POVERTY

MEASURING INEQUALITY
There are two ways in which we can see that equation, through size/personal and
functional.
1- Size distribution or personal
(Deals with individuals and households and total income they receive).
Sources of their incomes and time taken for them to earn such income are
ignored.
In this method, population is divided into either quintiles (5ths) deciles
(10ths) according to ascending incomes and see which group receives how
much income
Once categorized, various ways could be implemented to find out ratio of
inequality e.g. via Kuznets ratio
Kuznets ratio= top20/bottom40 one of the major ratios to determine
inequality
Also look at Lorenz Curve more curved=greater inequality .. lesser
bent=lesser inequality

Gini coefficient = measuring the highlighted area of Lorenz curve divided by

triangle
Gini coefficient may vary between 0 (Perfect equality) to 1 (perfect
inequality)

Countries with highly unequal distribution lie between 0.50-0.70 and with
relatively equal lie between 0.20-0.30, In case of Pakistan, Gini Coefficient of
Pakistan traditionally between 0.30 and 0.45 from 1963-2001, latest 2013
Gini Co-efficient of Pakistan was 0.30 according to WB.
Four Important conditions satisfied by Gini Coefficient are
o Anonymity Principle (Rich or poor to be good or bad people)
o Scale independence (doesnt depend upon size of economy)
o Population independence (doesnt depend on number of income
recipient)
o Transfer principle (if we transfer from rich to poor person, income
more equal)

2- Functional Distribution
Functional or share distribution of income attempts to explain the share of
total national income that each FOP (Land, Labor, Capital) receives, rather
than looking at individuals.
ABSOLUTE POVERTY
Number of people who are unable to command sufficient resources to satisfy
basic needs

They are counted as total number of people who are living below a specified
number of real income.
Headcount = H/N (H people below poverty line, N total population).
An issue of total poverty gap may arise e.g. anyone earning $350/year and
$100 per year are both below the poverty lines, but $350 one can come out
of poverty quicker than $100/year
The new absolute poverty line of the world bank today is $1.90
Human poverty Index; UNDP came up with this measure, it wasnt satisfied
with WBs $1/day classification. Human poverty must be measures in terms of
three basic deprivations:
o Of Life (People unlikely to live beyond age of 40)

o
o

Of basic education (percentage of adults who are illiterate)

Of overall economic provisioning ( % of people without safe drinking
water and % underweight children)

RELATIVE POVERTY:

As society becomes richer, so norms change and the levels of income and resources that are
considered to be adequate rises. Unless the poorest can keep up with growth in average incomes,
they will progressively become more excluded from the opportunities that the rest of society
enjoys. If substantial numbers of people do fall below such minimum standards then, not only
are they excluded from ordinary living patterns, but it demeans the rest of us and reduces overall
social cohesion in our society.

Relative poverty is the condition in which people lack the minimum amount of income needed
in order to maintain the average standard of living in the society in which they live
Why is relative Poverty bad?
1- Leads to economic inefficiency (lack of collateral, no savings, borrowing, poor
remains poor, rich people do not re-invest and it leads to capital flight)
2- Undermine social stability and solidarity
3- Generally viewed as unfair

MEASURING POVERTY
1- AHLUWALIA CHENERY WELFARE INDEX

2- HEADCOUNT.. H/N
3- TOTAL POVERTY GAP (Sum of difference between poverty line and
actual incomes of all people)

4- FOSTER-GREER THROBACK MODEL

5-

MULTI-DIMENSIONAL POVERTY MEASUREMENT

Multi-dimensional poverty index is developed by OPHI and UNDP and is aimed at
calculating acute poverty. Although, income based measure continues to be among
the most widely used measures of poverty, it is not sufficient to reflect true depth
and extent of poverty. Pakistans vision 2025 aims at reducing poverty and
increasing peoples well-being and uses MPI.
MPI has two components1) Percentage of people identified as multi-dimensionally poor, represented by
(H)
2) Intensity of Poverty (A): Average percentage of dimensions in which poor
people are deprived.
MPI in Pakistan has three major dimensions and 15 indicators in total. Each
dimension weighs 1/3rd.
1- EDUCATION
a. Years of Schooling
b. Child School Attendance
c. Educational quality
2- HEALTH
a. Access to health
b. Facilities/Clinics/BHUs
c. Immunization
d. Ante-Natal care
e. Assisted Delivery
3- WELL BEING
a. Water
b. Sanitation
c. Walls
d. Overcrowding
e. Electricity
f. Cooking fuel
g. Assets
h. Livestock

