Poverty
The alleviation of poverty is increasingly seen as a fundamental economic objective. Poverty creates many economic costs in terms of the opportunity cost of lost output, the cost of welfare provision, and the private and external costs associated with exclusion from normal economic activity. These costs include the costs of unemployment, crime, and poor health. In addition, the poor have little disposable income, and so cannot spend and generate income for firms and jobs for other individuals.
There are
two ways to define poverty:
Absolute poverty
Absolute poverty is
poverty that is unrelated to a particular economic or social context.
In other words it is a general definition of poverty
which is valid at all times and for all economies. Agreeing such
a definition is extemely hard to do.
One straightforward definition of
absolute poverty is ‘…being
unable to subsist…’ that is,
unable to eat, drink, have shelter and
clothing. A common ‘monetary’ measure is ‘..receiving
less than $1 a day…’.
Relative poverty
It can be argued that poverty is
best understood in a relative way – what is poor in New York is not the
same as in Mumbai.
One approach is to look at
‘deprivation’, the poor being defined
as those who are deprived from the benefits of a
modern economy, such as clean water and education.
The Human Poverty Index - HPI
The Human Poverty Index (HPI), which was introduced
in 1997, is a composite index which assesses three elements of
deprivation in a country - longevity, knowledge and a decent standard of
living.
There are two indices; the HPI – 1, which measures
poverty in developing countries, and the HPI-2, which measures poverty
in OCED developed economies.
HPI-1 (for developing countries)
The first element is longevity, which is defined as
the probability of not surviving to the age of 40.
The second element is knowledge, which is assessed
by looking at the adult literacy rate.
The third element is to have a ‘decent’ standard of living. Failure to achieve this is identified by the percentage of the population not using an improved water source and the percentage of children under-weight for their age.
As a region of the world, Sub-Saharan
Africa has the highest level of poverty as a proportion of total
population, at over 60%. The second poorest region is Latin America,
with 35% of its population living in poverty.
HPI-2 (for developed - OECD countries)
The indicators of deprivation are adjusted for
advanced economies in the following ways:
Longevity, which for developed countries is
considered as the probability at birth of not surviving to the age of
60.
Knowledge is assessed in terms of the percentage of
adults lacking functional literacy skills, and;
A decent standard of living is measured by the
percentage of the population living below the poverty line, which is
defined as those below 50% of median household disposable income, and
social exclusion, which is indicated by the long-term unemployment rate.
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