Poverty
I have written on this blog about some of the logical flaws associated with ‘relative poverty’, arguing that even if we were to accept the premise that poverty was a relative concept, it would still not be clear why the benchmark group should coincide with the inhabitants of the national territory.

To illustrate the problem, I have calculated a figure of relative poverty for a hypothetical re-united Austro-Hungary. I have taken income, measured in price-level-adjusted US dollars, from a recent OECD report. Unfortunately, the income distribution is only reported per decile instead of per percentile, so I have had to make the assumption that within each decile the distance between any two percentiles is the same. Nevertheless, there is enough information to provide a pretty good estimate.

Officially, poverty in Hungary (12.3%) is currently more than a full percentage point lower than in Austria (13.4%). But after re-unifying the former Habsburg Empire, the new median income earner either belongs to the second-poorest decile of Austria, or to the second-richest decile of Hungary (these strata overlap).

In Austria, only 14% earn less than the new median income, compared with 83% in Hungary. The relative poverty rate of Austro-Hungary is 26%. However, the poverty threshold, set at 60% of the median income, is lower than the average income of the lowest income decile in Austria. Under the assumption explained above, the poverty rate falls to just 3% in Austria but almost quadruples to 46% in Hungary.

In absolute terms, no individual has got richer or poorer. Yet a simple boundary change has apparently driven 3 million Hungarians into poverty. This demonstrates how easily relative poverty data can be manipulated. Clearly public policy should not be based on such flawed measures.

Kristian-Niemitz-2012_0.jpg

Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

10 thoughts on “How relative poverty statistics can be manipulated”

  1. Posted 27/11/2008 at 15:34 | Permalink

    That is brilliant!

  2. Posted 27/11/2008 at 15:34 | Permalink

    That is brilliant!

  3. Posted 27/11/2008 at 15:42 | Permalink

    Kristian – send this post to Ross Clark on the Times. He was saying some really good things about poverty on the radio a couple of months ago. It is brilliant. If we had a united EU then some countries would have no poor at all. And, of course, if Sweden merged with the US, poverty would rocket in Sweden and fall in the US.

  4. Posted 27/11/2008 at 15:42 | Permalink

    Kristian – send this post to Ross Clark on the Times. He was saying some really good things about poverty on the radio a couple of months ago. It is brilliant. If we had a united EU then some countries would have no poor at all. And, of course, if Sweden merged with the US, poverty would rocket in Sweden and fall in the US.

  5. Posted 27/11/2008 at 20:21 | Permalink

    Actually, having mulled this over, for the price of plunging three million Hungarians into poverty, at least you would have lifted one million Austrians out of it.

  6. Posted 27/11/2008 at 20:21 | Permalink

    Actually, having mulled this over, for the price of plunging three million Hungarians into poverty, at least you would have lifted one million Austrians out of it.

  7. Posted 27/11/2008 at 21:37 | Permalink

    Dear Mark,
    you’re right – still, Austro-Hungary has more poverty than AT and HU had individually, because it is a country with large income differences. So one could reduce poverty by doing the opposite of what I did – split countries instead of merging them. When we say “inequality is high in Italy”, we are at the same time comparing the waiter with the banker, and the North with the Mezzogiorno. If the data was easier available, I would already have reshaped the map of Europe completely.

  8. Posted 27/11/2008 at 21:37 | Permalink

    Dear Mark,
    you’re right – still, Austro-Hungary has more poverty than AT and HU had individually, because it is a country with large income differences. So one could reduce poverty by doing the opposite of what I did – split countries instead of merging them. When we say “inequality is high in Italy”, we are at the same time comparing the waiter with the banker, and the North with the Mezzogiorno. If the data was easier available, I would already have reshaped the map of Europe completely.

  9. Posted 28/11/2008 at 11:13 | Permalink

    It would be interesting to do the same in reverse.

    What would be the effect of granting Scotland and Wales full independence? Logically poverty in the rump state would decline.

    Perhaps go a stage further and grant Liverpool full independence

  10. Posted 28/11/2008 at 11:13 | Permalink

    It would be interesting to do the same in reverse.

    What would be the effect of granting Scotland and Wales full independence? Logically poverty in the rump state would decline.

    Perhaps go a stage further and grant Liverpool full independence

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