 60% of national median equivalised income are poor" uses a relative measure to define poverty.[49]

The term relative poverty can also be used in a different sense to mean "moderate poverty" – for example, a standard of living or level of income that is high enough to satisfy basic needs (like water, food, clothing, housing, and basic health care), but still significantly lower than that of the majority of the population under consideration.[50]

2008 CIA World Factbook-based map showing the percentage of population by country living below that country's official poverty line

National estimates are based on population-weighted subgroup estimates from household surveys. Definitions of the poverty line do vary considerably among nations. For example, rich nations generally employ more generous standards of poverty than poor nations. Even among rich nations, the standards differ greatly. Thus, the numbers are not comparable among countries. Even when nations do use the same method, some issues may remain.[51]

In the UK, "more than five million people – over a fifth (23 percent) of all employees – were paid less than £6.67 an hour in April 2006. This value is based on a low pay rate of 60 percent of full-time median earnings, equivalent to a little over £12,000 a year for a 35-hour working week. In April 2006, a 35-hour week would have earned someone £9,191 a year – before tax or National Insurance".[52][53]

India's official poverty level as of 2005 is split according to rural versus urban thresholds. For urban dwellers, the poverty line is defined as living on less than 538.60 rupees (approximately US$12) per month, whereas for rural dwellers, it is defined as living on less than 356.35 rupees per month (approximately US$7.50).[54]In 2019, the Indian government stated that 6.7% of its population is below its official poverty limit.As India is one of the fastest-growing economies in 2018, poverty is on the decline in the country, with close to 44 Indians escaping extreme poverty every minute, as per the World Poverty Clock.India lifted 271 million people out of poverty in a 10-year time period from 2005/06 to 2015/16.[2]

Poverty rate map of India by prevalence in 2012, among its states and union territories
A comparative map of poverty in the world in 2012, at national poverty line, according to the World Bank.

In United States, the poverty thresholds are updated every year by Census Bureau. The threshold in United States are updated and used for statistical purposes. In 2020, in the United States, the poverty threshold for a single person under 65 was an annual income of US$12,760; the threshold for a family group of four, including two children, was US$26,200.[55] According to the US Census Bureau's American Community Survey 2018 One-year Estimates, 13.1% of Americans lived below the poverty line.

Women and children find themselves impacted by poverty more often when a part of single mother families.[56] This is due to the feminization of poverty[further explanation needed], how the poverty rate of women has increasingly exceeded that of men’s.[57] While the overall poverty rate is 12.3%, women poverty rate is 13.8% which is above the average and men are below the overall rate at 11.1%.[58][56] Women and children (as single mother families) find themselves as a part of low class communities because they are 21.6% more likely to fall into poverty.[59] However, extreme poverty, such as homelessness, disproportionately affects males to a high degree.[60]

A minority group is defined as “a category of people who experience relative disadvantage as compared to members of a dominant social group.”[61] Minorities are traditionally separated into the following groups: African Americans, American Indians, Alaska Natives, Asians, Pacific Islanders, and Hispanics.[62] According to the current U.S. Poverty statistics, Black Americans - 21%, Foreign born non-citizens - 19%, Hispanic Americans - 18%, and  Adults with a disability - 25%.[63] This does not include all minority groups, but these groups alone account for 85% of people under the poverty line in the United States.[64] Whites have a poverty rate of 8.7%; the poverty rate is more than double for Black and Hispanic Americans.[65]

Living below the poverty threshold can have a major impact on a child’s education.[66] The psychological stresses induced by poverty may affect a student’s ability to perform well academically.[66] In addition, the risk of poor health is more prevalent for those living in poverty.[66] Health issues commonly affect the extent to which one can continue and fully take advantage of his or her education.[66] Poor students in the United States are more likely to dropout of school at some point in their education.[66] Research has also found that children living in poverty perform poorly academically and have lower graduation rates.[66] Impoverished children also experience more disciplinary issues in school than others.[66] Schools in impoverished communities usually do not receive much funding, which can also set their students apart from those living in more affluent neighborhoods.[66] There is much dispute over whether upward mobility that brings a child out of poverty may or may not have a significant positive impact on his or her education; inadequate academic habits that form as early as preschool typically are unknown to improve despite changes in socioeconomic status.[66]

