The Evolution of Poverty Measurement - with special reference to Canada

1. The Evolution of Poverty Measurement - with special reference to Canada Lars Osberg Economics Department, Dalhousie University Workshop on Low Income, Poverty and Deprivation Statistics Canada, Ottawa February 12, 2007

2. How has measurement of poverty evolved over last 30 years? • Why do we want to know how much poverty there is? • Objective is to inform policy debate • A ‘macro’ indicator – how muchnot who • Compare outcomes across jurisdictions or over time as evidence for policy formation • This paper – trends in Canada + international methodology literature • What is the relationship between poverty, social exclusion and the denial of human rights?

3. The “Low Income/Poverty Line” Income in Canada – 1976 to 2006 • LICO - % income spent on necessities • LIM – 50% median • Subjective (Leyden) • “Barely adequate” • “Make ends meet” • Market Basket • HRDC • Fraser Institute • Because real median incomes increase ≈ 0, all updated for inflation only

4. Not much change & fairly narrow range – in 2006 $ [Fraser Institute an outlier – “extreme deprivation” concept]

5. Distribution Sensitive Poverty Indices SST = FGT1 (1+G(g)) SST = (r) (g) (1+G(gi)). Average Poverty Gap ratio often ≠ poverty rate Inequality of poverty gaps is empirically unimportant Axiomatic basis of Indices Transfer sensitivity axiom important BUT others ?? Focus – relative poverty lines cannot qualify Impartiality – group identities of poor irrelevant Continuity – no “threshold effects” – by assumption Equivalence scales LIS scale now common Stochastic Dominance of Deprivation Profiles Restricted dominance is relevant criterion Poverty among the Elderly ? Axioms, Aggregation & Dominance – measurement since Sen (1976)

6. Time and Poverty SpellsAnnual accounting period – too long & too short • No cash & no credit? – very cold in much less than a week • Immediate Needs - historic focus of social policy – now downgraded • Human Rights perspective implies short term deprivation matters • Stress may trigger events with long term consequences • Long term poverty, culture of deprivation & inter-generational impacts ? • Long term poor – clearly the most deprived • Now the focus of “Human Capital” emphasis & “Social Exclusion” discourse • Individuals flow through sequence of households • Poverty spell entry, exit and recurrence implied by real time changes in both incomes and household composition • Panel data + {assumption: equivalence scale + no transactions costs} can generate individual life histories of equivalent income poverty spells • Costs of volatility & insecurity in health, well-being & human capital not now recognized

7. Sen: Commodities are needed for capabilities, which enable valued functioningsPoverty = deprivation of capabilities • Relative income can determine absolute capability – e.g. bicycle / car travel • Capabilities <= $ income + “social wage” + context • Problem: “capabilities” = opportunity set, ≠ observed choices • Multidimensional Poverty indices measure achieved functionings • Can look within households • What is critical value of specific item deprivation? • How to aggregate over single / multiple deprivations? • Correlation of attributes is crucial • Little information added if highly correlated with income, but “too low” correlation implies separable issues involved • Measurement error biases towards chance correlation

8. Social Exclusion – ‘prevented from participation in normal activities of society’ • Example of transportation • Income poverty – not enough cash to buy bus fare ? • Capabilities approach – might ask: is there a bus route? To where? Is it wheelchair accessible? – but capability is fundamentally an individual attribute • Social Exclusion – accessibility planning seen as an issue of community design • Determines feasibility of employment + access to social life & public services – many feedback effects of isolation • Multi-dimensional, mixed indicators, threshold & feedback effects, long term deprivation crucial • Social Exclusion – a relationship of society & the excluded • Measurement Implication – both personal attributes & social context of individuals are crucial to social exclusion & poverty

9. “Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services”UN Universal Declaration of Human Rights (1948) Article 25 • Human rights • Specified by Constitutions & International Covenants • Clear legal origin, specificity & procedural legitimacy in democratic institutions • Indivisible & interdependent • E.g. Right to privacy is empty without right to housing • Imposes obligations on state parties • Typically seen as either/or condition • Head-count measure of deprivation ?

10. Complexification & its costs ?

11. What’s different? • Specific issues – e.g. homelessness, nutrition, transportation – not new • can be framed in income poverty, capability, social exclusion or human rights terms • But these perspectives differ in treatment of: • Time – current deprivation or long-term? • Continuity – threshold effects important? • Aggregation – sum index (rate) or deprivation-weighted ? • Social Context – central to concept of exclusion, rights