Inequality and Poverty: Analysis and Policy

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Leslie Washington
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1 Inequality and Poverty: Analysis and Policy Second lecture: How to define inequality and poverty and how to measure it? Dr hab. Ryszard Szarfenberg Institute of Social Policy Faculty of Political Sciences and International Studies Warsaw University Course web page:

2 Four notions: inequality, poverty, analysis, policy Four basic questions plus one 1. What is inequality? 2. What is poverty? 3. What is analysis? 4. What is policy? 5. How to combine inequality, poverty, analysis and policy? One and simple and too general answer to four basic questions: these are words with many meanings in many languages Simple answer to fith question: inequality and poverty are social problems studied by social sciences and appear on political and social actors agendas for action i.e. governments, political parties, social movements etc.

3 What it is and how to measure it? Inequality and poverty are human ideas Two conditions for making ideas operationable: understandability and measurability We need to understand what is inequality and what is poverty We need to measure inequality and poverty for purposes of social sciences analysis and social policy goal setting Idea understandability Yes No Yes Understandable and measurable: within grasp of human mind and action Not understandable and measurable Idea measurability No Understandable and not measurable Not understandable and not measurable: beyond human mind and action

4 Differences and inequality between humans Basic action: comparison of humans Basic conclusion: there are many similarities and differences between humans Basic question: are all differences between humans count as inequality? Two answers 1. Inequality is every difference between humans. Critique: are biological or cultural differences inequality? Are small differences inequality? Conclusion: answer too broad. Human difference is not the same as human inequality 2. Inequality is about some subset of differences between humans. Not all human differences are inequalities. This brings question: how to distinguish inequality differences from non-inequality differences. First hint: biological and cultural differences are differences but not inequalities

5 Which human differences are human inequalities? Two conditions: desirability and controllability Differences which are considered as desirable or undesirable Human inequality: every difference between humans which is considered as not desirable e.g. differences in income, in health Differences under and beyond human control Human inequality: every difference between humans which is under a human control e.g. differences in income, in education Difference desirability Yes Difference controllability Yes Desirable and controllable Desirable and uncontrollable No No Undesirable and controllable INEQUALITY Undesirable and uncontrollable

6 Key components of inequality: what and who Two basic questions Inequality of what? Inequality between whom? Simple and general answers To what question: inequaity of what is important in human life in terms of Life achievements what we consider as important achievement in life (being whom, having what?) Life chances (opportunity) what we consider as important to have a chance for life achievements To who question: inequality between humans Individuals Groups e.g. families, ethnic groups Collectivities e.g. cities, societies

7 Inequality of what and who by basic spheres of human life Sphere of economy: economic inequality in terms of Economic characteristics e.g. capital, wealth, income, labour market status Economic groups e.g. economic classes (capitalists, managers, workers), low-skilled workers and high-skilled workers, employed and unemployed Sphere of politics: political inequality in terms of Political characteristics e.g. political power, voting behaviour, rights and obligations in law Political groups e.g. political parties, political collectivities Sphere of society: social inequality in terms of Social characteristics e.g. social status, education, health Social groups with strong common identity, common culture e.g. Poles and Germans

8 Specific inequality: intersection of what and who to compare WHAT: what to compare examples Economic: Income Economic: wealth Social: health Social: education Political: power WHO: who to compare examples Men to women Poles to Germans Youth to the elderly Paul to Richard Inequality in income between men and women Inequality in wealth between men and women Inequality in health between men and women Inequality in education between men and women Inequality in power between men and women Inequality in income between Poles and Germans Inequality in education between Poles and Germans Inequality in wealth between youth and the elderly Inequality in health between youth and the elderly Inequality in power between youth and the elderly Inequality in income between Paul and Richard Gender inequality Age inequality

9 Inequality: general procedure how to measure it 1. Choose sphere of life for comparisons e.g. economic, political, social 2. Choose dimension in selected sphere e.g. income, wealth, power 3. Define dimension e.g. disposable income in monetary units 4. Choose human unit (who to compare) e.g. men to women, households to households 5. Measure selected dimension for selected human unit 6. Devise numerical scale for inequality in income dimension e.g. Gini coefficient from 0 (perfect equality) to 1 (maximum inequality), percentile ratio (e.g. 10th to 50th) from 0 to 100% 7. Calculate inequality measure for your case (what and who inequality) 8. Evaluate results e.g. low inequality, moderate, inequality, high inequality

10 The Most popular statistical measure for economic inquality Gini Coefficient

11 Some issues with Gini Coefficient Absolute increase in differences are not measured EXAMPLE: A has 100$, B has 1000$, if we add 10% both Gini will not change, but absolute difference will increase from 900$ to 990$ Different distributions of income could have the same Gini (see chart)

