Legislators need to know what poverty is and how it is measured

Some legislators in Ireland are still working with illusions when it comes to measuring poverty. A meeting of the Joint Oireachtas Committee on European Affairs on March 25, 2010 saw a number of members of Ireland's Dail and Senate comment on what they thought the basis for measuring poverty was.

They took issue with the supposed 'fact' that measuring poverty on the basis of average incomes could give rise to problems. Brigid Reynolds and Sean Healy of Social Justice Ireland presented the real facts i.e. that poverty is not based on an average of anything. A short, and very incomplete, summary of the discussion appeared in the Irish Times on March 26, 2010. To clarify the matter we provide the note below which sets out what poverty is and how it is measured.

In passing Social Justice Ireland notes with regret that the report in the Irish Times made no mention of the topic which we discussed with the Committee for more than an hour i.e. the EU's Europe 2020 strategy.

What is poverty?
The National Anti-Poverty Strategy (NAPS) published by government in 1997 adopted the following definition of poverty:
People are living in poverty if their income and resources (material, cultural and social) are so inadequate as to preclude them from having a standard of living that is regarded as acceptable by Irish society generally. As a result of inadequate income and resources people may be excluded and marginalised from participating in activities that are considered the norm for other people in society.

This definition has been reiterated in the 2007 National Action Plan for Social Inclusion 2007-2016 (NAPinclusion).

Where is the poverty line?
How many people are poor? On what basis are they classified as poor? These and related questions are constantly asked when poverty is discussed or analysed.

In trying to measure the extent of poverty, the most common approach has been to identify a poverty line (or lines) based on people’s incomes. In recent years the European Commission and the UN among others have begun to use a poverty line located at 60 per cent of median income. The median income is the income of the middle person in society’s income distribution; in other words it is the middle income in society. This poverty line is the one adopted in the SILC survey and differs from the previous Irish poverty line (prior to 2003) which was set at 50 per cent of mean (average) income. This switch to using median income is to be welcomed as it removes many of the theoretical and technical criticisms that have been levelled against using relative income measures to assess poverty. In cash terms there is very little difference between the poverty line drawn at either 60 per cent of median income or 50 per cent of mean income. While the 60 per cent median income line has been adopted as the primary poverty line, alternatives set at 50 per cent and 70 per cent of median income are also used to clarify and lend robustness to assessments of poverty.

The most up-to-date data available on poverty in Ireland comes from the 2008 SILC survey, conducted by the CSO. The 2008 data includes a one-off effect on Irish household incomes associated with the SSIA (Special Savings Incentive Accounts) scheme. As a result of the release of these savings and the associated cash bonuses/interest, many household’s income increased in 2008 on a one-off basis (CSO, 2009:18-19). Given that this effect will not re-occur in future years the CSO have provided their 2008 SILC results both including and excluding the SSIA effect. To ensure continuity of analysis with previous and future years the majority of the analysis that follows reports the results excluding the once-off SSIA effects.

Using information gathered in the SILC survey for 2008, the CSO established that the median income per adult in Ireland (excluding the one-off SSIA effect) was €388.07 (2009:19). Consequently, the income poverty lines for a single adult derived from this average were:
50 per cent line - €194.03 a week
60 per cent line - €232.84 a week
70 per cent line - €271.65 a week

Updating the 60 per cent median income poverty line to 2010 levels, using the ESRI’s predicted changes in wage levels for 2009 and 2010, produces a relative income poverty line of €224.75 for a single person. In 2010, any adult below this weekly income level will be counted as being at risk of poverty. It is worth noting that the value of the 2010 poverty line is lower than the 2008 figure (above) because wages are projected to decline over this period and as the poverty line is a relative measure it adjusts accordingly.

Table 1 applies this 2010 poverty line to a number of household types to show what income corresponds to each household’s poverty line. The figure of €224.75 is an income per adult equivalent figure. This means that it is the minimum weekly disposable income (after taxes and including all benefits) that one adult needs to receive to be out of poverty. For each additional adult in the household this minimum income figure is increased by €148.33 (66 per cent of the poverty line figure) and for each child in the household the minimum income figure is increased by €74.17 (33 per cent of the poverty line). These adjustments are made in recognition of the fact that as households increase in size they require more income to keep themselves out of poverty. In all cases a household below the corresponding weekly disposable income figure is classified as living at risk of poverty. For clarity, corresponding annual figures are also included.