Analysis: Poverty and statistics

A new report found that Israel has the highest poverty rate of all OECD nations. But what does the OECD's poverty measure really mean?

By
May 16, 2013 01:18
2 minute read.
Poverty in J'lem

Poverty in J'lem 370. (photo credit: Marc Israel Sellem)

No one wants to find their country atop a list measuring poverty, even if it is only in comparison to the rich countries that inhabit the OECD. But what does the Organization for Economic Co-operation and Development’s poverty measure really mean?

The OECD uses a measure called “relative income poverty” when discussing poverty rates. The key word is “relative.” Poverty can be measured at absolute levels, defined as those living under a certain subsistence threshold, or on a social level, where it is defined relative to the rest of the economy.

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Unlike developing countries, where poverty might mean lack of access to food, water, shelter, medicine and other basic survival necessities, OECD countries tend to have little absolute poverty, so the relative definition is far more useful.

Relative income poverty is defined as “the share of people having less income than half the national median income.” If you split the population right down the middle according to their income, and looked at how much the person in the very middle made, you’d get the median. Anyone making less than half of that person’s income would be considered below the poverty line.

Because relative income poverty actually measures inequality – not the ability to survive at some standard of living – Israel’s score actually says more about the income distribution in the country than the condition of those living below the poverty line (and, of course, how it measures up to other OECD countries’ income distribution).

For example, Israel’s Arabs and ultra-Orthodox tend to be far poorer than the rest of the population. But as Calcalist reported, a study by budget expert Momi Dahan found that if you take those poor groups out of the population, the number doesn’t change as dramatically as one might expect – it falls from about 21 percent to 16.6%. Taking the poorest people out of the equation changes the poverty line because it’s all relative anyway.

The OECD study found that if it measured poverty according to where the line was in 2005, the poverty level in Israel would have dropped 1% from 2007 to 2010, the years covered in the study.

Looking at the Gini coefficient, a more common measure of inequality, the country still wasn’t in great shape in 2010, but it was ahead of the United States, Turkey, Mexico and Chile.

According to the Finance Ministry, since 2010 Israel’s Gini coefficient has started to come down somewhat.

That should only bring mild comfort to those concerned for the lower classes in Israel. For one, many do struggle to get by, and could certainly be classified by a more absolute indicator of poverty. For another, income inequality is a very real socioeconomic problem.

But when searching for solutions to the difficult issue of poverty, getting the measures wrong is a surefire way to miss the point.


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