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Measuring poverty: Different approaches

The New York Times today has an interesting article on how to measure poverty. To oversimplifying things, there are probably three ways to measure poverty. The first one, as Hong Kong is now trying to do, is to set a “poverty line”: people whose income falls below this level would be considered “poor”.

The second one, as the US has done, is also an absolute measure in the sense that it estimates the minimum income needed to avoid extreme hardship.

In the 1960s, when the government first came up with the concept, it decided you were poor when you had to spend more than a third of your cash income on what it considered the minimally acceptable diet. It made sense, sort of. Americans spent a much bigger share of their incomes on food and a lot less on other things like health care.

But personally I like the last method, used by many European countries, which is a measure of relative poverty, because, ultimately, the “poverty” we see in big cities is not quite the same thing as “poverty” in many third-world countries.

Less tolerant of inequity than the United States, they prefer to measure deprivation in terms of people’s relative position: the poor are those who earn less than half the income of a typical citizen in the middle of the income distribution.

I would guess that this measure of relative poverty would be quite correlated to the Gini coefficient. It would be interesting to see how relative poverty in Hong Kong has changed over the years if  I could have the data and make a graph later.

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