Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010

Understanding Poverty Statistics

Background

Considering the extent of interest prevailing in our country on the subject of poverty, it seems necessary to discuss the subject dispassionately to promote a better understanding of the matter as well as, in reverse, to prevent any misrepresentation of it.

Eliminating poverty is not the same as reducing the income gap between the rich and the poor, nor is it the same as improving the distribution of income. Eliminating poverty means increasing poor people's income to a height exceeding a certain critical amount; reducing the income gap between the rich and the poor means exactly what it says; while improving income distribution means making incomes approach equality.

These distinctions are often blurred in public discussions of poverty, producing confusion in the public's mind. It is the purpose of this Note to prevent such confusion by carefully discussing the essential distinctions.

Measuring Poverty

Poverty is defined in terms of the amount of money needed to purchase a given quantity of food and non-food items that are necessary to the maintenance of human life at a minimum level. This is called the poverty threshold or poverty line. People with incomes less than the poverty threshold are considered poor.

Let's take a look at the poverty situation in the Philippines to have a concrete sense of what we are talking about. The Table below describes the poverty situation in the Philippines in the 7-year period 2000 – 2006.

Source: National Statistical Coordination Board.

In the period 2000-2006, under the given thresholds for each of the three years shown above, the families that were poor numbered between 4 million and 4.7 million and constituted between 24.4 percent and 27.5 percent of all families in the country. From 2000 to 2003 the situation improved, but between 2003 and 2006 it worsened.

Unfortunately, no data is available for years after 2006. We are left in our knowledge of the poverty situation in our country with outdated data. (Information on poverty that is said to be current consists of subjective data (showing so-called self-rated poverty) collected through perception surveys, which is useless for objective analysis, let alone for policy making purposes.

The Issue is Poverty, not other Social Problems

A policy that is succeeding in eradicating poverty is not necessarily also succeeding in reducing the income gap between the rich and the poor and making income distribution in the society more equal. A successful anti-poverty policy has the potential of achieving those two objectives, but it cannot by itself attain them in practice.

To achieve those twin objectives, other policies are necessary and will have to be vigorously implemented. These other policies are beyond the scope of this Note.

To fix ideas, consider a community where the poverty threshold is P20,000 per person per year. There are in this community two families, each made up of five persons including mother and father, where Family A (the "rich") has an annual income of P300,000, which breaks down to P60,000 per person; and Family B (the "poor") an annual income of P50,000, which breaks down to P10,000 per person. The government carries out an anti-poverty policy which successfully increases the income of Family B by 20 percent per year and that of Family A by 10 percent per year.

The Table below traces the changes in the incomes of these two families over an 8-year period (assuming constant prices, i.e., unchanged poverty threshold):

In the initial year 2010, the income of the poor family was 14.3 percent of total income and the income gap between the two families was P250,000. In the following year, 2011, the poor family was better off but still remained poor. This is because its share in total income went up to 15.4 percent, but the income gap also increased in absolute terms, to P270,000.

Four years after base year, in 2014, when the poor family is no longer poor and its income share has gone up to 18.4 percent, the income gap has also widened, to P337,000. In 2018, eight years after base year, poverty has become only a memory to the (previously) poor family: its income has jumped to P209,000 and its share to 24.6 percent. But the income gap has also widened, to a yawning P436,000, some 75 percent bigger than it was eight years earlier.

Remarks

Because of the assumptions made in the example – growth rates of 20 percent per annum for the poor family's income and 10 percent for that of the rich family – poverty is eliminated in four years and income distribution improved – with the poor family's share in total income rising from 14.3 percent in 2000 to 18.4 percent in 2004 and 24.6 percent in 2008. Throughout the 8-year period, however, the income gap has widened.

If we had assumed that the rich family's income increased at the same rate as that of the poor family -- 20 percent -- the income shares would have remained constant and the income gap would have remained proportionately constant. If we had assumed that the rich family's income increased at a rate higher than the poor's – say, 25 percent -- both income shares and income gap would have turned worse against the (previously) poor.

In short, there is no inherent contradiction in statements saying that poverty is being eliminated, even as income distribution is worsening and/or the income gap between the rich and the poor is widening.

If the solution to the poverty problem is easy at the conceptual level, it is daunting at the real life level. In real life, poverty elimination means first of all giving employment to the poor family, including educating and training family members to become employable. It includes motivating families to carry out livelihood programs and pursue entrepreneurial activities. Then it requires creating opportunities for families to put their children to school, cure their health problems, solve their housing conditions. It involves turning informal settlements into orderly communities.

All this is to take place without prompting the emergence of a dependency syndrome among the poor people, a loss of confidence in their own capacity to reach goals of prosperity and abundance worthy of themselves and their loved ones.

Success in anti-poverty work requires not just a concentration on the poverty issue, but also a refusal to be distracted by opinion--no matter how well-intentioned--that is based on ignorance.