UNIT 6
POVERTY AND INEQUALITY
• poverty is multidimensional. At least six dimensions feature prominently in poor
people’s definition of poverty (Nafziger, 2006, pp.163-64).
• First, poverty consists of many interlocked dimensions. Although poverty is rarely
about the lack of only one thing, the bottom line is always hunger – the lack of food.
Second, poverty has important psychological dimensions, such as powerlessness,
voicelessness, dependency, shame, and humiliation.
• The maintenance of cultural identity and social norms of solidarity helps poor
people to continue to believe in their own humanity, despite inhumane conditions.
Third, poor people lack access to basic infrastructure – roads (particularly in rural
areas), transportation, and clean water
• Fourth, while there is a widespread thirst for literacy, schooling receives little
mention or mixed reviews. Poor people realize that education offers an escape from
poverty – but only if the economic environment in the society at large and the
quality of education improves
• Fifth, poor health and illness are dreaded almost everywhere as a source of
destitution. This is related to the costs of health care as well as to income lost due to
illness. Finally, the poor rarely speak of income, but focus instead on managing
assets – physical, human, social, and environmental – as a way to cope with their
vulnerability. In many Poverty is classified into relative and absolute poverty.
Relative poverty is defined in comparison to other people’s standing in the
economy. A person can be poor in the relative sense, although he/she can meet
his/her basic needs. Relative poverty can be observed by looking at relative
standings within a society, or internationally
• Absolute poverty is the situation of someone being unable or only barely able to
meet the subsistence essentials such as food, clothing, and shelter. It is simply the
deprivation of basic needs. The extent of absolute poverty is expressed by the
number of people who are unable to command sufficient resources to satisfy the
basic needs
• Absolute poverty is seen as a failure of meeting the requirements of basic dignity of
human beings or even a failure to meet human rights, while relative poverty is seen
as a matter of failure of distributive justice.
• There are four reasons to measure poverty. The first is to keep poor people on the
agenda.
• The second is to be able to identify poor people and so that we are able to target
appropriate interventions.
• The third is to monitor and evaluate projects and policy interventions geared to
poor people.
• The fourth is to evaluate the effectiveness of institutions whose goal is to help poor
people
• Once the reasons for measuring poverty are clear, the next step is to list the three
steps needed to measure poverty. They are:
1. defining an indicator of welfare.
2. establishing a minimum acceptable standard of that indicator to separate the poor from
the non-poor (the poverty line).
3. generating a summary statistic to aggregate the information from the distribution of this
welfare indicator relative to the poverty line (Haughton and Khandker, 2009).
• Poverty is measured in a number of steps. The first step is to know which people are
poor. This follows with specifying a minimal socially acceptable level of income or
consumption (the poverty line). The second is to implement a representative survey in
which the corresponding income or consumption concept is measured. Finally, one has
to choose and calculate a specific poverty measure.
• The most common implementation of these steps is to have a fixed, monetary,
consumption-based threshold for poverty, with data coming from a household
survey, and poverty measured as the percentage of individuals with per capita
consumption below the poverty line (Hughton and Khandker, 2009).
• There are different ways of measuring poverty. One measurement is called the
poverty headcount index. Assume a headcount (H) of those whose incomes or
consumption fall below the absolute poverty line (Yp) whereby the headcount is
taken as a fraction of the total population (N)
• Then, headcount index or headcount ratio can be defined as H/N. The idea is to set
this level at a standard below which we would consider a person to live in absolute
human misery such that the person’s health is in jeopardy (Todaro and Smith,
2015).
•
• Another measure is what is known as a total poverty gap (TPG). This
measures the total amount of income that is necessary to raise everyone who is
below the poverty line up to that line. It is defined as the sum of the difference
between the poverty line and actual income levels of all people who are living
below that line. Similarly, the average poverty gap (APG) is found by dividing
the TPG by the total population.
• There are different ways of measuring poverty. One measurement is called the
poverty headcount index. Assume a headcount (H) of those whose incomes or
consumption fall below the absolute poverty line (Yp) whereby the headcount is
taken as a fraction of the total population (N)
• The Foster-Greer-Thorbecke index is another measurement. It is defined as a
class of measures of the level of absolute poverty. This measurement helps to
understand the degree of income inequality among the poor (Todaro and Smith,
2015).
• The aforementioned are unidimensional measures which are based on income.
There are also other composite or multidimensional poverty measures.
• The Multidimensional Poverty index (MPI) is the most prominent application of
multidimensional poverty measurement; it incorporates three dimensions at the
household level: health, education, and wealth. The MPI takes into account that
people suffer from multiple deprivations
• It used the three dimensions (health, education, and standard of living) and each of
their corresponding indicators because they reflect problems which are often
mentioned by the poor, and they have been long considered important by the
development community. Moreover, they are well established philosophically as
human rights or basic needs.
• Each of the dimensions has its own indicator. For example, health has two
indicators:
• a) whether any child has died in the family, and
• b) whether any adult or child in the family is malnourished. Both are weighted
equally, and each counts one-sixth toward the maximum possible deprivation in the
MPI.
• Education, too, has two indicators:
• a) whether or not even one household member has completed five years of
schooling, and
• b) whether or not any school-age child is out of school for grades one through to
eight. Again, both are given equal weight, and each counts one-sixth towards the
MPI.
• Finally, in terms of standard of living, equal weight is placed on six deprivations: a)
lack of electricity, b) insufficiently safe drinking water, c) inadequate sanitation, d)
inadequate flooring, e) unimproved cooking fuel, and f) lack of more than one of five
assets (telephone, radio, television, bicycle, and motorbike or similar vehicle)
(Todaro and Smith, 2015).
