Poverty and Equity Measurement at the World Bank and the ECA context

UNECE Conference on poverty measurementDecember 2-4, 2013Poverty and Equity Measurement at the World Bank and the ECA contextContentPoverty measurement: conceptual issuesPoverty measurement at the World BankGlobal monitoringCorporate objectivesCountry dialogueTypes of measures usedShared prosperityNon-monetary measuresAccess to opportunitiesComplementarities across measuresLooking ahead

Poverty measures: Theoretical and practical considerationsDesirable characteristicsIntended use understandable and easy to describeconforms to a common sense notion of povertyfits the purpose for which it is being developedtechnically solidoperationally viableeasily replicable

compare the poverty of different households and regions in the countrycompare poverty over timecompare poverty between countriesdefine a poverty reduction strategyevaluate the impact of a poverty reduction strategy

The answer to some of these questions will condition the properties and choices of a poverty indicator.

3Types of poverty measuresMPIPoverty measurement within the World BankGlobal poverty monitoringCorporate goalsEnd extreme poverty (Percentage of people living with less than US$ 1.25 a day to fall to 9 percent in 2020 and 3 percent by 2030)Promote shared prosperity (Promote income/consumption growth of the bottom 40 percent of the population in every country)Country dialogueMain dimension of dialogue with stats institutes Policy linkagesFeedback to corporate and global monitoring tasks

Global monitoring and corporate goalsUS$ 1.25 / day poverty lineGlobal viability ensured through:Why $1.25/day -- many desirable featuresUnderstandableAccepted standard of global povertyOperationally viablePossible to compare poverty across countries and over timeStandardized welfare aggregateExpenditure basedPer capita termsExpressed in PPP terms conversion based on private consumptionPoverty PPPs (ICP2011)PPPs updated periodically

Regional monitoring: IS US$1.25/day relevant for the ECA region?

Regional (ECA) monitoringUS$ 1.25/day too low for ECARegional ECA lines ($2.5/day; $5/day)Cold weather requires:Higher caloric intakesHigher food expendituresHigher expenditures in clothing, energy (and transportation)Higher non-food expendituresWhat is the relevant reference line?

Country dialogue: national poverty linesMostly absolute poverty linesVariation in adult equivalent adjustmentsRelative poverty lines in EU and some Western Balkans countriesKey methodological difference among ECA countries

Absolute vs Relative linesAbsolute linesRelative linesCommon in poor countriesAnchored to a fixed welfare standardOffer comparability across space and timeCan in fact account for differences in social normsE.g. choice of food bundlesBut, adjust slowly over timeCommon in wealthier countriesEU: 60% of median incomeAim to capture differences in the cost of social inclusionabsolute in the space of appearing in public without shameSocial inclusion becomes more salient with increasing wealthDo not allow for comparisons among countries or across timeNot based on the same level of welfareExcept for anchored AROPIncome losses need not lead to higher poverty

BiH Spotlight: Expenditure-based profile and EU social inclusion indicators Adoption of social inclusion indicators will likely bring a new set of estimates / profiles / geographic distribution of deprivationOver 2/3rd of AROPE population is outside of the bottom quintileHowever, 82% of those in 1st quintile are identified by the AROPE indicator

Corporate goals: shared prosperityPolicy context Methodological issuesGrowth in real income/consumption of the less well-off segment of the population (bottom 40%)A growing economy and a fundamental concern for equityDirect focus on the incomes of the poor/less well-offGrowth is necessary. But not any growth sustained growth that makes the less well-off an integral part of that processNot about redistributing a fixed pie, but expanding the size of the pie continuously and sharing it

Goal defined only at the country level, no global target is proposedUses a money metricMedium-run objective5-year spanUnbounded measureHigher growth of bottom 40% is not inconsistent with higher inequalityAnonymous measureComposition of bottom 40% changes

Overall positive record on shared prosperity in late 2000s

Non-monetary measures: human opportunity index (HOI)Measures availability of services necessary to progress in life, penalized by how unfairly the services are distributed among the population. HOI=C(1-D)Focus on childrenEarly life equality of access to basic opportunitiesEducation Health care Adequate housing / amenitiesMinimize effect on life chances of pre-determined circumstances (e.g. gender, ethnicity, birthplace, or family background)Variations: access to economic opportunities for adults (e.g. jobs)

Multidimensional analysis:Opportunities (HoI)

Access to opportunities (sanitation)

Access to opportunities -- determinants

Access to opportunities coverage gaps

Complementarities across measuresWhat do various measures capture?$1.25/day extreme (absolute) povertyShared prosperity relative concept Similar to at-risk-of-poverty, only dynamicRelevant for all countriesSharing benefits of economic growthHOI: inequality of opportunityTogether equity aspectsWDR 2006: Equity is defined in terms of two basic principles: (a) equal opportunities and (b) avoidance of extreme deprivation in outcomes.EU social inclusion similar agenda

Poverty measurement at the WB: looking aheadTheoretical considerationsPractical considerationsMonitoring & policy objectives need poverty lines absolute in the space of welfare (fixed real value over time and space) Cost of Basic Needs (CBN) approachConsistency of comparisonsCan be broadened to:capture capabilities via the money metric of utilitycapture relative concernsEquity agenda focus on shared prosperity (SP)IO / mobility meant to complement and unpack SP

Monetary measuresBetter data; higher frequency dataIssues of updating poverty basketsNon-monetary measuresBetter understanding of multiple dimensions of poverty and exclusionDashboards vs composite indices; weightsInequality of opportunityCapabilities (in Sens sense) remain difficult to measure in practiceThank you