Poverty Line

Poverty Line Definition

The definition of the poverty line is the cost of the minimum amount of requirements for an adult to live in a specific country. Sometimes poverty line is called the poverty threshold.

Before the 2000s, the poverty line was settled at around a dollar per day. Nonetheless, due to inflation, the World Bank decided to calculate the poverty line as $1.90 per day in 2015, and currently, it is $2.15 per day. There are currently 648 million people that live below this threshold.⁶ This composition contains approximately 18 million individuals from developed countries contained in Europe, East Asia, and North America. The Sub-Saharan countries contain 389 million individuals under this threshold and they have the largest ratio of total individuals living under the poverty line⁵ .

When we are trying to understand the poverty line, numbers can be shocking. Nonetheless, they may help us to realize and understand the world we are living in. In the following section, we are going to focus on the poverty line from an empirical perspective and try to create a landscape of the topic throughout the years.

Poverty Line Examples

We can elaborate on our understanding of the poverty line with examples. According to World Bank data, 648 million people are living under the poverty line in 2019⁶ . We can see the proportions over the world within the following graph.

Fig. 2 - Population living under the poverty line. Source: The World Bank⁶

As we can see, developing regions significantly suffer from poverty. This is rather a both-way relationship meaning that increased poverty will affect development, and lower development will cause increased poverty. In the economics literature, this is generally referred to as the poverty trap.

Countries in the poverty trap fail to satisfy basic human needs. Since citizens can’t contribute to society due to their situation, the social institutions and infrastructure of the country suffer. As a result of the failed infrastructure and institutions, people can’t satisfy their basic needs.

Although it is believed that the poverty line is a crucial factor for our understanding of the world, its definition still stands on slippery ground.

• If we analyze the definition we can add more questions to it like the following.
  • 'What are the necessities for a human being to survive?'
  • 'Is surviving the same thing as living?'
  • 'How can one measure the needs of an average adult individual?'

These are all valid points, and even if the answers are not precise, they may lead us to at least some relative perspectives.

Poverty Line Calculation

Poverty lines can be calculated with different methods. In this section, we will cover the calculation of the most commonly used poverty lines. Nonetheless, it is beneficial to remember that poverty can be a tricky concept, and its calculation will require many perspectives. Instead of focusing on one methodology, we should consider different perspectives while developing policies to overcome poverty.

Poverty Line Calculation: Subjective Poverty Lines

While calculating subjective poverty lines, individuals’ judgments over poverty are taken into consideration. For creating subjective poverty lines, poverty is researched with surveys that include questions about their feeling of life fulfillment. Supporters of this approach assume that, at the end of the day, poverty is a subjective topic, and if individuals feel that they are not fulfilled with the standards of their life, they may be considered poor.

On the other hand, this approach may lead to only relative results and a wrong interpretation of the real poverty. Therefore, many international organizations and governments use objective measurement tools.

Poverty Line Calculation: Objective Poverty Lines

Instead of subjective measurement, objective measurement uses quantifiable metrics to analyze poverty such as income and consumption.

Organizations or institutions measure the objective poverty line with two approaches. The most well-known approach used by the World Bank is the absolute poverty line. Nonetheless, some organizations like the OECD prefer to use relative poverty lines.

Absolute Poverty Lines

Absolute poverty lines depend on fixed values, such as the minimum amount of nutrition or the cost of basic needs.

For measuring this, a threshold value is selected with respect to different approaches.For example, some absolute poverty lines set their threshold value with respect to direct calorie intake.

• Commonly used absolute poverty lines can be measured with different methodologies like:

  1. Direct Calorie Intake (DCI);

  2. Food Energy Intake (FEI);

  3. Food-Share;

  4. Cost of Basic Needs (CBN).

All of the absolute poverty line measures depend on food. They are pretty similar in their approaches and they justify their thresholds with respect to the minimum amount of food required to survive.

