Abstract: The extremely low poverty line that the UN relies on has the advantage that it draws the attention to the very poorest people in the world. It has the disadvantage that it ignores what is happening to the incomes of the 90% of the world population who live above the extreme poverty threshold.
The global poverty line that the UN relies on is based on the national poverty lines in the world’s poorest countries. In this article I ask what global poverty looks like if we rely on the notions of poverty that are common in the world’s rich countries – like Denmark, the US, or Germany. Based on the evidence I ask what our aspirations for the future of global poverty reduction might be.
The World Bank has updated its poverty and inequality data
The data in this article uses a previous release of the World Bank’s poverty and inequality data in which incomes are expressed in 2011 international-$.
The World Bank has since updated its methods, and now measures incomes in 2017 international-$. As part of this change, the International Poverty Line used to measure extreme poverty has also been updated: from $1.90 (in 2011 prices) to $2.15 (in 2017 prices).
This has had little effect on our overall understanding of poverty and inequality around the world. But because of the change of units, many of the figures mentioned in this article will differ from the latest World Bank figures.
In every country of the world there are people living in poverty. Even in the world’s richest countries the poorest people often live in poor housing and struggle to afford basic goods and services like heating, transport, and healthy food for themselves and their family.
Those who are in monetary poverty also have much poorer living conditions more broadly. Even in a rich and relatively equal country like Denmark middle-aged men who are among the poorest 20% of the population die on average 9 years earlier than those among the richest 20%.1 In Denmark a person who lives on less than $30 per day is considered poor, and it is the declared goal of the country to reduce poverty relative to this threshold.2
Countries that are much poorer than Denmark also have the goal to reduce poverty. The United Nations declared the objective of ending ‘extreme poverty’ to be the number 1 goal of the global Sustainable Development Goals. According to the UN a person is considered to live in extreme poverty when he or she is living on less than $1.90 per day, this is called the International Poverty Line. According to the latest global statistics almost one in ten people live in extreme poverty globally.
If we know that poverty is a large problem even in high income countries like Denmark where the poverty line is set at around $30 a day, why should we use an International Poverty Line that is so extremely low to measure poverty globally?
It is the reality of our extremely unequal world – in which every tenth person lives in extreme poverty – that makes such an extremely low poverty line necessary. Without having an extremely low poverty line we would not be aware of the fact that a large share of the world lives in such extreme poverty. The UN’s global poverty line is valuable because it draws attention to the reality of extreme poverty in our world.
In a world where the majority still lives on very low incomes it would be wrong if the UN decided to measure global poverty solely by a poverty line as high as the poverty line of Denmark. It would mean that the global statistics gloss over the extremely large and important income differences among the poorest billions in the world. It would mean that the difference between those who live on only $1 per day and those who have an income that is more than 20-times higher would be entirely disregarded. They would all be considered poor, and the reality that some of them are much poorer than others would be hidden.
Slightly higher global poverty lines – such as the poverty line of $3.10 per day that Kate Raworth relies on in her ‘Doughnut’ framework, or the poverty line of $7.40 per day that anthropologist Jason Hickel uses in his work, or Bob Allen’s absolute poverty line based on minimal nutritional requirements – all have the same value.3 These low poverty lines allow us to understand the material living conditions of the poorest people in the world and have been successful in drawing attention to the terrible depths of poverty experienced by a large share of the world’s population. The only way to achieve these goals is to rely on extremely low poverty lines.
Indeed, there is an argument for using an even lower poverty line. To understand what is happening to the very poorest in the world, we need to look even lower than $1.90. This is because one of the biggest failures of development is that over the last decades the incomes of the very poorest people have not risen. A big part of the reason for why this issue doesn’t get discussed enough is that the International Poverty Line we rely on is too high to see this fact.
Yet, only measuring global poverty relative to such extremely low poverty lines has its own large downside.
By focusing on an income threshold that is lower than the incomes of 90% of the global population we are ignoring what is happening to the majority of the world’s population. This matters. The majority of the world do not live in extreme poverty anymore, but billions are nevertheless living in great poverty still.
The obvious solution to the problem that the majority of the world is not considered by the International Poverty Line is to use an additional poverty line. This is not a new idea. One poverty researcher who has made the argument for an additional higher global poverty line based on the notions of poverty in rich countries is Lant Pritchett – you find it in his short, yet widely-cited essay ‘The case for a high global poverty line’ from eight years ago.4
The definition of poverty differs between countries. Poorer countries set much lower poverty lines than richer countries.5 This means that if we were to simply rely on national poverty definitions for a global measure of poverty we would end up with a measurement framework in which where a person happens to live would determine whether they are poor or not: If we would count as poor those who are defined nationally as poor we would end up counting a person who lives on $20 per day as poor in a rich country, while at the same time counting a person who lives on $2 as not-poor when they happen to live in a very poor country.
