Joint post by Marion and Eve
Official poverty measurement and monitoring for policy-making purposes in rich countries, as well as research on poverty in such countries, relies primarily on household income to capture living standards and distinguish those in poverty. Yet, increasingly, one is aware of limitations of such a measure.
Brian Nolan and Christopher T. Whelan present in their recent book Poverty and Deprivation in Europe, the pattern of poverty in Europe when it is measured as deprivation. The authors argue for the use of non-monetary indicators beyond income, as they can 1) bring out what it means to be poor, 2) directly capture the multifaceted nature of poverty and social exclusion, 3) help to do a better job than income on its own to identify the poor and by doing so, 4) contribute to the design of more effective anti-poverty policies.
In a previous post, we presented pros and cons of this non-monetary approach. In particular, we highlighted the complementarity of such indicators w.r.t. to monetary indicators, documented by the authors, and we raised several issues, most noteworthy according to us, pertaining to the choice of the content, weights, and thresholds.
In this post, we further illustrate key issues, presenting the authors’ views on the European Union (EU) strategies.
The EU strategies
Poverty in Europe
The EU defines the poor as persons, families and groups of persons whose resources (material, cultural and social) are so limited as to exclude them from the minimum acceptable way of life in the Member State in which they live (European Communities, 1985). The emphasis is on a relative perspective, as opposed to absolute. It justifies this conceptual choice as: 1) the challenge for Europe is to make the whole population share the benefits of high average prosperity and not to reach basic standards of living as in less developed parts of the world and 2) what is regarded as minimal acceptable living standards depends largely on the general level of social and economic development, which tends to vary considerably across countries (European Commission, 2004).
Commonly agreed social inclusion indicators
The EU has agreed on common objectives on social protection and social inclusion. Notably, to promote social cohesion and equal opportunities for all through adequate, accessible, financially sustainable, adaptable, and efficient social protection systems and social inclusion policies. Further, to make a decisive impact on the eradication of poverty and social exclusion, it has specifically agreed to 1) guarantee access for all to the basic resources, rights, and social services needed to participate in society, 2) ensure the active social inclusion of all by promoting participation in the labour market and fighting poverty and exclusion among the most marginalised people and groups, and 3) address extreme forms of exclusion and fight all forms of discrimination leading to exclusion.
To concretely measure and monitor progress towards these objectives, and compare best practices across member states, it has also agreed on a set of common indicators, including:
- “at risk of poverty” rate, measuring the percentage of persons living in households with less than 60% of the national median equivalized income after social transfers,
- “material deprivation” rate, measuring the percentage of persons living in households deprived of 3 or more out of 9 items: cannot afford 1) to pay rent, mortgage or utility bills on time, 2) to keep home adequately warm, 3) to face unexpected expenses, 4) to eat meat, fish or a protein equivalent every second day, 5) a one-week holiday away from home, 6) a car, 7) a washing machine, 8) a color TV, or 9) a telephone, including mobile phone.
2020 poverty and social exclusion reduction target
As mentioned in the previous post, in 2010, the EU has agreed on a common target: to lift at least 20 million people out of poverty and social exclusion in the next decade. A combination of 3 “sub-indicators” identifies the target population, viz.
- at risk of poverty rate described above,
- “severe” material deprivation rate, measuring the percentage of persons living in households deprived of 4 or more out of the 9 items described above,
- “joblessness” rate, measuring the percentage of persons (aged 0-59) living in households with the adults (aged 18-59, students excluded) at work, on average, less than 20% of their total work potential during the past year (previous 12-month period).
A person is then “at risk of poverty or social exlusion” if he or she is meeting at least one of these criteria. Accordingly, 23.5% of the EU population is at risk of poverty or social exclusion in 2010, i.e. 116 million people, out of which at least 20 million people should exit over the next decade.
Note that many people are identified by more than one sub-indicator. Indeed, in 2010, 16.5% of the EU population is at risk of poverty, 8% is severely materially deprived, and 10% is living in households with very low work intensity.
