Are current poverty measures sufficient during
recessionary times?
A Case Study for Ireland
Pamela Lafferty
Marion McCann
Central Statistics Office
Why should we consider a complementary measure?
Internationally recognised at risk of poverty rate (60% of median income)
– Calculation is straightforward and does not require many subjective decisions
– Relative measure
Not everyone’s income is variable – welfare dependent persons
At times of economic growth the rate rises
e.g. 2005 rate =18.5% (GDP Growth = 6.2%)
2008 rate = 14.4% (GDP Growth = -3.0%)
– Snapshot of household income in the year of the survey
Short and long term fluctuations
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Alternative measures
•
Alternative A: Expenditure based threshold
– Establish a national equivalised expenditure based threshold (at 50%,
60% or 70%) and compare equivalised income with this threshold
•
Alternative B: Composition specific thresholds
– Set income (at 60% ) and expenditure (at 50%, 60% and 70%)
thresholds for 8 household types and compare disposable household
income with each threshold
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Alternative measures
Why expenditure?
– Expenditure maintained at a more constant level than income
– Informs us of more permanent inequalities in welfare which income
dispersion does not capture
– Better representation of an individual’s average resources over their
lifetime
– Overcomes some of the difficulties of using relative measure based
solely on income
Limitations
– Expenditure is recorded, in this study, in a two week diary and
interview
– Misreporting of expenditure e.g. alcohol and tobacco
– Periods of high and low expenditure
– Purchase of a durable item
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Data Sources
– EU Survey on Income and Living Conditions (EU SILC) 2005 and 2008
– Household Budget Survey 2004/2005 (HBS)
– Up-dated 2005 HBS expenditure data to 2008 using the Consumer Price
Index
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Alternative A: Expenditure based threshold approach
•
•
•
Compare two different distributions at national level
– An income versus expenditure approach
Equivalisation
– Household expenditure is equivalised
Results
– Expenditure thresholds were set at 50%, 60% and 70% of median
equivalised expenditure.
– Income threshold is the standard threshold at 60% of national median
equivalised income.
– Equivalised disposable income is compared against the thresholds
mentioned above to establish if an individual is at risk of poverty
– See Table 1 for results.
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Table 1 - At risk of poverty threshold and rate by indicator and year
2005
2005
2008
2008
€
%
€
%
60% Income
192.74
18.5
238.70
14.4
50% Expenditure
174.53
14.1
210.51
9.7
60% Expenditure
209.44
24.1
252.61
18.9
70% Expenditure
244.34
32.8
294.71
29.7
Source SILC 2005-2008, HBS
2004/2005
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Figure 1 - At risk of poverty rate by threshold type and
year, SILC 2005-2008 and HBS 2004/2005
35
30
25
20
2005
2008
15
10
5
0
60% Income
50%
Expenditure
60%
Expenditure
70%
Expenditure
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Alternative B: Composition specific thresholds
•
Why use composition specific thresholds?
– Ideally a specific basket of goods for each household type
– Expenditure patterns of households vary significantly according to
composition e.g. Elderly household 30% of median expenditure is food;
household with 2 adults and 1-3 children 19% of median expenditure is food.
– Costly to measure a basket of goods for each household type
– Expenditure thresholds serve as an alternative to the ‘basket of goods’ method
– Calculate poverty rates at the household level using both income and
expenditure thresholds
– Compare households with the same composition e.g. elderly households are
compared with other elderly households
•
Limitations
– Cannot compare income and expenditure of households across the 8 household
types
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Alternative B: Composition specific thresholds
Develop an income and expenditure based threshold for each of the 8 household types:
1.
2.
3.
4.
5.
6.
7.
8.
1 adult aged 65 or over, no children under 18.
1 adult aged less than 65, no children under 18.
2 adults, at least one aged 65 or over, no children under 18.
2 adults both aged less than 65, no children under 18.
3 or more adults, no children under 18.
1 adult with children under 18.
2 adults with 1-3 children under 18.
Other households with children under 18.
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Alternative B: Composition specific thresholds
•
Median household income of households within a household type category
– Threshold set at 60% of median household income
•
Median household expenditure of households within a household type
category
– Threshold set at 50%, 60% and 70% of median household expenditure
•
Disposable household income is compared against each threshold to
establish the household poverty rate
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Table B - At risk of poverty rate by household composition, indicator and year
Thresholds
Household Composition
60% income 50%
expenditure
60%
expenditure
70%
expenditure
2005
%
2008
%
2005
%
2008
%
2005
%
2008
%
1.5
2.7
1.1
1.7
1.2
2.1
1.6
2.3
1 adult aged less than 65
31.5
18.4
31.2
25.6
35.8
36.8
41.9
43.8
2 adults, at least one aged
<65
5.6
5.4
3.6
1.6
5.0
3.5
7.7
4.9
2 adults both aged <65
23.0
23.8
19.4
17.5
23.9
25.8
28.7
32.2
3 or more adults
19.5
16.0
13.4
9.2
15.0
15.0
25.6
25.0
1 adult, 1 or more children
12.7
16.8
14.5
19.6
30.9
27.3
40.7
36.3
2 adults, 1-3 children
16.5
19.8
15.1
16.4
22.7
23.9
32.0
32.1
Other households with
children
20.7
13.6
14.9
8.0
24.1
14.2
33.4
22.0
1 adult aged 65 or over
2005 2008
%
%
12
Table C - At risk of poverty threshold and rate for households with one adult
of working age (aged <65) by indicator and year
2005
2008
Threshold
Poverty rate
Threshold
Poverty rate
€
%
€
%
60% Income
203.08
31.5
228.66
18.4
50% Expenditure
199.18
31.2
238.61
25.6
60% Expenditure
239.02
35.8
286.33
36.8
70% Expenditure
278.85
41.9
334.05
43.8
Source: SILC 2005-2008, HBS 2004/2005
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Figure 2 - At risk of poverty rates for households with one adult of working age
(aged < 65) by indicator and year, SILC 2005-2008 and HBS 2004/2005
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Conclusions
•
Expenditure poverty rates (at 60% and 70% national thresholds) are
significantly higher than the income poverty rate (60% national threshold)
=> individuals are frequently spending more than they earn
=> source of extra income?
•
Expenditure based measure is a supportive indicator
=> ability to capture aspects of the flow of individuals into and out of
poverty
•
Composition-specific threshold analysis highlighted household types that were
more at risk
=> e.g. households with one adult of working age (aged <65) and
households with children
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Conclusions
Are current poverty measures sufficient during recessionary times?
=>
=>
=>
Yes, to a degree. Income and expenditure based poverty rates
show the same pattern over time but poverty rates calculated
using the 60% or 70% expenditure threshold are significantly
higher than the income based rates.
Composition specific threshold analysis has the ability to add
value to the body of indicators currently available, by giving
more detail regarding the position of a household compared
with households of the same composition in Ireland.
Therefore ,we recommend that the alternative measures discussed
should be calculated to supplement the internationally recognised
measure of poverty (60% of median equivalised income).
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Questions?
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