Why are poverty definitions not based off a person's access to necessities rather than a fixed number?

Question

According to this report on poverty in the EU:

The measure of financial poverty used here is the main indicator of poverty of the European union. this so-called “at-risk-of-poverty” rate is a relative measure in the sense of using national poverty thresholds, as it counts the number of people in each country with (equivalised) disposable income below 60% of the national median.

The definition of "equivalised" is as follows:

it is an adjustment for household size. Calculation of equivalised household size: the first member of the household is weighted by 1, following adults receive a weight of 0.5 each, and children (defined as those aged 13 or less) receive the weight of 0.3 each.

This seems very confusing to me because...

1. If you define "poverty" as a number relative to the median wage, you're effectively saying that poverty cannot be eliminated as long as large wage disparities exist.
   Imagine two countries: A and B. Median wage is $5,000 in country A and $500 in country B. If a person in A earns $2,500 they're technically 'in poverty' because they only earn 50% of the median wage. But if in country B everyone earns exactly $500, their official poverty rate will be 0%, even if surviving on median wage is actually very challenging there.
   In other words, defining the 'poverty' line as a percentage of the median income seems like a flawed measure, as it strongly depends on the level of wage inequality within a given nation.
2. Cost of living can change drastically depending on where one lives. A person living in Paris has much higher living costs than someone living in a village in Normandy.
3. A person who lives in their own house/apartment without a mortgage needs a lot less money than someone renting their home. But 'poverty' statistics don't take that into account.

So... why isn't 'poverty' defined based off whether a given person has access to a certain basket of 'necessities' rather than having a single fixed number for the whole country?

Answer 1

While this definition of poverty may not be perfect, it has the advantage of being very easy to calculate. And it's generally good enough for making policy decisions. If the poverty rate is off by a few percentage points, it's not likely to make a significant difference.

Poverty rate is not generally the only statistic used when making policy decisions. There are other statistics like unemployment rate, rates of home ownership, GDP, and happiness rate.

Let's look at each of your issues.

1. "you're effectively saying that poverty cannot be eliminated as long as large wage disparities exist".

While it's theoretically possible to have a society where even the poorest people are living decent lives, in the real world this isn't likely to happen. So the above assumption is almost always going to be true.

2. "Cost of living can change drastically depending on where one lives."

True. But people in poverty are at the extreme low end of income levels. They will typically be unable to afford to live anywhere. It might not be as bad if they live in a low-cost region, it will still be bad.

3. "A person who lives in their own house/apartment without a mortgage needs a lot less money than someone renting their home."

This is similar to the last point. Someone living in poverty will generally be barely able to afford to pay rent.

You're right that when we compare different societies, it may be "apples vs. oranges". Many poor people in America have much better lives than average people in third-world countries. In America, unless you're homeless you probably have indoor plumbing, while there are some societies where only the rich have that.

Answer 2

There is a fair amount of evidence that voters evaluate their economic well-being in relative terms, rather than absolute terms. So, from the perspective of a politician, this measure may be more relevant, in addition to being easier to calculate.

Part of the issue is that in trying to judge poverty in absolute terms, the question of where to draw the line is inherently subjective, and so often those measures are also relative poverty measures, but less transparently.

One could apply the same measure at subnational levels, instead of national levels (which would help address regional cost of living issues), but the UN mandate that the measures appear to be designed to serve appears to contemplate a single national measure for the gross international comparisons it is interested in marking, at the cost of fine grained accuracy.

In a small country, say, Luxembourg, that is not big deal. In a huge and economically non-homogeneous country, like India, it is probably a poor measure (which is one of the reasons that in India, government economists more often use qualitative measures).

Answer 3

If you define "poverty" as a number relative to the median wage, you're effectively saying that poverty cannot be eliminated as long as large wage disparities exist. […] But if in country A one can easily live off $2,500 (50% of median income), those people would still count as 'poor' despite having access to every necessity.