Nolan and Whelan (2011) on the EU strategies
Going beyond income in capturing poverty
Let us now consider how and why, according to the authors, non-monetary indicators of deprivation can play a significant role in complementing income to capture the reality of poverty and social exclusion in the EU. In their view, the need for such a multi-dimensional approach to capture this reality, as well as to identify the 2020 Strategy target population, is even more salient since the enlargements of the EU to countries with much lower average living standards starting 2004.
Indeed, the difference in average income per head between the richest and poorest member states is wide, and much wider and with much greater variation than before these enlargements. Crucially, the income thresholds in the more affluent member states are now higher than the average income in the poorest member states, and those below them have higher standards of living than the welloff in the poorest member states.
Figure 1 presents the ratio of income threshold (0.6 * country equivalized median income PPP) of a EU member states w.r.t. to the one of France, in 1996 and 2006. E.g. in 1996, the income threshold of Austria is about 120% of that of France. This figure shows that in 1996, even if taking into account differences in the costs of living, the threshold of the country at the bottom of the distribution, Portugal, is 56% of those of countries in the middle of the distribution, France and the Netherlands, whereas the one of the country at the top of the distribution, Luxembourg, is over 160% of those of France and the Netherlands. In 2006, the thresholds of the countries at the bottom or close to the bottom of the distibution, as Latvia, Lithuania, Poland, Slovakia, Estonia, and Hungary, are 30-40% of those of countries in the middle of the distribution, still France and the Netherlands, whereas the one of the country at the top of the distribution, still Luxembourg, is over 175% of those of France and the Netherlands.
These figures contrast with the distribution of relative income poverty rates given in the previous post. Indeed, note significant differences, in particular relative to Hungary, Slovakia, Czech Republic, the Netherlands, or Luxembourg.
Identifying the target population?
According to the authors, because it constitutes a move away from reliance on a sole indicator as low income, including non-monetary indicators in the set of Laeken indicators or combining the 3 (sub-)indicators as described above, is a step forward. Yet, in their view, the choice of (sub-)indicators, the way each is framed, or the way one is to combine them to produce a single measure, has strong implications, some of which they deem problematic. Let us consider some of these, pertaining to the way one is to measure deprivation. The authors stress that these implications are critical, as they contribute to limiting the variability in measured deprivation within and across countries.
- Items: The authors compare the population identified by the at risk of poverty or social exclusion indicator, using the 9 items described above, to the population identified using a different set of items, referred to as consumption deprivation indicator. Accordingly, 70% of the EU sample are neither in the EU target group nor below the consumption deprivation threshold and strikingly, only 12% are both in the EU target group and above the consumption deprivation. Indeed, about half of those in the EU target group are below the consumption deprivation threshold, while two-fifth of those above the deprivation thresholds are not in the EU target group. Further, they show that adding this indicator increases significantly to the ability to predict economic stress.
- Threshold: The authors compare the population identified by the at risk of poverty or social exclusion indicator, using a threshold of 4 or more, to the population identified using a threshold of 3 or more (as in the EU social inclusion indicator set). They prefer this lower threshold because the number of people captured by the 3+ EU target indicator is closer to the one they capture with their consumption deprivation indicator just mentioned.
As emphasized by the authors, the EU made a great step forward including non-monetary indicators to complement income indicators. However, the debate on the concrete construction of such indicators is clearly not close: As always, the devil is in the detail.
 Brian Nolan and Christopher T. Whelan, Poverty and Deprivation in Europe, Oxford : Oxford University Press, 2011.
 Each member state is to translate it target into a national target, reflecting varying situations and circumstances.
 The EU’s social inclusion indicator set includes all 3 sub-indicators, yet framed differently in the case of deprivation and joblessness. One is to use a threshold of 4 rather than 3 for the deprivation element and a threshold 20% rather than 0% for the joblessness element.
 Nolan and Whelan (2011) also question the inclusion of the joblessness element.