One way out of this problem is to set global poverty lines based on the national definitions, but to apply them globally. This is how the UN decided to define the International Poverty Line. In order to ground this global poverty line on something more than the views of global poverty researchers, it is based on the existing definitions of poverty adopted in countries around the world at the national level, but to avoid the problem outlined above they apply the national poverty lines globally. As we explain here in some detail, the $1.90 per day poverty line is set to reflect the national poverty lines adopted in the world’s poorest countries.6 Applying this poverty line globally means that a person who lives on less than $1.90 per day is considered extremely poor no matter where they live.
In recent years the World Bank has applied this same methodology to countries in the middle-income bracket, those countries with a GNI per capita between $1000 and $12,500. Based on the poverty lines in these countries they have set additional global poverty lines at $3.20 and $5.50 per day, which are now directly available via the World Bank statistics.7
What I want to do here is to see what a global poverty line would be if we rely on the notion of poverty in rich countries — countries like Denmark, the US, or Germany.8 That is what Pritchett suggested eight years ago: “Since the origin of the [International Poverty Line] was just to adopt as a global lower bound the poverty lines used by the poorest countries, it symmetrically makes sense to say that the global upper bound poverty line is based on the poverty line used in rich countries.”
The definition of poverty is certainly not an easy ethical question and thoughtful people disagree about it in ways that have meaningful consequences for our understanding of the world. There are also interesting proposals for hybrid poverty lines that combine absolute and weakly-relative measures; see Ravallion (2019) for a recent proposal.9 And I would also recommend Tony Atkinson’s last book ‘Measuring Poverty around the World’ for an excellent recent overview of the topic.
→ To understand how it is possible to compare poverty levels and living standards across countries you need to know the basics of global poverty measurement. You find a summary of the basics in the following fold-out box.
The basics of global poverty measurement
An additional higher poverty line of $30 per day
Pritchett made his proposal based on data and prices a decade ago and so it is necessary to update his calculations. But I want to go beyond Pritchett’s approach and additionally provide a number of other relevant comparisons to inform our understanding of who is considered poor in a rich country.
By following this idea I find that a poverty of 30 international-$ per day corresponds to the notion of poverty in a rich country. In the following section I consider a long number of benchmarks that made me arrive at this poverty line. Here is the short summary of these comparisons:
- European countries: The span of poverty lines in high-income countries in Europe ranges from int.-$25 to int.-$38 per day.
- The US: A comparison with the poverty line in the US is not straightforward, as explained in some detail below; two different approaches arrive at poverty lines of int.-$23 and int.-$35 per day respectively.
- Survey result: A study surveyed people in a high-income country to ask at what income a person is considered poor. The study found that the mean income threshold suggested by the surveyed population corresponds to an income of int.-$37.58 per day
- Proposal to replace the categorization into developing and developed countries: In the book ‘Factfulness’ the authors recommend replacing the simplistic categorization of countries into developing and developed countries with a finer grained structure. The high-income cutoff the authors suggest is int.-$32 per day.
- UBI: The daily income paid as ‘Universal Basic Income’ in a pilot study in Germany corresponds to an income of int.-$48.19 per day.
- Social care: The average basic social care payout in Germany (‘Hartz-IV’) corresponds to int.-$30.78 per day
The range of possible higher poverty lines based on richer countries is wide, as the list of benchmarks suggests. At the lower end I believe that it might be as low as $25 per day, and on the higher end it might be as high as $40 or $50 per day.
Just as someone who lives on less than $1.90 per day is defined as extremely poor, a person who lives on less than $30 a day could be considered moderately poor.
A reality check for any poverty line you might want to consider is to ask yourself what you think about living on less than that poverty line yourself. I lived on less than $30 per day before and would consider myself poor if I’d fall back on that income level again.
In the following box you find the sources and calculations of the benchmarks that led me to my $30 per poverty line proposal.
Who is considered poor in rich countries? Poverty lines and other relevant benchmarks
We have seen that 10% of the world live in extreme poverty as defined by the UN. How large is the share of the world that lives in moderate poverty?
The latest global data tells us that 85% of the world population live on less than $30 per day. These are 6.5 billion people.
Relying on a higher poverty line of $45 per day you find that 92% live in poverty, and using a lower poverty line of $20 per day you find that 78% live in poverty. No matter which of these poverty lines you might want to choose, at least three-quarters of the world live in poverty.
All of this data refers to pre-pandemic times. The global recession has certainly increased the share below any of these cutoff points. As soon as the new data is available you will find it on Our World in Data.