That's exactly the point and there are excellent reasons to define it that way, some of which have already been mentioned in other answers. You seem to consider that the relative definition is only good inasmuch as it reflects material deprivation but that's simply not what it's supposed to measure. While it makes sense for the headline to use the most common and important indicator of poverty for comparisons, specialists do track both monetary poverty and other forms of deprivation like inadequate housing or food insecurity.

Cost of living can change drastically depending on where one lives. A person living in Paris has much higher living costs than someone living in a village in Normandy.

That's presumably why the threshold is defined on a country-basis but not EU-wide. In actual fact, the differences between Paris and Normandy are significant but not drastic. Living in a village comes with additional costs (e.g. not having a car is a much larger constraint than in Paris where expenses for transportation are lower) and the price differences are around 7%. The one big difference between Paris and the rest of France is housing.

There are however areas of France where it does make a drastic difference but that's not Normandy, it's the overseas territories. The national statistical institute defines a “local” poverty threshold and tracks poverty on that basis. In spite of a lower median income, poverty is even higher there.

A person who lives in their own house/apartment without a mortgage needs a lot less money than someone renting their home. But 'poverty' statistics don't take that into account.

In practice, wealth is even more unequally distributed than income and people who own a real estate property outright have a higher median income as a group so they are probably less likely to meet the relative definition for poverty. It does however seem likely that there are still pockets of poverty among property owners, that's what other indicators are tracking.

Ironically, it seems you are only concerned about people meeting a relative definition for monetary poverty without significant material deprivation but empirically the opposite, namely people who do not meet the criteria for monetary poverty but still report significant deprivation, is just as common.

Same thing with the regional differences: The French overseas territories (and I believe US states) with the lowest median income are also those with higher inequality. So the number of poor people is larger when measured against local indicators (vs. a comparison with the median income at the national level). Here as well, the standard nation-wide monetary definition underestimates poverty.

Answer 4

TBH the paper from which you quoted that is directly contradicted by EU/Eurostat these days

At-risk-of-poverty rate

The at-risk-of-poverty rate is the share of people with an equivalised disposable income (after social transfer) below the at-risk-of-poverty threshold, which is set at 60 % of the national median equivalised disposable income after social transfers.

This indicator does not measure wealth or poverty, but low income in comparison to other residents in that country, which does not necessarily imply a low standard of living.

It is however one of the three measures used by "Agenda 2030". One of the others is a more traditional absolute-poverty style indicator, called SMSD in the EU:

The severe material and social deprivation rate (SMSD) is an EU-SILC indicator that shows an enforced lack of necessary and desirable items to lead an adequate life. The indicator, adopted by the Indicators' Sub-Group (ISG) of the Social Protection Committee (SPC), distinguishes between individuals who cannot afford a certain good, service or social activities.

It is defined as the proportion of the population experiencing an enforced lack of at least 7 out of 13 deprivation items (6 related to the individual and 7 related to the household).

[followed by the list of items]

However, the paper you linked to may have been correct for the years it was covering (2005-2008) because...

In 2021, the AROPE indicator has been modified according to the new EU 2030 target:

Adjusting the severe material deprivation component, defining a new severe material and social deprivation rate as a percentage of the total population lacking at least seven items out of the thirteen material and social deprivation items;

So the SMSD was apparently added in 2021. IDK enough about the politicking around those indicators as to why this was [apparently] added only later.

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If I am to make a guess, the EU of <2005 was smaller and more homogenous. (I mean, the first substantial enlargement wave was in May 2004. I'm not sure if they had thought through at the time [~2005-2008] to adjust poverty indicators to account for this.) The (or an) absolute poverty threshold seems to matter much more for the new members from Eastern Europe:

In the EU in 2021, the severe material and social deprivation rate among young people (aged 15-29 years) was 6.1%. The highest proportion of young people who were severely materially and socially deprived in 2021 was recorded in Romania (23.1%), followed by Bulgaria (18.7%) and Greece (14.2%). On the other hand, the proportion was less than 3% in 11 of the 26 EU members with available data: Luxembourg, Poland, Sweden, Cyprus, Czechia, Netherlands, Croatia, Slovenia, Finland, Austria, and Estonia.

