IDST 1002H Chapter Notes - Chapter 25: Big Mac Index, Amartya Sen, Johan Rudolph Thorbecke
14 Jun 2018
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From Textbook Chapter 25: Measuring and evaluating poverty
Evolution of Thinking on Poverty
• First studies on poverty were in 20th century
• Looked at if families in cities had basic necessities, and calculated bare minimum
income
• As living conditions improved, it shifted from having basic needs to having ability
to live lives that meet norms
• Shift from absolute poverty to relative poverty
• In 1979 Peter Townsend said poverty was about “the absence or
inadequacy of those diets, amenities, standards, services and activities
which are common or customary in society”
• Amartya Sen (Indian economist and philosopher) said poverty was not about income or
living standards but about having capabilities to live lives people value
• Came up with capabilities approach
Monetary Poverty
• Monetary approach is most prominent approach in measuring poverty
• Appealing because of intuitive nature and money is a versatile measurement
The Welfare Measure:
• Looking at how much money someone has at their disposal by household level
• Difficult because:
• People may earn income from multiple sources and pay different taxes
over those income sources
• People may earn income at different frequencies
• Often look instead at how much someone spends:
• Consumption fluctuates less
• Consumption is easier to report and track
• Some income is not in the form of money
The Poverty Line:
• A threshold that divides the population into poor and not-poor based on their welfare
• Relative poverty lines are most used in middle- to high-income countries,
absolute poverty lines are most used in low-income countries
• Absolute poverty lines are typically based on minimum consumption basket
• Work well within countries but not between
• World Bank’s International Extreme Poverty Line (IEPL) is now $1.25 US PPP a
day
• Purchasing Power Parity takes into account differences of costs of living
across countries
• Big Mac Index looks at price of a big mac in different countries
• Most commonly used relative poverty line is 60% of median income
The Poverty Measure:
• Foster-Greer Thorbecke (FGT) poverty measures:
• Poverty headcount index: # of people below poverty line/ total population
• Poverty gap index: shows deepness of poverty, distance from poverty line for
every poor household divided by poverty line and averaged among total
population
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