Poverty threshold Totally Explained

Everything about Poverty Line totally explained

The poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living. In practice, like the definition of poverty, the official or common understanding of the poverty line is significantly higher in developed countries than in developing countries.
   Almost all societies have some citizens living in poverty. The poverty threshold is useful as an economic tool with which to measure such people and consider socioeconomic reforms such as welfare and unemployment insurance to reduce poverty.
   Determining the poverty line is usually done by finding the total cost of all the essential resources that an average human adult consumes in one year. This approach is needs-based in that an assessment is made of the minimum expenditure needed to maintain a tolerable life. This was the original basis of the poverty line in the United States, whose poverty threshold has since been raised due to inflation. In developing countries, the most expensive of these resources is typically the rent required to live in an apartment. Economists thus pay particular attention to the real estate market and housing prices because of their strong influence on the poverty threshold.
   Individual factors are often used to account for various circumstances, such as whether one is a parent, elderly, a child, married, etc. The poverty threshold is adjusted each year. In 2006, in the United States of America, the poverty threshold for a single person under 65 was US$10,488; the threshold for a family group of four, including two children, was US$20,444.

Defining poverty thresholds

Poverty thresholds can be defined in different ways:

Social Security benefit based. If a government guarantees to make income up to some particular level then it may be presumed that that level is the poverty threshold. This is a problematic definition, because an uncharitable government may reduce the guaranteed income, thus reducing the incidence of poverty so defined while increasing the incidence of actual poverty.
A relative income line, related to some fraction of typical incomes. This excludes the wealthiest individuals from the calculation. For example, the OECD and the European Union uses 60% of national median equivalised household income.
A relative figure fixed in time and only adjusted for inflation - thus avoiding the possibility that if income inequality increases, then poverty may otherwise also increase.
When the World Bank calculates its "$1 a day" statistics, it uses a poverty threshold.

Absolute poverty

A measure of absolute poverty quantifies the number of people below a poverty threshold, and this poverty threshold is independent of time and place. For the measure to be absolute, the line must be the same in different countries, cultures, and technological levels. Such an absolute measure should look only at the individual's power to consume and it should be independent of any changes in income distribution. Such a measure is only possible when all consumed goods and services are counted and when PPP-exchange rates are used (see purchasing power parity). The intuition behind an absolute measure is that mere survival takes essentially the same amount of resources across the world and that everybody should be subject to the same standards if meaningful comparisons of policies and progress are to be made. Notice that if everyone's real income in an economy increases, and the income distribution doesn't change, absolute poverty will decline.
   Measuring poverty by an absolute threshold has the advantage of applying the same standard across different locations and time periods, making comparisons easier. On the other hand, it suffers from the disadvantage that any absolute poverty threshold is to some extent arbitrary; the amount of wealth required for survival isn't the same in all places and time periods. For example, a person living in far northern Scandinavia requires a source of heat during colder months, while a person living on a tropical island does not.
   This type of measure is often contrasted with measures of relative poverty (see below), which classify individuals or families as "poor" not by comparing them to a fixed cutoff point, but by comparing them to others in the population under study.
   The term absolute poverty is also sometimes used as a synonym for extreme poverty.
   According to a UN declaration that resulted from the World Summit on Social Development in Copenhagen in 1995, absolute poverty is "a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services."
   David Gordon's paper, "Indicators of Poverty & Hunger", for the United Nations, further explains that absolute poverty is the absence of any two of the following eight basic needs: The Fraser Institute's list of necessities for living creditably in Canada includes not only food, shelter, clothing, and health care, but also personal care, furniture, transportation, communication, laundry, and home insurance. It is criticized for not including any entertainment items like cable television, daily newspapers, and tickets to movies or sporting events.

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