(Yeah, Greece is not a new member.)

TBH the older "at-risk-of-poverty" indicator isn't horrible though. It does flag e.g. in 2018 the countries from the East, but less well than the later introduced SMSD.

One can probably object though e.g. to Greece and Luxemburg being so close together in that (older) stat.

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It turns out I was not entirely correct above, they did have something like that [absolute-like] since 2009 at least. (It goes to show how obscure this stuff is--nobody pointed out the omission in ~24hrs.)

Annex 1 to SPC/ISG/2017/5/4

The new EU indicator of material and social deprivation
Technical note

The new indicator of material and social deprivation replaces the standard material deprivation indicator which the EU adopted in 2009. The 2009 indicator was defined as the proportion of people living in households confronted with at least three out of nine deprivations.

These deprivations are the inability for a household to:

1. face unexpected expenses;
2. afford one week annual holiday away from home;
3. avoid arrears (in mortgage rent, utility bills and/or hire purchase instalments);
4. afford a meal with meat, chicken, fish or vegetarian equivalent every second day;
5. afford keeping their home adequately warm;
6. have access to a car/van for personal use;
7. afford a washing machine;
8. afford a colour TV; and
9. afford a telephone.

The new deprivation indicator is based on 13 items whose selection results from a systematic item by item robustness analysis (see Guio et al, 2012 and Guio et al, 2017).

Since 2014, these items are collected annually in each country. Seven deprivation items relate to the person’s household and six to the person themselves. The seven household deprivations consist of six items already included in the 2009 indicator (items 1-6) and one new item – i.e., the inability for the household to:

1. face unexpected expenses;
2. afford one week annual holiday away from home;
3. avoid arrears (in mortgage, rent, utility bills and/or hire purchase instalments);
4. afford a meal with meat, chicken or fish or vegetarian equivalent every second day;
5. afford keeping their home adequately warm;
6. have access to a car/van for personal use; and
7. replace worn-out furniture.

The six personal deprivations are the inability for the person to:

1. replace worn-out clothes with some new ones;
2. have two pairs of properly fitting shoes;
3. spend a small amount of money each week on him/herself (“pocket money”);
4. have regular leisure activities;
5. get together with friends/family for a drink/meal at least once a month; and
6. have an internet connection.

[...]

Compared with the standard 9-item indicator of material deprivation adopted in 2009, the new deprivation indicator also includes items related to social activities (leisure, internet, get together with friends/family, pocket money). It is therefore a measure of “material and social deprivation” (or in short “deprivation”), whose composition is different from that of the “severe material deprivation” (based on the 9-item list) used in the Europe 2020 Social Inclusion target.

[...]

The choice of the threshold is data-driven. At EU level, this threshold results in a proportion of people deprived that is close to that of the 2009 standard material deprivation indicator (3+ deprivations out of 9).

So, there was one introduced more or less around the time when the large EU expansion occurred. But as you can see, agreeing to what should be on the list was subject to revisions. Perhaps one point here is that while the relative income measure is not without room for haggling (where to set the threshold), coming up with a list of necessities is perhaps even more fraught with debates what should be on it and at what levels. At least they were somewhat scientific about it in that they conducted a robustness analysis what to remove, but they also added [social] stuff which they'll probably only later be able to tell if it's parsimonious enough.