MPI is highest in Balochistan, lowest in Punjab

MPI is higher in Rural areas, Lower in Urban Areas
Headcount of Multi-dimensionally poor is 38.8 percent (in 2004, it was
55.2)
Intensity of Deprivation is 50.9 percent (in 2004, was 52.9)
MPI is a product of H and A, It yields a value of 0.197 or 19.7% (in 2004, was
29.2%)

DUALISTIC DEVELOPMENT AND SHIFTING LORENZ CURVE:

1- Agricultural Sector Enrichment Higher Income, a more equal relative
distribution of income and less poverty
2- Modern Sector Enrichment- Higher incomes, less equal relative
distribution of income and no change in poverty
3- Modern Sector Enlargement- Absolute incomes rise and absolute poverty
is reduced, but Lorenz curve will always cross so that we cannot make any
unambiguous statement about changes in relative poverty.

KUZNETS INVERTED-U HYPOTHESIS

Kuznet suggested that in the early stages of economic growth, the distribution of
income will tend to worsen; only at later stages, it will improve. This observation
came to be characterized as Kuznets curve of Inverted U curve.

POLICY OPTIONS: SOME BASIC CONSIDERATIONS:

What kinds of economic and other policies might LDC Governments adopt to reduce
poverty and inequality while maintaining or even accelerating economic growth
rates?
1- Altering the functional distribution: Is a traditional economic approach.
The Government policy should encourage investment in Labor by reducing
the price of Labor compared to Capital.
2- Modifying the size distribution through progressive redistribution of
Asset Ownership:
3- Moderating (Reducing) size distribution at upper levels through
progressive taxation
4- Moderating (Increasing) size distribution at lower levels through
public expenditure of tax revenue.

SOCIAL SAFETY NETS

Social safety nets is a tool through which state or other social welfare institutions
provide services in terms of cash or in kind to the poor segments of the society to
protect them from social and economic upheavals. The UNDPs Human Development
report 2015 ranks Pakistan 147th out of 188 countries under the Human
Development Index (HDI) based on Health (Life expectancy at birth), Education
(Expected years of schooling) and Gross National Income (GNI) per capita.
Pakistans HDI value 0.53 out of 1 as against South Asias average of 0.60 and
Worlds average value of 0.711. Some of the Social safety programmes initiated by
the Government are as under:
1- BISP
Launched in 2008, Budget of 102 Billion Rupees, people outreach 5.3 Million
4500 rupees grant given every 3rd month in Unconditional Cash transfer (UCT) to
poorest of the poor.
Major programs
1234-

Waseela-e-Haq (Interest free loans)

Waseela-e-Sehat (Free insurance and tests upto Rs 25,000/year/family)
Waseela-e-Rozgar (Vocational Training)
Waseela-e-Taleem (5-12 years of children, incentives of Rs. 200 per child for
attending school)

2- Pakistan Poverty Alleviation Fund (PPPF)

Apex Governmental non-Profit Organization, Amount 12 Billion

Support from Government, World Bank, International fund for Agricultural

Development.

Eradicate hunger, promote gender equality, empower women, achieve

universal primary education, improve maternal health, reduce child mortality,
establish NGOs
3- BAIT UL MAL
Autonomous body set up in 1991 contributes significantly towards poverty
alleviation
Assistance to destitute, widow, orphan, invalid, infirm, amp and other needy
persons
Amount 3 Billion
4- EMPLOYEES-OLD AGE BENEFIT INSTITUTION
Established 1976, achieve objectives of Article 38 (c) of the Constitution
Insured persons are entitled to avail benefits like Old Age Pension, Invalidity
pension, Old-Age Grant.

A contribution of 0.5% of minimum wages has to be paid by the employees of

all the Industrial and Commercial Organizations
Minimum pension paid is Rupees 5,250.
Total beneficiaries 378,615