HANDBOOK ON POVERTY STATISTICS: CONCEPTS, METHODS AND POLICY USE SPECIAL PROJECT ON POVERTY STATISTICS UNITED NATIONS STATISTICS DIVISION DECEMBER 2005 1 PREFACE ..................................................................................................................................................... 6 ABOUT THE AUTHORS............................................................................................................................ 8 CHAPTER 1. INTRODUCTION.............................................................................................................. 14 1.1 A BROAD CONSULTATIVE PROCESS.............................................................................................. 15 1.2 ROADMAP.................................................................................................................................... 17 CHAPTER II. CONCEPTS OF POVERTY............................................................................................ 23 INTRODUCTION......................................................................................................................................... 23 2.1 BASIC APPROACHES..................................................................................................................... 27 2.1.1 POVERTY LINES........................................................................................................................... 29 2.1.2 ABSOLUTE VERSUS RELATIVE POVERTY ...................................................................................... 32 2.1.3 COST OF BASIC NEEDS APPROACH .............................................................................................. 33 2.1.4 HOUSEHOLDS AND INDIVIDUALS: ADULT EQUIVALENCE AND SCALE ECONOMIES ....................... 35 2.1.5 ADJUSTMENT FOR NON-FOOD NEEDS ........................................................................................... 39 2.1.6 SETTING AND UPDATING PRICES .................................................................................................. 41 2.2 INTERNATIONAL COMPARISONS................................................................................................... 43 2.3 TOWARD HARMONIZATION.......................................................................................................... 47 REFERENCES............................................................................................................................................. 50 CHAPTER III. POVERTY MEASURES ................................................................................................ 52 INTRODUCTION......................................................................................................................................... 52 3.1 DESIRABLE FEATURES OF POVERTY MEASURES ........................................................................... 54 3.2 FOUR COMMON MEASURES.......................................................................................................... 57 3.2.1 HEADCOUNT MEASURE................................................................................................................ 58 3.2.2 POVERTY GAP.............................................................................................................................. 60 3.2.3 WATTS INDEX.............................................................................................................................. 64 3.2.4 SQUARED POVERTY GAP .............................................................................................................. 66 3.3 COMPARING THE MEASURES........................................................................................................ 67 3.4 EXIT TIME AND THE VALUE OF DESCRIPTIVE TOOLS..................................................................... 71 3.5 BROADER CONCERNS................................................................................................................... 78 3.5.1 COMPARISONS WITHOUT POVERTY MEASURES ............................................................................ 78 3.5.2 MEASUREMENT ERROR................................................................................................................ 79 3.6 CONCLUSIONS ............................................................................................................................. 81 REFERENCES............................................................................................................................................. 84 CHAPTER IV. COUNTRY PRACTICES IN COMPILING POVERTY STATISTICS .................... 85 INTRODUCTION......................................................................................................................................... 85 4.1 INCOME- OR EXPENDITURES-BASED MEASUREMENT APPROACHES .............................................. 86 4.1.1 SPECIFY A FOOD POVERTY THRESHOLD ....................................................................................... 87 4.1.2 FOOD BASKET CONSTRUCT AND FOOD POVERTY LINE ( fpl ) ...................................................... 92 4.1.3 ALTERNATIVE APPROACHES TO COSTING A FOOD BASKET: PRICE PER KCALORIE AND HOUSEHOLD LEVEL fpl ............................................................................................................................................... 95 4.1.4 COMPUTING THE TOTAL POVERTY LINE ( tpl )............................................................................. 96 A. List of specified essential non-food needs...................................................................................... 97 B. Regression 98 C. Engel’s coefficient....................................................................................................................... 100 D. Comparative performance of the three procedures..................................................................... 101 4.1.5 UPDATING POVERTY MEASURES AND ESTIMATING POVERTY TRENDS........................................ 103 4.1.6 RELATIVE AND SUBJECTIVE INCOME/EXPENDITURES BASED POVERTY LINES ............................ 107 4.2 DIRECT MEASURES OF FOOD POVERTY ...................................................................................... 109 2 4.2.1 ESTIMATING THE EMPIRICAL CUMULATIVE DISTRIBUTION FUNCTION (CDF) OF PER CAPITA ENERGY CONSUMPTION ........................................................................................................................................ 109 4.2.2 HOUSEHOLD SIZE FOR PER CAPITA CALCULATIONS ................................................................... 113 4.2.3 ESCHEWING PER CAPITA CALCULATIONS................................................................................... 116 4.3 NON-INCOME MEASUREMENT METHODS.................................................................................... 117 4.4 CONCLUSION ............................................................................................................................. 120 REFERENCES........................................................................................................................................... 125 CHAPTER V. STATISTICAL TOOLS AND ESTIMATION METHODS FOR POVERTY MEASURES BASED ON CROSS-SECTIONAL HOUSEHOLD SURVEYS.................................... 128 INTRODUCTION....................................................................................................................................... 128 5.1 CROSS-CUTTING ISSUES IN POVERTY MEASUREMENT ................................................................ 130 5.1.1 REASONS FOR FAVORING CONSUMPTION EXPENDITURE AS A WELFARE INDICATOR .................. 130 5.1.2 CONSISTENCY OF HOUSEHOLD SURVEY METHODS AND POVERTY COMPARISONS ...................... 135 5.1.3 CORRECTION METHODS FOR RESTORING COMPARABILITY TO INCOMPARABLE SURVEYS .......... 138 5.1.4 MEASUREMENT ERROR IN CROSS-SECTIONAL SURVEY DATA..................................................... 142 5.1.5 VARIANCE ESTIMATORS FOR COMPLEX SAMPLE DESIGNS.......................................................... 145 5.2 TYPES OF SURVEYS.................................................................................................................... 151 5.2.1 INCOME AND EXPENDITURE (OR BUDGET) SURVEYS .................................................................. 151 5.2.2 CORRECTING OVERSTATED ANNUAL POVERTY FROM SHORT REFERENCE PERIOD HIES AND HBS DATA ......................................................................................................................................... 156 5.2.3 LIVING STANDARDS MEASUREMENT STUDY SURVEYS ............................................................. 159 5.2.4 CORE AND MODULE DESIGNS..................................................................................................... 163 5.2.5 DEMOGRAPHIC AND HEALTH SURVEYS..................................................................................... 164 5.3 PRICING AND UPDATING THE VALUE OF POVERTY LINES............................................................ 167 5.3.1 SPATIAL PRICE DEFLATORS........................................................................................................ 168 5.3.2 WHOSE COST OF LIVING?........................................................................................................... 172 5.3.3 USING PRICES TO IMPUTE THE VALUE OF CONSUMPTION ........................................................... 175 5.3.4 PRACTICAL ISSUES IN COLLECTING PRICE DATA .......................................................................