12 From inequality to poverty in three steps After discovering differences between people which are undesirable and controllable we have knowledge about specific inequality e.g. economic inequality between men and women in some society is high It means in general that one Individual or group or collectivity have much more something important in life than other individual or group or collectivity one Individual or group or collectivity have much less something important in life than other individual or group or collectivity How to make move to poverty? 1. Focus on those individuals or groups or collectivities which have the least something important in life (it is the lowest part of who inequality) 2. Check if those individuals or groups or collectivities have less than is agreed as enough against some standard of sufficiency e.g. enough income to survive 3. If they have less than agreed standard then they should be considered as being in poverty

From inequality to poverty reasoning What inequality scale Specific case: inequality without poverty More something important in life Human unit higher on the scale Less something important in life

13 From inequality to poverty reasoning What inequality scale Specific case: inequality without poverty More something important in life Human unit higher on the scale Less something important in life Human unit in the middle on the scale Inequality Standard of sufficiency Not enough something important in life Human unit at the bottom on the scale Poverty Human unit types: Individual Group Collectivity

14 Relative and absolute poverty There are two main ways of thinking about standard of sufficiency RELATIVE: The point of reference is the middle in the scale sufficient means somewhere away from the middle e.g. sufficient is a half of the middle ABSOLUTE: The point of reference is an objective requirement for achieving something sufficient means having what is required to fullfil some goal e.g. have specified amount of food and water (requirements) to survive (goal) Accordingly there are two ways of thinking about human poverty RELATIVE POVERTY: Those below relative sufficiency standard (called relative poverty line) ABSOLUTE POVERTY: Those below absolute sufficiency standard (called absolute poverty line)

15 Two types of absolute poverty example from Poland Survival needs Social (overall) minimum Subsistence minimum Food Housing Clothing and shoes Health protection (medicins) Personal hygiene Education Participation needs Transport and communication - Culture - Sport and holidays - The differences are in Content of the standard (social minimum includes more needs) Generosity of the standard for the same content (social minimum is more generous for satisfaction of survival needs) From idea to specified amounts of money in a nutshell: 1. list of needs, 2. for each need list of satisfiers (satisfying items), 3. for each satisfier estimation of its quality and quantity for person and time unit, 4. searching for the lowest prices of satisfiers, 5. total cost for each satisfier at the lowest prices for person and time unit, 6. adding all costs for specified type of minimum (for several types of families) P. Kurowski, Koszyki minimum socjalnego i minimum egzystencji - dotychczasowe podejście, IPiSS, 2002

16 Poverty of what and poverty of whom Poverty of what? Sphere and dimensions of poverty e.g. Absolutely or relatively insufficient outcome or result in some necessary and valuable space e.g. economic, political Absolutely or relatively insufficient opportunity or chance to achieve valuable outcome or result in something important in life Poverty of whom? Categories of people Individuals Groups e.g. ethnic groups Collectivities of people without e.g. age groups, geographical groups (inhabitants of cities, villages)

17 Specific poverty: intersection of dimensions and human categories WHAT: Sphere and dimension for consideration of sufficiency (outcome or opportunity) Economic: Income Economic: wealth WHO: category of people (examples) Women Poles Inhabitants of Warsaw Richard Women in income poverty (with insufficient income) Women in wealth poverty (with insufficient wealth) Poles in income poverty Inhabitants of Warsaw in wealth poverty Social: health Women in health poverty Inhabitants of Warsaw in health poverty Social: education Women in education poverty Poles in education poverty Political: power Women in power poverty Inhabitants of Warsaw in power poverty Women s multidimensional poverty Richard is in income poverty Richard is in education poverty

18 Inequality of poverty Comparison of poverty between human units may bring conclusion that some individual or group is more or less poor than other group EXAMPLE: compare women with men in respect of poverty. Result could be: women are more poor than men. Conclusion: there is inequality in poverty in economic sphere and poverty dimension EXAMPLE: compare managers and workers in respect of poverty. Result could be: managers are less poor than workers. Conclusion: there is inequality of poverty in economic sphere and status in economic organization General conclusion: one of the dimensions of inequality is poverty If there is inequality in poverty it means that it is undesirable and controllable

19 Measuring poverty in several steps 1. Choose sphere of life e.g. economic 2. Choose dimension in selected sphere e.g. income 3. Define dimension e.g. market income in monetary units 4. Choose human unit (individuals, groups etc.) for measurement 5. Measure dimension in selected human unit 6. Choose poverty line (standard of sufficiency) e.g. 50% of the average income (relative), subsistence minimum or overall minimum (absolute) 7. Choose poverty measure e.g. number of the poor divided by all measured (headcount ratio) 8. Evaluate results e.g. low poverty, high poverty, moderate poverty

20 Headcount poverty ratio and poverty gap measures Headcount ratio (HC) Idea: share of those below poverty line in a population Number of poor units divided by all units in a specified population (times 100% which gives per cent of the poor in a population) Poverty gap (PG) Idea: distance between poverty line and actual score for each measured unit For each poor unit calculate the difference between the poverty line and unit score e.g. poverty line is 100$, unit score is 40$, individual poverty gap is 60$ Calculate average for all individual poverty gaps HC and PG are the simplests measures and there are a lot more

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