Relative poverty is a condition where house hold income is a certain percentage below median incomes. For instance it could be set at 50% of median incomes. On the other hand absolute poverty refers to the condition where house hold income is below the level to which is difficult to maintain basic living standards, this means one cannot afford food, shelter and clothing. The main difference in the two would be for absolute poverty the criteria of measure cannot be change in case of an economic growth while relative poverty measure criterion changes with economic growth.in this paper emphasis is put on relative poverty, its aspects including advantages and disadvantages. Relative poverty is useful for showing the percentage of the population in an economy who are left behind. Relative poverty as a measure also defer with ‘inequality’ a measure of poverty in that inequalities are about relational disparities, denial of fair and equivalent enjoyment of rights and unrelenting arbitrary discrepancies in the worth, status, dignity and freedoms of different people in the society. This inequalities can be staged in terms of income, wealth, education, health and nutrition. Economic inequalities can be always be associated to other social inequalities faced by the marginalised group in the society due to identities such as gender, race, disability, ethnicity, religion or language.(Folbre, 2006). Relative poverty lines on the other hand classify people in the society under two groups, which is the poor and the rest of the population. (Smeeding, 2006)
Relative poverty lines usually use indicators based on monetary variables such as expenditure or income. For both cases a minimum variable level is fixed below which people are classified as poor and above which are not poor. For instance if we take income as the variable it would depend on the populations income distribution, and it is usually expressed as a percentage of measures of distribution which is average or median.
Both income and expenditure present advantages and disadvantages when using them to measure poverty. In terms of advantages income and expenditure could be an easy and less time consuming variable in the measure of poverty. Annual income, theoretically seem as the best choice, it reflects a household’s economic capacity but only partially. House hold have goods, assets, et cetera which also form part of total wealth and have great influence in the living standards an household can hold.
Income tend to vary a lot from one year to another without a change in the living conditions. This would apply to the case where a household has savings, credit access or expect income levels will go back to same level as before. Expenditure variable is believed to be more plausible, as households do not modify their spending habits when their income decreases occasionally. Expenditure depends on the concept of permanent income than the actual income. Therefore, poverty is more closely related to that permanent income and this credits expenditure as a good variable to measure poverty.
Though expenditure as a choice of monetary variable to measure poverty has its disadvantages. Consumption in households depends widely on the environment in which the household finds itself and the customs acquired over time and under most circumstances there is no direct relationship with their resources.
Both the variables income and expenditure are also subject to measurement errors. Surveys tend to underestimates or undervalues actual income. For example freelance working or capital income. Though other kinds of income such as working for the government or someone else is collected correctly the information is already biased and in turn inaccuracy in carrying out poverty analyses. In the measurement of expenditure survey methodologies pose a problem that includes household consumption. For instance, when providing annual consumption figures of household, there are imbalances produced given the transformation process of expenditure collected weekly, monthly and quarterly into an annual variable, which purpose to show a household’s usual consumption. Since majority of measurement are inevitable, they result into inherent problems in household surveys and are unavoidable regardless of how surveys are carried. Quality of the expenditure variable is also affected by difficulties in deriving this information by the effort that should be put by the households to note every single detail of their expenditure in the required period. (Ravallion, 1999)
In the last few years income has been used as the official variable for compilation statistics on poverty and social exclusion in the USA and the UK. The UK and USA are considered world’s richest economies but at the same time experiencing considerable economic turmoil. Both the countries have witnessed income inequalities over the past two decades. On the context widening income inequalities, the issue of poverty has appeared crucial, and debates have arisen concerning measurement of poverty, causes of its existence and persistence and nature and effectiveness of social policies intended to alleviate it. To compound both the interpretation and policy debate surrounding the poverty problem, the measurements of poverty differs between USA and the UK. In the UK different series have provided different definitions and different estimates for poverty. For instance low income families defined as the number of families living below the level of old supplementary benefit level. In household below average income defined as 60% of national median income. In the USA official measures have been absolute. The OMB calculates certain absolute thresholds of poverty determination annually. Therefore comparison of poverty rates between USA and UK is not straight forward.(Notten and Neubourg, 2007) For instance if the EU relative measure is used which defines poverty rate as that proportion of household with income below 60% of median income, poverty in the USA remains above 20% since 1979 while UK’s remains 13%. The rate however increased sharply in 1980s reaching 25% by 1990s at par with the rate in the USA. However, the use of relative measure paints a different picture of the USA poverty from that of the absolute definition. The absolute definition place a rate half the relative rate at 10-12% and also suggesting that poverty has fallen since early 1990s. The higher rate of poverty depicted by the relative measure is due to distribution effects. (Forster " d’Ercole., 2005)
Relative measurement of poverty has however, assisted the two countries to develop measures to alleviate poverty. Policies implemented by the both economies are: economic growth policies to generate wealth that can be redistributed within the society, employment opportunities, progressive taxation, and increased benefits to the poor as well as state aid, pension reforms, and education.
References
Folbre, N., 2006. Measuring care: Gender, empowerment, and the care economy. Journal of human development, 7(2), pp.183-199.
Förster, M. and Mira D'Ercole, M., 2005. Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s.
Moller, S., Huber, E., Stephens, J.D., Bradley, D. and Nielsen, F., 2003. Determinants of relative poverty in advanced capitalist democracies. American Sociological Review, pp.22-51.
Notten, G. and Neubourg, C.D., 2007. Relative or absolute poverty in the US and EU? The battle of the rates.
Ravallion, M., 1999. Issues in measuring and modeling poverty. The World Bank.
Smeeding, T., 2006. Poor people in rich nations: The United States in comparative perspective. Journal of Economic Perspectives, 20(1), pp.69-90.
