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Poverty in Europe and the USA: Exchanging official measurement methods

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  • Notten, Geranda
  • Neubourg, Chris de

Abstract

Official poverty methodologies differ from other poverty measurement methods in the sense that the official ones are more often used as a benchmark to develop new policies as well as to evaluate the performance of existing programs. Europe has the tradition and the practice to use relative poverty as “official” poverty estimates (Common Laeken indicators); the USA use an objective method to estimate official poverty (Orshansky indicator). Although related, each approach portrays different dimensions of poverty. In this study we compare the official poverty methodologies of the USA and EU by applying them on datasets of both countries. Using the harmonized European Community Household Panel (ECHP) for the EU and the Panel Study on Income Dynamics (PSID) for the USA, we compare poverty trends in the USA and EU in relative and absolute terms on a national level as well as for various subgroups of the populations. Additionally, we use the panel dimension of the data to analyze individual poverty dynamics. We find considerable differences between the estimates based on Laeken indicators and the estimates based on an Orshansky type of technology. It was expected that in general Orshansky generates lower poverty estimates than the Laeken indicators. However, it is puzzling to find that a.) these differences are less systematic than expected and b.) these differences are not constant over time and in some cases even have the reverse sign. These findings point to the desirability of involving both poverty concepts into (official) poverty assessments.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4669.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:4669

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Keywords: poverty; absolute; relative; social policy; United States; European Union;

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  1. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 761-66, May.
  2. Atkinson, Tony & Cantillon, Bea & Marlier, Eric & Nolan, Brian, 2002. "Social Indicators: The EU and Social Inclusion," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199253494, October.
  3. Notten, Geranda & de Neubourg, Chris, 2007. "The policy relevance of absolute and relative poverty headcounts: What's in a number?," MPRA Paper 4668, University Library of Munich, Germany.
  4. Notten, Geranda & Neubourg, Chris de, 2007. "Relative or absolute poverty in the US and EU? The battle of the rates," MPRA Paper 5313, University Library of Munich, Germany, revised 15 May 2007.
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Cited by:
  1. Jonathan Bradshaw & Leonardo Menchini & Yekaterina Chzhen & Gill Main & Bruno Martorano & Chris De Neubourg & UNICEF Innocenti Research Centre, 2012. "Child Deprivation, Multidimensional Poverty and Monetary Poverty in Europe," Innocenti Working Papers inwopa657, UNICEF Innocenti Research Centre, revised 2012.

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