Is one in eight Australians really poor?

Derelict houses used to accommodate impoverished Aborigines and drug addicts in Sydney

A recent study says that one in eight Australians are living in poverty. This seems quite high for a developed country, so what's behind it?

"In this study we used a relative poverty definition," says report author Bruce Bradbury from the University of New South Wales.

"The basic idea of a relative poverty line is that you set a poverty line at some fraction of the middle living standard or the median income in that community. We have chosen 50% so people whose income, after adjusting for their family's size, is below half the middle income of the country in the same year are defined as being poor."

So in this case, poverty is measured by looking at incomes relative to the rest of Australian society as a whole. It's a country-specific measure. This is not unusual. In developed industrial countries it is very common to measure poverty relatively.

PDF download Poverty in Australia report[1.2 MB]

"Rich countries can afford to have higher standards," says Bruce Bradbury. "It is entirely appropriate that people thinking about policies in those rich countries think about the standards that those rich countries can afford."

But some argue that this is not actually a measure of poverty but more an indication of inequality.

Because this measure relates to how the average person in a country is doing, it shifts. For example, after the financial crash in Ireland in 2008, the number of people in poverty fell because the median - or middle - income of the whole society had decreased.

Homeless man outside an Australian bank

Bradbury says that the relative poverty measure is closely related to inequality, but it's not quite the same.

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"You can think of it as being quite close to a measure of inequality which only looked at the bottom half of the distribution," he says. "The level of incomes that people in the top of the distribution have has no influence… But it is a measure of how far away the bottom is from the middle."

Australia is indeed a rich country but the people living in poverty there are by no means as poor as many people living a much less wealthy country - Ethiopia, for example.

"If one is seeking to compare living standards of people in [developing] countries with those in the richer nations, one would not use the relative poverty line," says Bradbury.

But how would you do it?

Previously in the Magazine

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The World Bank economists are not talking about what you could buy if you took an American dollar to a bank and converted it into Indian rupees or Nigeria naira. A US dollar does go quite a long way in some developing countries.

They looked at the price of hundreds of goods in developing countries. And then with reference to national accounts, household surveys and census data, they calculated how much money you would need in each country to buy a comparable basket of goods that would cost you $1 in the United States.

Over the years, the $1 a day poverty line has been recalibrated. The World Bank's global poverty line measure is now not $1, but $1.25 a day.

"There is no single way to look at poverty either nationally or globally," says Bill Orme, from the UN Human Development Programme. "The consensus of the experts is that it is most useful to look at different range of assessments and a combination of factors."

In order to make international comparisons, you need to measure poverty in absolute terms - and the most common measure of absolute poverty is living on, or on less than, $1.25 a day.

Orme says this absolute poverty measure is the best for international comparisons, "because it's a constant across countries, it's useful because you can look at that measurement regardless of what country you're in".

By this standard, according to the UN, there are 1.3 billion people worldwide living in poverty.

"We can say with confidence that, whereas as recently as 1980 more than half of the world fell into that category, today it is less than 25%. And it's probably getting closer to 20% which is a huge amount of progress across countries," says Orme.

But what if you're living on twice that amount, are you doing OK? Well, maybe not.

And is it right to measure money rather than focus on how poor people live their lives? Some critics have suggested the way the World Bank calculates its figures obscures many of the issues that impact on the global poor, such as asset prices and land.

Where the poverty line falls

  • In Britain, Ireland and EU, the poverty line is 60% of median income
  • The report authors describe this as a "less austere but still low poverty line"

All these measures rely on people's income, but in large parts of the world, people are outside of the traditional cash economy. Therefore, since 2010, the UN Human Development Report has used what it calls a multi-dimensional poverty measure.

This looks at poverty not simply in terms of income but using other indicators such as:

  • nutrition
  • child mortality
  • education
  • access to drinking water
  • and sanitation

"There are a number of places in the world where people are above that $1.25 minimum," says Orme. "But still by these other measurements are objectively poor. For example in South Asia there are many more people who are in the multi-dimensional poor category than are in the income poor category."

Listen to More or Less on BBC Radio 4 and the World Service, or download the free podcast.

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