• Amartya Sen, the 1998 Nobel Laureate in economics, contended that traditional
welfare economics, which stresses the revealed preferences or desire-based utilities
of individuals in their acts of choice, lacks enough information about people’s
preferences to assess the social good.
• His approach, also known as capability approach, states that income and wealth
are not ends in themselves but rather instruments for other purposes. For him
capability to function is what really matters for one’s status as a poor or non-poor
person. According to him, the expansion of commodity production is valued not for
its own sake, but as a means to human welfare and freedom.
• In effect, Sen argued that poverty is not low wellbeing but the inability to pursue
wellbeing because of the lack of economic means. Hence, poverty cannot be
properly measured by income or even by utility as conventionally understood. What
matters is not the things that a person has but what a person is, or can be, and does,
or can do.
• What matters for wellbeing is not just the characteristics of commodities consumed,
as in the utility approach, but what use the consumer can and does make of
commodities. For example, a book is of little value to an illiterate person, except
perhaps as a cooking fuel.
• Inequality refers to the situation of being unequal or uneven, or a social disparity of
distribution or opportunity. Inequalities take different dimensions: economic, social,
political, etc. For example, there are inequalities of power, prestige, status, gender,
job satisfaction, conditions of work, degree of participation, freedom of choice. The
focus here is on the economic (mainly income) dimension.
• Economic inequality is the disproportionate distribution of total national income
among households. This income distribution is divided into two: the
functional/distributive factor share distribution of income and the personal/size
distribution of income.
6.3 Global and Regional Poverty
• It is difficult to arrive at a tight estimate of the extent of global poverty at any
point in time. However, there are clear indications that the conditions of
poverty improved over the past half century. For example, countries like China
made significant progress in lifting millions of their citizens out of poverty.
Subsequently, the number of people living in extreme poverty declined from
36% in 1990 to 10% in 2015. Yet extreme poverty remains widespread in the
developing world, and especially in sub-Sahara Africa.
•
•
Women and Poverty
• Globally, women make up a substantial majority of the world’s poor. Among the
poorest communities throughout the developing world, virtually everywhere
women and children experience the harshest deprivation. They are more likely
to be poor and malnourished and less likely to receive medical services, clean
water, sanitation, and other benefits.
• The prevalence of female-headed households, the lower earning capacity of women,
and their limited control over their spouses’ income all contribute to this
phenomenon. Moreover, a disproportionate number of the poorest people live in
households which are headed by women who have lower incomes.
• A portion of the income disparity between male-headed and female-headed
households can be explained by the large earnings differentials between men and
women. Since the earning potential of women is considerably below that of their
male counterparts, women are more likely to be among the very poor.
• In addition, women have less access to education, formal-sector employment, social
security, and government employment programs. These facts combine to ensure
that poor women’s financial resources are meagre and unstable compared to those
of men.
• Ethiopia has an estimated population of 118 million people as of 2021. The World
Bank (2020) reckons that Ethiopia’s economy experienced strong, broad-based
growth averaging 9.8% a year from 2008/09 to 2018/19, with the share of the
population living below the national poverty line declining from 38% to 24% over
the same period. Yet Ethiopia remains one of the poorest countries in the world
with a per capita annual income estimated, according to the government, at $883
(MoFEd, 2019)
• The government also reckons that the headcount poverty in Ethiopia declined from
59% in 1992 to 29.5% in 2011 (MoFED, 2012. In 2019, Ethiopia’s HDI value was
0.485 positioning it at 173 out of 189 countries and territories. This puts the
country in the low human development category (UNDP). Moreover, 44% of people
earn less than a dollar per day, and 89% falls below the 2 US$ per day poverty line.
• Similarly, the International Fund for Agricultural Development (IFAD) estimated
that more than 12 million people are chronically or at least periodically food
insecure. Most of these people live in rural areas whose households live on a per
capita income of less than US$ 0.50 a day. The majority are smallholder farmers who
are the largest group of poor people in Ethiopia.
• Indigenous knowledge is the accumulated set of common-sense knowledge and
ideas of the local people about their everyday realities of living which is unique to
the given community. It forms the basis for local level decision-making in
agriculture and connects people directly with their environment
• Variously known as “traditional knowledge,” “local knowledge” and “traditional
wisdom,” indigenous knowledge is used to solve different problems, including relief
of poverty. More often than not the practices associated with indigenous knowledge
serve as pooling resources for a common good.
• Idir is the most common informal institution in Ethiopia. Although it is a form of
burial society, it also provides other support and consolation to its members in
times of death and grief. It is an association established among neighbours or
workers to raise funds that will be used during emergencies, such as death within
these groups and their families. It is also known as a traditional burial association.
• Iqub (also called “Ikub”) is a rotating credit association which is established by a
small group of people in order to provide substantial funding for members to
improve their lives and living conditions. Serving as a savings club, each member
contributes to the pool of money weekly or monthly
• Other informal associations include Debo or a work group where community
members (who are also Debo members) assist an individual on a rotational basis,
often for free. It is often organised by men to pool their labour to work on each
other’s farmland, on rotational basis
• In addition to the above forms of associations, rural and urban cottage industries
play an important role in lifting people out of poverty. Cottage industry refers to
small-scale, decentralized manufacturing units involved in the production of goods
and services using conventional and low-technology methods. A cottage industry is
often operated out of ahome rather than a purpose-built facility. Cottage industries
are defined by the amount of investment required to start, as well as the number of
people employed
•
•
Similarly, the International Fund for Agricultural Development (IFAD) estimated that more than 12 million people are chronically or at least periodically food insecure. Most of these people live in rural areas whose households live on a per capita income of less than US$ 0.50 a day. The majority are smallholder farmers who are the largest group of poor people in Ethiopia.