Chapter 4: Frontiers of Poverty Measurement
floor materials in a house. What can be done if we want to evaluate the size, spread, or base of such a welfare indicator? Allison and Foster (2004) describe ways of comparing distributions of self-reported health in terms of spread and, in the process, provide new approaches to evaluating size and base for this ordinal variable. The main tools are dominance rankings. Changes in size and poverty are evaluated using first-order stochastic dominance. Changes in spread are twin firstorder dominance movements away from the median category. To calculate a mean, an inequality measure, or an FGT poverty index for a > 0, one must cardinalize the ordinal variable, and hence the comparisons obtained are not generally meaningful (because a different cardinalization could reverse the ranking). The headcount ratio, however, is identical for all cardinalizations and thus is an appropriate tool for measuring poverty when the variable is ordinal or even categorical. Of course, the headcount ratio provides no information at all about depth. Bennett and Hatzimasoura (2011) provide one approach to evaluating depth with an ordinal variable, based on a reinterpretation of the poverty gap as “average headcount ratios� across different poverty lines.
Chronic Poverty Returning to the case of income, we saw how poor people can differ from one another in policy-relevant ways. For example, poor people with deeper income shortfalls are distinct from those just below the poverty line. Time is a second dimension for differentiating among the poor: persistent poverty is different from temporary poverty. Persistent poverty is usually termed chronic poverty, and there are two main ways of identifying and measuring it: • The components approach of Jalan and Ravallion (2000) identifies as chronically poor someone whose average income across several periods is below the poverty line. This method rules out people whose incomes temporarily dip below the line in a given period, but who, on average, earn more than poverty line income. Chronic poverty can then be measured by applying a standard poverty measure to the average incomes distribution.
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