And the Guio (2017) whitepaper is 66-pages long. It does have some further history how those (earlier) indicators influenced by social science conceptions adopted into EU policies:

In 1975, the EU Council of Ministers agreed that the poor are “the persons whose resources are so small as to exclude them from the minimum acceptable way of life in the Member State in which they live”, with “resources” being defined as ‘goods, cash income plus services from public and private sources’ (Council of the European Union, 1975). This definition includes both outcome elements (“the exclusion from the minimum acceptable way of life”) and input elements (“...due to a lack of resources”). In 1985, the Council amended this definition and enlarged the concept of “resources” in order to take into account material, cultural and social aspects: “the 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 to which they belong” (Council of the European Union, 1985).

In 1984, the Dublin European Council defined poverty in the European Union as:

“those 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 to which they belong.”

The EU definition of poverty is a multidimensional, dynamic and relative definition which was largely inspired by Peter Townsend’s research during the 1960s and succinctly described in 1979:

“Poverty can be defined objectively and applied consistently only in terms of the concept of relative deprivation. […] Individuals, families and groups in the population can be said to be in poverty when they lack the resources to obtain the type of diet, participate in the activities and have the living conditions and amenities which are customary, or at least widely encouraged or approved, in the societies to which they belong. Their resources are so seriously below those commanded by the average individual or family that they are, in effect, excluded from ordinary living patterns, customs or activities.” (Townsend, 1979, p 31)

In Peter Townsend’s scientific theory of relative deprivation, poverty can be defined as a lack of command of sufficient resources over time and “deprivation” is an outcome of poverty. For Townsend, deprivation is a relative phenomenon which encompasses both a lack of material goods and social activities: “Deprivation takes many different forms in every known society. People can be said to be deprived if they lack the types of diet, clothing, housing, household facilities and fuel and environmental, educational, working and social conditions, activities and facilities which are customary, or at least widely encouraged and approved, in the societies to which they belong.” (1987:p.126)

So, they (the EU) pretty much started out with the idea that poverty is relative to the country were one lives.

At this point you may wonder why the apparent regression to a checklist. Well...

In Townsend’s relative deprivation definition of poverty (see above), people are deprived if they lack the items “which are customary, or at least widely encouraged or approved, in the societies to which they belong”. This approach may be difficult to operationalise as the list of customary items is in theory largely undetermined. The issue was addressed by Mack and Lansley (1985) who proposed an innovative consensual approach to identify ‘necessities’ in Britain, by taking into account the judgment of individuals as to what constitutes an acceptable standard of living. They defined necessities as possessions and activities that at least 50% of interviewees regarded as necessities of life that everyone should be able to afford. This approach has since been used in many high-income countries (e.g. Van Den Bosch, 2001; Halleröd, 1995; 2006; Gazareth and Suter, 2010; Saunders et al, 2007; Abe and Pantazis, 2013; Lau et al, 2015) as well as middle-income and low-income countries (Ahmed, 2007; Davies and Smith, 1998; Nandy and Pomati, 2015; Kaijage and Tibaijuka, 1996; Mtapuri, 2011; Wright, 2008).

At the EU level, an EU wide Eurobarometer survey on the perception of poverty and social exclusion was carried out in 2007 (see TNS (2007) for a description of the survey; see Accardo and de Saint Pol (2009), Dickes et al (2010), Guio et al (2009) for an analysis of these data). This Eurobarometer was the first EU dataset that allowed a comparative analysis of the items that citizens in the different Member States consider to be necessary for people to have an ‘acceptable’ standard of living in the country where they live. The results led to the inclusion of additional items in the EU-SILC survey in 2009, including children’s deprivation items.

The TLDR version is that they still consider those lists a relative measure! Because they were derived by surveying what the average person/family said the necessities were!

They also discuss how that relates to the at-risk (income-based) indicator:

Four indicators of validity are used as validator:

1. At-risk-of-poverty. Even though the cross-sectional association between low income and deprivation is often lower than might be expected (Perry, 2002), there is a long tradition of using this association to validate deprivation indicators. Both Peter Townsend (1979) and Mack and Lansley (1985) used the size of the correlation between income and deprivation to help select their deprivation items.