Are We Measuring Poverty Accurately in Latin America?

How can we determine whether a person lives in poverty, is middle class or rich? If you had to answer this question, you would probably say—and rightly so—that it all depends on the level of income, i.e., that someone is poor when they earn about two dollars a day (depending on the measurement), and is middle class when they earn between $10 and $50. 

While the answer is correct (many of the major poverty measurements are income-based), a more thorough observation would have to include additional indicators other than earnings, e.g. physical safety, psychological well-being or social relations.

A good example can be Florencia, a low-income woman from the Dominican Republic. She had been poor all her life. Two years ago she secured a stable income that allowed her to improve her living standards. But when asked about her experience, she felt that the actual change was that she could now make decisions for herself and feel part of her community. In her case, feeling empowered helped her improve her condition and, above all, to believe that she could improve it.

Cases like Florencia show that these types of socio-emotional variables are essential to determining whether a person is poor or not, and therefore, they should be incorporated into our poverty measurements.

Furthermore, these variables should be considered when assessing poverty of people in the region. To that end, these should be quantified over the next few years.

This is the argument of our report The Missing Dimensions of Poverty Data, prepared jointly by CAF—development bank of Latin America—and the University of Oxford, which aims to spark debate on how to incorporate these socio-emotional variables into public development projects, programs and policies.

The publication highlights the following missing dimensions when measuring poverty:

1. Empowerment and self-determination. It relates to autonomy, self-determination, liberation, participation and self-confidence.
2. Physical safety. Failure to consider this dimension limits human development and free living. Violence is a public health issue, a serious restriction on human rights and an obstacle to effective coexistence.
3. The ability to go about without shame – its relationship to poverty is relevant based on intrinsic and instrumental values. The social stigma of poverty, discrimination, humiliation or loss of dignity severely limits the ability to build capacities to overcome this condition.
4. Employment quality. This includes four areas that reflect people’s well-being at work: protection, income, job security and use of time.
5. Social connectivity. This concerns interpersonal relationships, and safety and nurturing networks. Its absence produces isolation and social loneliness.
6. Psychological well-being. This includes emotional abilities and aspects related to the purpose, meaning of and satisfaction with life.

It should be noted that these indicators are never intended to replace traditional measurements, but to supplement other poverty indexes, in order to enhance efficiency of public programs and policies by better understanding the reality of the most vulnerable groups.

How can we quantify subjective variables?

As these are subjective dimensions, an effort has been made to establish criteria to include quantifiable indicators, which are internationally comparable, and to identify changes that may occur over time. Therefore, implementing these indicators is one of the major challenges for the medium and long term.

It is clear that public policies require an accurate analysis of the conditions of poverty in all its dimensions. Otherwise, we run the risk of failing to alleviate poverty in all its variables, since each dimension is connected to the fundamental aspects of this condition.

Agreeing to extend the measurement of poverty beyond traditional domains such as income, education, health or living standards, requires a discussion on the importance of indicators of a different nature, which are assessed by the poor—with various reasons for doing so.

International consensus

Various initiatives have already called for the inclusion of these missing dimensions. Many of the countries that use these measurements—or are in the process of adopting them—are exploring the possibility of including indicators on the missing dimensions. For example, El Salvador included violence indicators, and Chile is currently working on including an environment and social media dimension to its official measurement.

Another example is the United States, where the stigma associated with the use of government-funded food stamps was a deterrent for individuals and their families to use this benefit. To reverse this situation, food stamps were replaced with special debit cards, which helped reduce the shame and humiliation associated with the use of the stamps, and sparked an increase in applications and an expansion of the program.

In addition, in an effort to introduce these indicators in the mainstream of development issues, several Nobel Prize laureates in Economics, including Amartya Sen (1998), James Heckman and Daniel McFadden (2000), Joseph Stiglitz (2001), Daniel Kahneman (2002) and Angus Deaton (2015), have explained that economic performance is not sufficient to adequately measure well-being.

The validity of these new areas of measurement is evident in the new Sustainable Development Agenda adopted in September 2015 by the United Nations. Attaining the agreed development goals requires understanding the intricate relationship of psychological, social, cultural and economic aspects related to people’s lives.

It is time we started introducing these intangible aspects more rigorously into our measurements. Only then will we be able to narrow the gap between how poverty is measured and how low-income people perceive their reality.

This blog post was published also in the Planeta Futuro section of El País