UNECE Conference on poverty measurement December 2-4, 2013 Poverty and Equity Measurement at the World Bank and the ECA context

Content Poverty measurement: conceptual issues Poverty measurement at the World Bank Global monitoring Corporate objectives Country dialogue Types of measures used Shared prosperity Non-monetary measures Access to opportunities Complementarities across measures Looking ahead

Poverty measures: Theoretical and practical considerations Desirable characteristicsIntended use understandable and easy to describe conforms to a common sense notion of poverty fits the purpose for which it is being developed technically solid operationally viable easily replicable compare the poverty of different households and regions in the country compare poverty over time compare poverty between countries define a poverty reduction strategy evaluate the impact of a poverty reduction strategy

Types of poverty measures Poverty ObjectiveMonetaryRelativeAbsoluteNon-monetary Basic Needs Approach Anthropometric needs SubjectiveDirect surveys MPI

Poverty measurement within the World Bank Global poverty monitoring Corporate goals End extreme poverty (Percentage of people living with less than US$ 1.25 a day to fall to 9 percent in 2020 and 3 percent by 2030) Promote shared prosperity (Promote income/consumption growth of the bottom 40 percent of the population in every country) Country dialogue Main dimension of dialogue with stats institutes Policy linkages Feedback to corporate and global monitoring tasks

Global monitoring and corporate goals US$ 1.25 / day poverty line Global viability ensured through: Why $1.25/day -- many desirable features Understandable Accepted standard of global poverty Operationally viable Possible to compare poverty across countries and over time Standardized welfare aggregate Expenditure based Per capita terms Expressed in PPP terms conversion based on private consumption Poverty PPPs (ICP2011) PPPs updated periodically

Regional monitoring: IS US$1.25/day relevant for the ECA region?

Regional (ECA) monitoring US$ 1.25/day too low for ECA Regional ECA lines ($2.5/day; $5/day) Cold weather requires: Higher caloric intakes Higher food expenditures Higher expenditures in clothing, energy (and transportation) Higher non-food expenditures What is the relevant reference line?

Country dialogue: national poverty lines Mostly absolute poverty lines Variation in adult equivalent adjustments Relative poverty lines in EU and some Western Balkans countries Key methodological difference among ECA countries

Absolute vs Relative lines Absolute linesRelative lines Common in poor countries Anchored to a fixed welfare standard Offer comparability across space and time Can in fact account for differences in social norms E.g. choice of food bundles But, adjust slowly over time Common in wealthier countries EU: 60% of median income Aim to capture differences in the cost of social inclusion “absolute” in the space of “appearing in public without shame” Social inclusion becomes more salient with increasing wealth Do not allow for comparisons among countries or across time Not based on the same level of welfare Except for “anchored AROP” Income losses need not lead to higher poverty

BiH Spotlight: Expenditure-based profile and EU social inclusion indicators Adoption of social inclusion indicators will likely bring a new set of estimates / profiles / geographic distribution of deprivation Over 2/3 rd of AROPE population is outside of the bottom quintile However, 82% of those in 1 st quintile are identified by the AROPE indicator

Corporate goals: shared prosperity Policy contextMethodological issues Growth in real income/consumption of the less well-off segment of the population (bottom 40%) A growing economy and a fundamental concern for equity Direct focus on the incomes of the poor/less well-off Growth is necessary. But not any growth  sustained growth that makes the less well-off an integral part of that process Not about redistributing a fixed pie, but expanding the size of the pie continuously and sharing it Goal defined only at the country level, no global target is proposed Uses a money metric Medium-run objective 5-year span Unbounded measure Higher growth of bottom 40% is not inconsistent with higher inequality Anonymous measure Composition of bottom 40% changes

Overall positive record on shared prosperity in late 2000s

Non-monetary measures: human opportunity index (HOI) Measures availability of services necessary to progress in life, “penalized” by how unfairly the services are distributed among the population. HOI=C(1-D) Focus on children Early life equality of access to basic opportunities Education Health care Adequate housing / amenities Minimize effect on life chances of pre-determined circumstances (e.g. gender, ethnicity, birthplace, or family background) Variations: access to economic opportunities for adults (e.g. jobs)

Multidimensional analysis: Opportunities (HoI)

Access to opportunities (sanitation)

Access to opportunities -- determinants

Access to opportunities – coverage gaps

Complementarities across measures What do various measures capture? $1.25/day  extreme (absolute) poverty Shared prosperity  relative concept Similar to at-risk-of-poverty, only dynamic Relevant for all countries Sharing benefits of economic growth HOI: inequality of opportunity Together  equity aspects WDR 2006: Equity is defined in terms of two basic principles: (a) equal opportunities and (b) avoidance of extreme deprivation in outcomes. EU social inclusion  similar agenda

Poverty measurement at the WB: looking ahead Theoretical considerationsPractical considerations Monitoring & policy objectives  need poverty lines absolute in the space of welfare (fixed real value over time and space)  Cost of Basic Needs (CBN) approach Consistency of comparisons Can be broadened to: capture capabilities via the money metric of utility capture relative concerns Equity agenda  focus on shared prosperity (SP) IO / mobility meant to complement and unpack SP Monetary measures Better data; higher frequency data Issues of updating poverty baskets Non-monetary measures Better understanding of multiple dimensions of poverty and exclusion Dashboards vs composite indices; weights Inequality of opportunity Capabilities (in Sen’s sense) remain difficult to measure in practice

Thank you