The chart shows where in the world people are poor. If we would only rely on the UN’s extreme poverty line we would conclude that barely anyone lives in poverty in high-income countries. Relying on higher poverty lines, this data here shows that even in high-income countries there is a significant share of the population that lives in poverty. No country, not even the high-income countries, has eliminated poverty. There are no ‘developed countries’ — there is work to do for all.
But just as clear from this data is the fact that in many world regions the large majority of people are very poor. In Sub-Saharan Africa about 40% of the population lives on less than $1.90 per day as the chart shows. In all regions outside of high-income countries more than 85% of all people live in moderate poverty.
Countries in which the majority do not live in poverty have only left poverty behind in recent history
Two centuries ago the global income distribution was very different. Back then almost everyone in the world was living in extreme poverty. Those places in which few people live in moderate poverty today only left poverty behind in the very recent past.
Denmark is one of those places. The reason why the majority of people in Denmark is not living in poverty is that the economic inequality is low and the average income high.
The fact that the inequality is low you can see on the map. It shows an inequality measure called the Gini coefficient (explained here) which makes clear that Denmark is among the least unequal countries in the world.
The reason that the average income in Denmark is high is due to the fact that average incomes have increased steadily for the last two centuries; this long-term development is called economic growth. As the historical data shows the average incomes in Denmark are today more than 20-times higher than in the past.
You can add any other country to this chart. By adding one of those countries in which the majority lives in poverty – like Ethiopia – you see just how large the differences in average incomes are.
GDP per capita is by far the most widely used measure of average income and is yet another income concept from the two I mentioned so far.24 It is a more comprehensive measure of incomes and crucially takes into account government expenditures. For these and other reasons (mentioned in the long footnote) you will find that dividing GDP per capita by 365 days will let you arrive at a higher value than the income that is determined in household income surveys.25
The income of every person depends on two factors, the average income in the country they live in and the position that particular person has in that country’s income distribution. This chart here shows the average income in countries around the world. The height of each bar represents the average daily income in a country, the width of each country corresponds to the country’s population size. I have ordered the countries by income: from the poorest country on the very left (South Sudan where the average person lives on $1.12 per day) to the richest country on the very right (Luxembourg with an average of $86 per day).
After two centuries of economic growth the average income in Denmark is now $57 per day today. You find the country far to the right in this chart, which tells you that only very few countries in the world have such high average incomes. The fact that the average income is far higher than the poverty line tells us that the existing poverty in Denmark discussed at the beginning of this post is to a large extent the consequence of inequality.
What this chart makes very clear is how low the average incomes in many countries in the world are. The huge majority of the world live in countries where the average income is much lower than the poverty threshold in rich countries. 82% of the world population live in countries where the mean income is less than $20 per day.
And where incomes are low, living standards generally are poor. As the last chart below shows, a child that is born into a poorer country must not just expect to live on a very low income, but also faces a much higher risk of not staying alive at all.
As I have said before, people are not poor because of who they are, but because of where they are. This is why economic growth is so important to leave poverty behind. By far the most important difference between those people who are not living in poverty and those who do is the average income in the country that they live in – this single factor matters more for a person’s income than all other factors taken together. The increase of average income in a country is called economic growth and for global poverty to decrease substantially economic growth for the poorest billions of people is necessary.
→ See my previous article: The economies that are home to the poorest billions of people need to grow if we want global poverty to decline.
The world today is far from the ‘end of poverty’ relative to any poverty definition. After two centuries of unprecedented progress against the very worst poverty it is still the case that every tenth person lives on less than $1.90 per day.
As the world has not even ended extreme poverty it is therefore right to focus much of our attention on this very low poverty cutoff; ending extreme poverty surely is a global goal of great importance.
Yet at the same time we should consider what our aspirations for the future are. In the past our ancestors did not know that it was possible for a society to leave widespread poverty behind. Today we are in a different situation. We know from the reality of today’s rich countries that widespread poverty is not inevitable. Because we know that poverty relative to such higher cutoffs is not inevitable I believe it would be wrong to limit our ambitions to eradicating poverty based on the definition of poverty in the very poorest countries.
What I take away from this discussion are three insights: First, we have seen from countries like Denmark that it is possible to reduce poverty for an entire population relative to a poverty line of about $30 per day. Second, we have seen that these countries were extremely poor in the past and were able to reduce poverty over the course of the last few generations. And third we have seen that the huge majority of the world is still living in great poverty, by any standard. What this suggests to me is that the history of global poverty reduction has only just begun.
Continue reading Our World in Data: My colleague Hannah Ritchie has just published a series of posts on the drivers of deforestation and how to bring humanity’s long history of deforestation to an end. You find her work here.
Acknowledgement: I would like to thank Joe Hasell for his thoughtful comments on draft versions of this article.