Why the World Bank is adding new ways to measure poverty

The 2018 Poverty and Shared Prosperity Report shows how poverty is changing and introduces improved ways to monitor our progress toward ending it.

The landscape of extreme poverty is now split in two. While most of the world has seen extreme poverty fall to below 3 percent of the population, Sub-Saharan Africa is experiencing extreme poverty rates affecting more than 40 percent of people. The lamentable distinction of being home to the most people living in extreme poverty has shifted, or will soon shift, from India to Nigeria, symbolizing the increased concentration of poverty in Africa.

Until recently, progress toward the target of reducing extreme poverty to 3 percent by 2030 had been steady: Between 1990 and 2013, extreme poverty declined on average by a percentage point a year. However, not all countries have experienced this progress, and the progress is quickly decelerating. It now takes more than two years to reduce poverty by a percentage point, according to the latest estimates.

What this means is that if countries grow in line with regional historical rates, extreme poverty will fall no lower than around 6 percent globally by 2030, with average poverty rates above 25 percent in Sub-Saharan Africa. Reaching the 3 percent target would require all countries to grow at an unprecedented 8 percent rate annually. And even then, extreme poverty in Sub-Saharan Africa would remain in double digits, while the rest of the world would be close to zero. An outcome in which 3 percent target is met globally but Sub-Saharan Africa continues to have double-digit poverty does not qualify as a world free of poverty.

However, while we redouble efforts to eradicate extreme poverty, intensifying our focus on Africa and on conflict-affected countries, we must recognize that poverty persists in other forms and other places. This calls for new, complementary ways of measuring poverty that recognizes poverty in all its dimensions everywhere.

To better see a more complete picture of poverty, the World Bank is adding new ways of looking at it, inspired by the recommendations from the Atkinson Commission on Global Poverty. These new perspectives add to what we learn from the International Poverty Line (IPL, US$1.90 in 2011 Purchasing Power Parity dollars) by acknowledging three core shifts in the nature of poverty itself:  one, most of the world has become better off; two, there are other essential deprivations besides not having money that can make someone poor; and three, poverty may fall more heavily on some members of a household than others.

1. Poverty is also relative.

The report presents two new sets of monetary poverty lines intended to complement the $1.90 IPL. The first are higher poverty lines, fixed at US$3.20 and US$5.50 per day (in 2011 Purchasing Power Parity dollars), reflecting typical national poverty thresholds in middle-income countries. Although 10 percent of the world population was living on less than $1.90 per day, a quarter of the world was living on less than $3.20 and close to a half the world was living on less than $5.50 per person per day.

In addition, the report introduces a societal poverty line that increases in value as a country grows richer (as measured by increases in median consumption or income levels) rather than being fixed in value. This poverty line is based on the typical value of national poverty thresholds and differs for countries at different levels of well-being. Because the societal poverty line’s lower bound is fixed at the $1.90 International Poverty Line, it integrates both absolute extreme poverty and the more relative notion of ensuring that the less well-off in each society benefit as that society grows. The societal poverty rate declined by about a third between 1990 and 2015, dropping from approximately 45 percent to 28 percent.
 

2. Poverty is about more than income.

The report previews a new multidimensional poverty measure, which goes beyond consumption or income poverty by adding non-monetary dimensions into the measure. Access to education, health, electricity, water, sanitation, and physical and environmental security are critical for well-being. Because many of these goods cannot be bought, they are typically not included in the measure of extreme poverty. This work builds on the tradition pioneered by the United Nations Development Programme and the Oxford Poverty and Human Development Initiative with the Global Multidimensional Poverty Index, and complements it by placing the monetary measure of well-being alongside non-monetary dimensions. Doing so helps better understand the interaction among the various domains of poverty. The Poverty and Shared Prosperity report combines consumption poverty with education and access to basic infrastructure in 119 countries around 2013. At a global level, the share of the poor is 50 percent higher when these two dimensions are added alongside monetary poverty — from 12 percent living below the $1.90 to 18 percent deprived in at least one of the three dimensions. In addition, more than a third of the poor suffer simultaneous deprivations in all three dimensions.
 

3. Poverty varies within households.

Finally, in most countries of the world, poverty is measured at the household level, which assumes that everyone in a poor household is poor. But because there is inequality within households, there are probably people living in poverty in non-poor households and non-poor individuals living in poor households. Current data and methods do not permit accounting for inequality within households in most countries, but the report examines select country studies where this is possible and describes how this affects the global profile of poverty. The evidence suggests that women and children are disproportionately affected by poverty, albeit with considerable variation across countries and household types. Sex differences in poverty are largest during the reproductive years, when care and domestic responsibilities overlap and conflict with productive activities.

Pieced together, these new poverty lines and measures help provide a more comprehensive picture of poverty. The more complete portrayal reinforces the positive story of the significant progress in reducing extreme poverty. However, the new lines and measures also uncover hidden details about the nature and extent of poverty throughout the world. Monetary poverty with respect to the IPL will continue to be the focus of the World Bank’s work. As extreme poverty becomes increasingly entrenched in a handful of countries and the pace of reduction continues to decelerate, ending extreme poverty will require a redoubling of efforts and greater focus on those countries where it is the worst.

But to truly end poverty, we now also need to think more broadly and recognize the greater complexity of poverty around the world. The new ways of understanding poverty introduced in the report allow us to better monitor poverty in all countries, in multiple aspects of life, and for all individuals in every household.