Definition
Proportion of population below $1 per day is the percentage of the population living on less than $1.08 a day at 1993 international prices. The $1 a day poverty line is compared to consumption or income per person and includes consumption from own production and income in kind. Because this poverty line has fixed purchasing power across countries or areas, the $1 a day poverty line is often called an “absolute poverty line”.
Goal/target addressed
Goal 1. Eradicate extreme poverty and hunger.
Target 1. Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day.
Rationale
The indicator allows for comparing and aggregating progress across countries in reducing the number of people living under extreme poverty and for monitoring trends at the global level.
Method of computation
The World Bank regularly estimates poverty based on the $1 a day poverty line. Estimates are based on incomes or consumption levels derived from household surveys. Whenever possible, consumption is preferred to income for measuring poverty. When consumption data are not available, income is used.
Consumption, which includes consumption for own production, or income per person, and its distribution are estimated from household surveys. Household consumption or income is divided by the number of people in the household to establish the income per person.
The distribution of consumption or income is estimated using empirical Lorenz (distribution) curves weighted by household size. In all cases measures of poverty to obtain Lorenz curves are calculated from primary data sources rather than existing estimates.
Poverty in a country is estimated by converting the $1 a day poverty line to local currency using the latest purchasing power parity (PPP) exchange rates for consumption taken from World Bank estimates. Local consumer price indices are then used to adjust the international poverty line in local currency to prices prevailing around the time of the surveys. This international poverty line is used to identify how many people are below the $1 a day threshold.
The PPP-based international poverty line is required only to allow comparisons across countries and to produce estimates of poverty at the aggregate level. Most countries also set their own poverty lines (see indicator 1b).
Data collection and source
The indicator is produced by the World Bank’s Development Research Group based on data obtained from government statistical offices and World Bank country departments. It is not normally calculated by national agencies.
Data on household income, consumption and expenditure, including income in kind, are generally collected through household budget surveys or other surveys covering income and expenditure.
When available, household consumption data are preferred to income data. National statistical offices, sometimes in conjunction with other national or international agencies, usually undertake such surveys.
Only surveys that meet the following criteria are used: they are nationally representative, include a sufficiently comprehensive consumption or income aggregate (including consumption or income from own production), and allow for the construction of a correctly weighted distribution of consumption or income per person.
The most recent estimates of PPP for developing countries are based on data collected between 1993 and 1996, standardized to 1993 international prices. Global price comparisons are carried out by the International Comparisons Program of the World Bank and others. New estimates of PPPs are expected in 2006.
References
World Development Indicators, annual, World Bank, table 2.6 (www.worldbank.org/data).
Poverty Reduction and the World Bank: Operationalizing the World Development Report 2000/01, 2001, World Bank.
Poverty Reduction Strategy Sourcebook, “Poverty measurement and analysis”, World Bank (www.worldbank.org/poverty/strategies/sourcons.htm).
Human Development Report, annual, United Nations Development Programme (www.undp.org).
Periodicity of measurement
Household budget or income surveys are undertaken at different intervals in different countries. In developing countries they typically take place every three to five years.
PPP surveys are conducted at infrequent intervals. The last price survey through the International Comparisons Program was completed in 1996, and the next will begin in 2003. It is, however, possible to extrapolate from PPP surveys, and the World Bank conversion factors are calculated in this way.
Gender issues
Households headed by women tend to have lower incomes and are therefore more likely to have incomes per person lower than $1. However, this relationship should be carefully studied to take into account national circumstances and the definition of head of household adopted in data collection, which is not necessarily related to the chief source of economic support. Whether households are headed by women or men, gender relations affect intrahousehold resource allocation and use. It is not possible to estimate gender-disaggregated poverty rates from available data.
Disaggregation issues
It is sometimes possible to disaggregate this indicator by urban-rural location. It is not possible to disaggregate this indicator by gender.
International data comparisons
This indicator is used only for international comparison.
World Development Indicators, annual, World Bank (www.worldbank.org/data).
Human Development Report, annual, United Nations Development Programme (www.undp.org).
Comments and limitations
The $1 a day poverty measure is used to assess and monitor poverty at the global level, but like other indicators it is not equally relevant in all regions because countries have different definitions of poverty. Measurements of poverty in countries are generally based on national poverty lines.
PPP exchange rates are used because they take into account the local prices of goods and services that are not traded internationally. Although PPP rates were designed for comparing aggregates from national accounts, they may not fully reflect the comparative cost of goods typically consumed by the very poor.
There are also problems in comparing poverty measures within countries, especially for urban-rural differences. The cost of living is typically higher in urban than in rural areas, so the urban monetary poverty line should be higher than the rural monetary poverty line. But it is not always clear that the difference between the two poverty lines found in practice properly reflects the difference in the cost of living.
There is an unresolved issue about whether to use income or consumption as a welfare indicator. Income is generally more difficult to measure accurately, and consumption accords better with the idea of the standard of living than income, which can vary over time even if the standard of living does not. But consumption data are not always available, and when they are not there is little choice but to use income.
There is also a problem with comparability across surveys: household survey questionnaires can differ widely, and even similar surveys may not be strictly comparable because of difference in quality.
Even if surveys are entirely accurate, the measure of poverty can miss some important aspects of individual welfare. First, using household consumption ignores inequalities within households. Second, the measure does not reflect people’s feeling about relative deprivation or their concerns about uninsured risk to their income and health.
Comparisons across countries at different levels of development may also pose a problem, because of differences in the relative importance of consumption of non-market goods.
Agency
World Bank