Poverty lines in European countries As mentioned before most European countries set their poverty line at 60% of the median income in the country.
Poverty lines in European countries
As mentioned before most European countries set their poverty line at 60% of the median income in the country. In his original proposal Pritchett was relying on this 60% of median cut-off.
Calculating the poverty line for European countries therefore means that we look up their median income and then multiply it by 0.6. This is less straightforward than it might first appear. The reason for that is that there are many different income concepts. You quickly realize that it is not easy to define a person’s income if you ask yourself what your own income is. Do you take government transfers into account or not? Do you take your partner’s income into account and divide it by two? How do you take into account that you have a child for which you need to pay? It is possible to take these and many other aspects into account and arrive at useful statistics, but various sensible ways of addressing such questions lead to many different income metrics. As such, in comparing different poverty thresholds across countries we have to take care to avoid mixing different income concepts as much as possible.
One important difference is how incomes are adjusted for the size of the household: whether the total household income is simply divided by the number of people (including children) – ‘per capita’ income – or whether some adjustment is made to account for the fact that larger households, and particularly households with children, face lower costs per person – known as ‘equivalised’ income. Whereas EU countries, like other rich countries, use equivalised income to measure poverty, the UN’s measurement of global poverty is based on a global dataset of per capita incomes. This dataset is called PovcalNet, and it is this that we must use in order to make comparisons of poverty measures in different countries according to the same income concept.
In this dataset we find the median income for countries around the world and we can take that median income and then apply the logic on which the European poverty lines are based. In the extensive footnote here you find more details and the full calculations.14
As high-income European countries I’m referring to those European countries, which according to the Eurostat statistics had a higher income in 2019 than the European average. These are the following countries: Finland, Netherlands, Belgium, Sweden, Germany, France, Iceland, Switzerland, Norway, Luxembourg, Denmark, Austria, Ireland, and the UK.
These are the poverty lines for daily income in a number of high-income European countries (based on 60% of the median incomes from PovcalNet):
- Sweden: $29.40 per da
- Norway: $37.80 per day
- Austria: $31 per day
- UK: $25.04 per day
- Switzerland: $35.82 per day
- Germany: $28.35 per day
- France: $27.28 per day
- Luxembourg: $43.86 per day
- Finland: $27.22 per day
- Iceland: $31.64 per day
- Ireland: $24.68 per day
- Netherlands: $28.6 per day
- Belgium: $26.92 per day
- Denmark: $29.06 per day
The span of poverty lines in these countries ranges from $25 (for the UK and Ireland) up to $38 (for Norway); in the small country of Luxembourg the poverty line is higher.
The poverty line in the US
UnlikeEuropean countries, the US does not set the poverty line in a relative way. Instead the US poverty line dates back to the work of Mollie Orshansky, an economist working for the Social Security Administration in the early 1960s. Since then it has been of course revised for price changes, but otherwise it remained unchanged.
The US poverty line is very often criticised as being too low. Those that criticize the US poverty line in that way therefore suggest that the severity of poverty in the US is understated in the statistics.
How high is the poverty line in the US? In 2020 the poverty threshold for a single person under 65 was 35 international-$ per day.15
Now the problem with comparing this poverty line with the global statistics is again that the income concept is different. The US crucially relies on an equivalence scale for adjusting the income cutoff depending on the household size.
An alternative is to apply the same concept that the Europeans are using for their poverty line determination. If the US would use the 60% of median income definition of poverty their poverty line would be int.-$32.8 per day16 Very close to the one-person poverty line based on Orshansky’s work.
A somewhat comparable poverty line based on these two approaches therefore falls into the range of around $33 to $35 per day. Within the range of poverty lines in European countries.
Survey results – Below which income do you consider a person poor?
The UN and Pritchett rely on the existing poverty lines in low-income and high-income countries respectively to derive their poverty lines. We can follow other approaches too.
An obvious one is to ask what people out there believe: Who is considered poor in a high-income country by people in high-income countries?
For the regular poverty report of the German government, a survey is conducted that asks Germans below which income level they consider someone as poor. The latest data is from the year 2015.17
The mean answer given by the German population for a cutoff below which a person is considered poor was 947€ per month. In international dollars per day this corresponds to an income of int.-$37.58.18
Universal Basic Income
Universal Basic Income (UBI) is a political idea that is becoming rapidly more popular.
Social security in Germany
Germany pays basic social care for its citizens. This social security payment is referred to as ‘Hartz-IV’.
How much a person receives depends on the particular circumstances of the individual, but we can look at the average payment. In 2018 a single person received on average 783 Euro per month. That corresponds to int.-$30.78 per day.20
The Roslings’ suggest a cutoff of $32 per day
Anna Rosling-Rönnlund, Ola Rosling and Hans Rosling challenged the old dichotomy between developed and developing countries in their bestselling book ‘Factfulness’. They argue that the old dichotomy corresponds to a view of the world that was accurate half a century ago when a few countries were relatively well-off, but most countries were living in very poor conditions.Today, they say, people around the world live on a large spectrum. To reflect this spectrum they proposed 4 income levels.
The first cut-off corresponds to the international poverty line (rounded to int.-$2 per day). The next income cutoff they set at $8 per day, the following one at $16 and the highest one at int.-$32 per day.
Kahneman’s and Deaton’s study of income and emotional well-being
Nobel laureates Daniel Kahneman and Angus Deaton published a famous study on the link between life satisfaction and income.21
The authors find that higher incomes go together with higher self-reported life satisfaction, but for people’s self-reported emotional well-being this is only true up to a certain point: the study finds that above $75,000 further increases in income do not correspond with improvements in people’s emotional well-being – a finding that is often cited to argue that additional economic growth does not improve people’s lives in high-income countries.22
Again, the income concept is not the same as that in PovcalNet, and so comparisons with the global data are not directly possible. But we can ask what the daily income at which emotional well-being supposedly levels off corresponds to: $75,000 per year are int.-$205 per day.
It is certainly worth considering whether an income up to which emotional well-being increases could be taken as the basis for a definition of poverty. A US company reacted to the research finding of Kahneman and Deaton by using it to set the minimum wage in their company: everyone in that company gets paid that salary.
For the discussion of global poverty however it might be considered as an even higher poverty line, but for any practical purpose in the world today the income cutoff would be too high as only a very small fraction of the world lives on more than $75,000 per year.