For example, CBN creates a food basket that is necessary to survive for an adult human being in a specific country and estimates its cost. Thus, the CBN approach sticks with the rest of the group while calculating the necessity as the required amount of food intake.

Many times this approach is criticized due to its lack of interest outside of basic human needs. We can ask ourselves what is necessary to stay alive and what is necessary for a life worth living. Most citizens in developed countries may assume that the internet or a car is a necessity to live, albeit the fact that in some countries, even clean water is a luxury.

Therefore, some institutions prefer to measure objective poverty with relative poverty lines specific to a region or a country.

Relative Poverty Lines

Relative poverty lines use the median income to compare different individuals in the same economy to decide on a threshold.

Thus, this approach decides if an individual is poor by comparing it to different individuals in the same society. This approach can be seen as similar to the absolute poverty line while considering inequality in a society. Relative poverty lines are a strong tool for measuring individual poverty of people with lower income than the society they are living in.

Indeed, an individual in a European country can earn a higher income than an individual in the Sub-Saharan region. Nonetheless, this individual may be excluded from options or opportunities due to the individual’s relatively low income in the economy in which he or she is living.

Poverty Line Implications

Implications of the poverty line are as important as the poverty line itself for policy suggestions. Until now, we have focused on what the poverty line is and how to measure poverty lines. Nonetheless, as individuals linked to social sciences, we should consider the meaning of the term. This is rather different from asking what is it. What conclusions can be drawn from poverty lines?

Since we know the general aspects of poverty lines, we can say that they are vital for understanding the current poverty problems. Nonetheless, we also know how they are calculated and even within different methods, there exist some internal debates.

In addition to that, there exist many criticisms of poverty line calculations outside of the traditional methodologies. Especially the data collection process can lead to the wrong conclusions.

Data collection problems may lead to false projections and misunderstandings.

Another important aspect is the philosophical dimension of the whole process. As we have mentioned before, some questions, especially questions with subjective answers, are hard to justify with objective measurements. One of the prominent arguments against the absolute poverty line is its calculation of the threshold value. Why are we taking the minimum amount of nutrition as the deciding value for the poverty line threshold? What about necessities like education?

On the other hand, we should keep in mind that poverty also is a crucial concept. Poverty lines can be a guiding factor for future and current policies. Not just for international agendas, but also in domestic policies, poverty lines are used for resource allocation.

As many as 648 million people live under the poverty line.⁶ This means that they can’t satisfy their basic needs, and they suffer from malnutrition. In such societies, both political and economical institutions fail. This leads to increased crime rates, lack of economic growth, and, most of the time, more autocratic regimes. Since these factors cause poverty, a poverty trap manifests itself as a vicious cycle.

No matter how we calculate the poverty line, poverty itself is a real problem and surely hard to describe with the statistical tools at hand. While driving conclusions, we should carefully consider perspectives on poverty, and even using different methodologies may be useful for more suitable policy suggestions.

Poverty Line: Government Assistance

Government assistance is a crucial concept for increasing the poverty line threshold. We are inseparable from the society that we are living in. Our lives are linked to a complex social network. Therefore, overcoming poverty is not just vital for improving the quality of life of others, but also ours. Both national and international results of poverty affect the world we are living in as individuals. Therefore, every step toward the solution will lead us to a better society, a better nation, and a better world. As we all know, international organizations are making an effort to overcome poverty, but what can our governments do?

Government policies are crucial for stabilizing society. Especially in developed countries, government policies can cause a better distribution of wealth. Increased taxes, taken from the more wealthy layers of society, can lead to a more equal wealth distribution if it is made by strong institutions and a working inspection mechanism.

In the United States, government programs made a significant impact, especially between the 1970s and the late 2010s.⁸ The child poverty of minorities fell by a significant amount, which led to a more equal society. The main role of the governments in this crisis is to create equal opportunities for the poor and minorities. This mission requires a strong statistical understanding and continuous communication between governments and the public.