Poverty at Higher Frequency; Dr Joshua D. MERFELD (KDI School of Public Policy and Management)

Abstract

High-frequency household data show that people with low yearly incomes also tend to face within-year economic instability and have limited ability to smooth consumption. We explore implications of the resulting within-year economic variation for the concept and measurement of poverty. We introduce a framework for defining annual poverty that takes into account variation in the extent and intensity of deprivation within the year. The framework expands on conventional conceptions of poverty which, by basing measurement on yearly household income or consumption, do not reflect within-year variation. We use the framework to analyze five years of monthly household data from rural India, a region marked by seasonality and vulnerability to extreme poverty. Because the experience of poverty of “non-poor” households is counted in the framework, measuring the headcount poverty rate by household-months in poverty increases the poverty rate by 26% relative to the conventional statistic based on yearly expenditure; 35% of months-in-poverty are attributable to deprivations among households that would not conventionally be considered poor. (2) The most vulnerable households see the largest increase in measured poverty when accounting for within-year variation. (3) Exiting poverty rarely means immediately leaving poverty behind. Almost half of all individuals who have “exited” poverty according to yearly measures nevertheless experience at least six months of poverty. (4) Policy that gives greater support during particularly challenging months lessens the experience of poverty more effectively than steady monthly transfers. We describe challenges for income and expenditure measurement and implications for public action.