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International trends in poverty: how rates mislead but intensity and labour supply matter Lars Osberg - Department of Economics, Dalhousie University.

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Presentation on theme: "International trends in poverty: how rates mislead but intensity and labour supply matter Lars Osberg - Department of Economics, Dalhousie University."— Presentation transcript:

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2 International trends in poverty: how rates mislead but intensity and labour supply matter Lars Osberg - Department of Economics, Dalhousie University - Institute for Social and Economic Research University of Essex

3 Is Poverty Increasing or Decreasing? Poverty reduction: “success” for social policy Most common measure is poverty rate Freeman (2001); Dickens & Ellwood (2001) Issue: workless households & poverty Can renewed expansion in USA decrease poverty still more ? Is program design behind UK increase ? Workless households are poorest of poor, poverty gap is their key issue Poverty rate is insensitive

4 Why is Poverty Rate still used? Are alternative measures technically inferior ? Do plausible measures all give same answer ? Are alternative measures too hard to communicate ? Do all measures lead to same perceptions about policy ? NO TO ALL

5 Is there a better Index of Poverty ? Sen (1976) & large literature since Depth of Poverty also matters Principle of transfers – transfer from poor person to richer person increases poverty NOT satisfied by Poverty Rate Implications of focus on Rate of poverty: Can achieve “success” by creaming off marginally poor Move goalposts ?False Negatives ? Axioms + Communicability => Useful + Used focus, monotonicity, symmetry, replication invariance, transfer sensitivity, continuity + communicable

6 Poverty Intensity Sen-Shorrocks-Thon (SST) Index. P = (RATE ) (GAP ) (1+G (X )). Empirically: inequality of poverty gaps [1+G (X)] is very nearly constant. SST = volume of Box, one dimension nearly constant. Changes over time, differences across jurisdictions can be approximated by. RATE x GAP. Poverty Box – in 2 dimensions. Poverty Intensity proportional to area RATE X GAP.

7 But does it matter ? Do we get the Same Results ? Luxembourg Income Study data Canada (71,75,81,87,91,94,97), Sweden (75,81,87,92,95), UK (74,79,86,91,95), USA (74, 79, 86, 91, 94,97), Germany (81,83,89,94) After-tax, after transfer equivalent income LIS equivalence scale: Y i = Y f / N 0.5 Relative poverty line = ½ median equivalent Absolute – freeze national in real $ Slow/nil growth in median real incomes after 1975 implies fairly small differences in actual poverty line

8 Same Cross Sectional Country Rankings ? In Mid 1990s Luxembourg Income Study data, the average poverty gap differs significantly Implication: country rankings by poverty intensity frequently diverge from rankings by poverty rate

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14 Qualitative Conclusions Re: Poverty Trends Often Differ Relative poverty in early 1990s ? Canada, UK, Sweden: intensity & rate disagree US & Germany: indices agree Over-all – 22 year/year comparisons 4 no change rate but change intensity 5 opposite direction change: intensity & rate 9/22 = 40% disagreement Absolute poverty line UK - poverty rate and poverty intensity change in opposite directions every time /79/86/91/95

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20 Communicability ? The whole point of measuring poverty is to influence the policies that might affect poverty A poverty index not used or understood by the public & by policy makers is pointless Humans not very good at deriving accurate relative size information from tables of numbers. Quite good when presented as area proportionate graphs

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27 Can better measures help policy analysis ? Trends in % Households with no earnings is a key issue, with big international differences Working & workless households differ hugely in % population, probability & depth poverty Easy to lose sight of relative size of issues Importance of Rate depends on size source population Poverty intensity = population weighted average of group poverty intensity = sum of areas of poverty boxes

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43 Better Measurement Matters Poverty Intensity Preferable on theoretical grounds Makes a Difference to conclusions Often has different trend to poverty rate Easily communicated Decomposable Useful for policy evaluation Full Text available at: Click on “Publications” & scroll down

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