A Framework for Poverty Measurement Using EU-SILC Brian Nolan and Christopher T. Whelan

Outline The current position on poverty measures and targets Moving forward – the case for a tiered approach Moving forward – a revised consistent poverty measure Conclusions

The Current Position Poverty defined as exclusion because of lack of resources Low income on its own does not distinguish those experiencing generalised deprivation –For various reasons, identifies “at risk of poverty” not “poor” Scale of income growth means relative income poverty rates particularly misleading as sole indicator for Ireland –Poverty has not gone up! Combining low income with basic deprivation to measure “consistent poverty” captures those in most need

The Current Position 8 “basic deprivation” items originally used in constructing consistent poverty measure Adapted set explored in various more recent ESRI studies, which also monitor relative and “anchored” income poverty rates NAPS global poverty reduction target set in terms of reducing consistent poverty to < 2% Based on original set of deprivation items Change from LII survey to EU-SILC means measured deprivation levels higher in 2003

Need for A Framework No one indicator tells us all we want to know Both income and deprivation are measured imprecisely Both living standards and relativities matter In the short term, improvements in living standards have a major immediate impact In the medium/longer term, expectations adjust so distance from the median also matters for “participation in ordinary life of society”

A Tiered Approach Three-tiered approach to monitoring progress suggested by ESRI some time ago Want to see: –1/ Real incomes rising and deprivation levels falling for those on low incomes –2/ Consistent poverty falling (with both fixed and slowly changing set of items) –3/ Relative income poverty falling Priority ordering as listed

Monitoring the Tiers Tier 1: Numbers below income poverty thresholds anchored at a point in time (Laeken); deprivation levels, esp. for those on low incomes (being developed at EU level) Tier 2: Consistent poverty with both fixed and changing set of items Tier 3: Numbers below relative income thresholds; numbers persistently below those thresholds; poverty gaps (all Laeken)

Revising Consistent Poverty EU SILC Data. Identifying dimensions of deprivation. Propose a new 12-item basic deprivation index. 6 items drawn from earlier index relating to food, clothes, heat. 6 new items relating to acceptable level of involvement in family and social life.

Deprivation Dimensions Basic : two pairs of strong shoes, a warm waterproof coat, a roast once a week… Consumption: a telephone, a dish washer, a car… Housing facilities: bath/shower, hot water, central heating… Neighbourhood environment: leaking roof & damp, pollution, noise…

Basic Dimension Household & Household members can not afford OLD ITEMS Two pairs of strong shoes A warm waterproof coat New rather than second-hand clothes Eat meals with meat, chicken, fish (or vegetarian equivalent) every second day? A roast joint (or its equivalent) once a week Go without heating during the last 12 months through lack of money (ref pers) NEW ITEMS Presents for family or friends at least once a year A week’s holiday away from home in the last 12 months Keep the home adequately warm Replace any worn out furniture Have family or friends for a drink or meal once a month Have a morning, afternoon or evening out in the last fortnight, for entertainment (ref pers)

Distribution of Deprivation on Basic Deprivation Scales

Economic Strain by Deprivation

Economic Strain Among Income Poor by EU-SILC 12

Consistent Poverty by Alternative Deprivation Scales

Deprivation Items by Consistent Poverty Measures (70% Line)

Deprivation Dimensions by Consistent Poverty Measures (60% & 70% Median Line)

Economic Strain by Consistent Poverty Measures (70% Median Line)

Housing Costs a Heavy Burden by Consistent Poverty Measures (60% & 70% Median Line)

Debt & Expenses Difficulties by Consistent Poverty (60% & 70% Median Line)

Conclusions Tiered approach should replace sole focus on consistent poverty in measuring progress in NAPS: focus on –Real incomes and living standards –Consistent poverty –Relative income poverty. With EU SILC, 12-item index captures basic deprivation Combined with income line and using threshold of 2+, level of consistent poverty similar to original measures. Identifies distinctive group experiencing generalised deprivation due to lack of resources