The nation’s poverty threshold is issued by the Census Bureau.[67] According to the Office of Assistant Secretary for Planning and Evaluation the threshold is statistically relevant and can be a solid predictor of people in poverty.[67] The reasoning for using Federal Poverty Level, FPL, is due to its action for distributive purposes under the direction of Health and Human Services. So FPL is a tool derived from the threshold but can be used to show eligibility for certain federal programs.[67] Federal poverty levels have direct effects on individual’s healthcare. In the past years and into the present government, the use of the poverty threshold has consequences for such programs like Medicaid and the Children’s Health Insurance Program.[68]  The benefits which different families are eligible for are contingent on FPL. The FPL, in turn is calculated based on federal numbers from the previous year.[68] The benefits and qualifications for federal programs are dependent on number of people on a plan and the income of the total group.[68] For 2019, the U.S Department of health & Human Services enumerate what the line is for different families. For a single person, the line is $12,490 and up to $43,430 for a family of 8, in the lower 48 states.[67] Another issue is reduced-cost coverage. These reductions are based on income relative to FPL, and work in connection with public health services such as Medicaid.[69] The divisions of FPL percentages are nominally, above 400%, below 138% and below 100% of the FPL.[69] After the advent of the American Care Act, Medicaid was expanded on states bases.[69] For example, enrolling in the ACA kept the benefits of Medicaid when the  income was up to 138% of the FPL.[69]

Health Affairs along with analysis by Georgetown found that public assistance does counteract poverty threats between 2010 and 2015.[70] In regards to Medicaid, child poverty is decreased by 5.3%, and Hispanic and Black poverty by 6.1% and 4.9% respectively.[70] The reduction of family poverty also has the highest decrease with Medicaid over other public assistance programs.[70] Expanding state Medicaid decreased the amount individuals paid by an average of $42, while it increased the costs to $326 for people not in expanded states. The same study analyzed showed 2.6 million people were kept out of poverty by the effects of Medicaid.[70] From a 2013-2015 study, expansion states showed a smaller gap in health insurance between households making below $25,000 and above $75,000.[71] Expansion also significantly reduced the gap of having a primary care physician between impoverished and higher income individuals.[71] In terms of education level and employment, health insurance differences were also reduced.[71] Non-expansion also showed poor residents went from a 22% chance of being uninsured to 66% from 2013 to 2015.[71]

Living above or below the poverty threshold is not necessarily a position in which an individual remains static.[72] As many as one in three impoverished people were not poor at birth; rather, they descended into poverty over the course of their life.[66] Additionally, a study which analyzed data from the Panel Study of Income Dynamics (PSID) found that nearly 40% of 20-year-olds received food stamps at some point before they turned 65.[73] This indicates that many Americans will dip below the poverty line sometime during adulthood, but will not necessarily remain there for the rest of their life.[73] Furthermore, 44% of individuals who are given transfer benefits (other than Social Security) in one year do not receive them the next.[72] Over 90% of Americans who receive transfers from the government stop receiving them within 10 years, indicating that the population living below the poverty threshold is in flux and does not remain constant.[72]

Most experts and the public agree that the official poverty line in the United States is substantially lower than the actual cost of basic needs. In particular, a 2017 Urban Institute study found that 61% of non-elderly adults earning between 100-200% of the poverty line reported at least one material hardship, not significantly different from those below the poverty line. The cause of the discrepancy is believed to be an outdated model of spending patterns based on actual spending in the year 1955; the number and proportion of material needs has risen substantially since then. However, the Donald Trump administration is publicly floating a policy that would lower the line even further (in some areas) by switching to the United States Chained Consumer Price Index that is less accurate for low incomes over time, which would weaken assistance programs by reducing the number of eligible individuals and make the poverty line itself an even less accurate indicator of poverty.[74]

The U.S. Census Bureau calculates the poverty line the same throughout the U.S. regardless of the cost-of-living in a state or urban area. For instance, the cost-of-living in California, the most populous state, was 42% greater than the U.S. average in 2010, while the cost-of-living in Texas, the second-most populous state, was 10% less than the U.S. average.[citation needed] In 2017, California had the highest poverty rate in the country when housing costs are factored in, a measure calculated by the Census Bureau known as "the supplemental poverty measure".[75]

In addition to wage and salary income, investment income and government transfers such as SNAP (Supplemental Nutrition Assistance Program, also known as food stamps) and housing subsidies are included in a household's income. Studies measuring the differences between income before and after taxes and government transfers, have found that without social support programs, poverty would be roughly 30% to 40% higher than the official poverty line indicates.[76][77]