Economy and Poverty

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Economy and Poverty

• Bratislava, May 2003
• Jean-Etienne Chapron
• Statistical Division UNECE

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Economy and Poverty

• Key Economic Indicators
• Income and Poverty

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Key Economic Indicators

• Purpose
• Overview of the economic and financial context in
  the country
• Structure
• Production
• Inflation, debt, and international assistance
• Public revenue and expenditure

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Key Economic Indicators

• Production
• Gross domestic product (GDP)
• at constant prices
• per capita
• national currency and US purchasing power parity
  (PPP)

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Key Economic Indicators

• Production
• International standards for GDP
• UN System of National Accounts (SNA) of 1993
• European System of Accounts (ESA) of 1995
• At this level of aggregation, SNA and ESA are
  identical

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Key Economic Indicators

• Inflation, debt, and international assistance
• Purpose Summarise the security of the economy
• Inflation change in consumer prices
• Budget deficit of GDP
• Balance of payments deficit of GDP

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Key Economic Indicators

• Inflation, debt, and international assistance
  (cont.)
• Service of external debt (public and private) as
  of exports
• Net official aid received as of GDP

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Key Economic Indicators

• Public revenue and expenditure
• Purpose Summarise governments capacity to
  adjust economic trends (GDP) for social concerns
• Public revenue (per capita and of GDP)
• Public expenditure (per capita and of GDP)

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Key Economic Indicators

• Public revenue and expenditure (cont.)
• Public exp. on total social objectives
• Per capita
• of GDP
• Public exp. on health
• Per capita
• of GDP
• Public exp. on education per student
• Public exp. on social transfers per beneficiary

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Key Economic Indicators

• Public revenue and expenditure (cont.)
• Sources Government Finances statistics (in
  general compiled by Ministry of Finances,
  sometimes by National Statistical Office or
  Central Bank)
• International Standard IMF

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Poverty

• A key issue for economic and social policy makers
• Several stakeholders
• Governments and civil society organisations
• International organisations and their country
  offices UN (esp. UNDG), UNDP, World Bank, EU

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Measuring Poverty

• What are we looking for?
• The extent of poverty in our country
• How poverty is changing over time

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Measuring Poverty

• This is not that easy
• A variety of inconsistent concepts, methods, and
  techniques
• Results on request high, moderate, or low
  poverty, increasing or declining?

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Measuring Poverty

• The meaning of poverty
• A shortage of income whereby to procure
  essentials in respect of a population in a given
  area at a given time
• Poverty is related to health, education, social
  exclusion, etc. in the broader context of human
  welfare

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Measuring Poverty

• Poverty is measured in terms of income
• Poverty is analysed as a multidimensional
  phenomenon (health, education, social exclusion,
  etc.)

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Measuring Poverty

• What is income? Basically
• Earnings from employment
• Wages
• Earnings in non-wage employment
• Social transfers
• Pensions
• Unemployment benefits
• Health, maternity, family, minimum income, etc.
• Net of taxes and social contributions
• In cash and in kind

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Measuring Poverty

• From households income to individual income
• Household is the best unit for the measurement of
  income, but it is of poor analytical value
• Individual income is the best indicator
• Per capita
• Per adult equivalent (OECD scale)

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Measuring Poverty

• From households income to individual income
• Commonly used standard in Europe for Adult
  equivalent
• The OECD modified scale
• First adult 1
• Additional adult 0.5
• Children 0.3
• A couple with two children is equivalent to 2.1
  adults.

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Measuring Poverty

• Income or Consumption?
• In terms of concrete measurement, it may be
  difficult to collect reliable data on income
• Under-reporting by interviewed people
• Difficult estimate of income in kind
  (owner-occupied dwelling, free food received from
  government or NGOs)

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Measuring Poverty

• Income or Consumption? (cont.)
• Consumption can be a good proxy to income
• It is more easy to capture in households surveys
• Distribution of income and consumption is not the
  same, because of saving
• But levels of income and consumption are nearly
  identical in the lowest part of income
  distribution

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Measuring Poverty

• Absolute and relative poverty
• Poverty as a shortage of income whereby to
  procure essentials this is absolute poverty.
• Poverty as a level of income that is
  significantly lower than the average income in
  the populaiton this is relative poverty.

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Measuring Poverty

• Absolute and relative poverty (cont.)
• Clearly, absolute and relative poverty do not
  correspond to the same purpose
• Absolute poverty is related to minimum
  subsistence. It is most appropriate to monitoring
  and evaluation of poverty reduction policies
• Relative poverty is related to disparity of
  income. It is most appropriate to understanding
  level and trends of inequality.

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Measuring Poverty

• Measuring absolute poverty lines
• Physiological requirement for food, commonly
  2,100 to 2,400 calories per capita per day for an
  active adult.
• Least cost of providing the calories with a
  reasonably mixed diet.
• The result is the food poverty line, or extreme
  poverty line.
• The extreme poverty line is then upgraded by
  adding an item for non-food needs.

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Measuring Poverty

• Measuring absolute poverty lines (cont.)
• The non-food needs can be best estimated using
  the non-food/food ratio for the group of
  households that is just above the poverty line.

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Measuring Poverty

• Measuring relative poverty line
• Starting from the distribution of income in the
  population, identification of the median income
  (50 of the population is below, 50 above this
  income).
• Taking a fixed percentage of the median income as
  the relative poverty line.
• Following the EU standard, the relative poverty
  line is 60 of the median income.

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Measuring Poverty

• Recommendations
• Establish a limited set of meaningful poverty
  lines
• Two absolute poverty lines, corresponding to
  poverty (food non-food), and extreme poverty
  (food) based on minimum physiological
  requirements.
• One relative poverty line, that is 60 of the
  median income.

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Measuring Poverty

• Recommendations (cont.)
• Identify poors in terms of demographic
  characteristics (sex, age, etc.) disadvantaged
  groups (ethnic minorities, refugees, etc.)
  geographical regions health, education, and
  housing conditions, etc. This is required for
  policy monitoring and evaluation.

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Measuring Poverty

• Recommendations (cont.)
• Establish and periodically update the
  distribution of income (or consumption as a
  proxy), i.e., the percentage of households by
  class of income (see Table 6 in the Background
  document).
• Measure the median income (50 above, 50 below),
  the upper quintile (20 above), and the lowest
  quintile (20 below).

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Measuring Poverty

• Statistical sources
• Household sample surveys covering a comprehensive
  and representative sample of households.
• Living standard measurement surveys (LSMS),
  household budget survey (HBS), or income and
  expenditure surveys are good examples.
• If possible, annual surveys. If not, every
  two/three years. Every five years would be too
  long in the context of transition .

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Poverty

• Relation to MDG 1
• Eradicate extreme poverty and hunger
• Target 1 Halve between 2000 and 2015 the
  proportion of people in absolute poverty.
• The UN list of MDG states People whose income
  is less than one dollar a day.
• A footnote specifies For monitoring country
  poverty trends, indicators based on national
  poverty lines should be used, where available.