Quantifying Vulnerability to Poverty : A Proposed Measure, Applied to Indonesia

Quantifying Vulnerability to Poverty : A Proposed Measure, Applied to Indonesia

Vulnerability is an important aspect of households' experience of poverty. Many households, while not currently in poverty, recognize that they are vulnerable to events - a bad harvest, a lost job, an illness, and unexpected expense, an economic downturn - that could easily push them into poverty. Most operational measures define poverty as some function of the shortfall of current income, or consumption expenditures from a poverty line, and hence measure poverty only at a single point in time. The authors propose a simple expansion of those measures to quantify vulnerability to poverty. They define vulnerability as a probability, the risk that a household will experience at least one episode of poverty in the near future. A household is defined as vulnerable if it has 50-50 odds, or worse of falling into poverty. Using those definitions, they calculate the "vulnerability of poverty line" (VPL) as the level of expenditures below which a household is vulnerable to poverty. The VPL allows the calculation of a "headcount vulnerability rate" (the proportion of households vulnerable to poverty), a direct analogue of the "headcount poverty rate". The authors implement this approach using two sets of panel data from Indonesia. First they show that if the poverty line is set so that the headcount poverty rate is twenty percent, the proportion of households vulnerable to poverty is roughly 30-50 percent. In addition to the twenty percent currently poor, an additional 10-30 percent of the population is at substantial risk of poverty. They illustrate the usefulness of this approach for targeting, by examining differences in vulnerability between households by gender, level of education, urban-rural residence, land-holding status, and sector of occupation of the head of household.

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Bibliographic Details
Main Authors: Pritchett, Lant, Suryahadi, Asep, Sumarto, Sudarno
Language:en_US
Published: World Bank, Washington, DC 2000-09
Subjects:poverty measurement, quantitative analysis, vulnerability, household welfare indicators, household expenditure surveys, poverty incidence, consumption patterns, income gaps, headcount index, panel analysis, gender issues, level of education, urban-rural drift, land ownership, occupational classification, average level, chronic poverty, chronically poor, consumption expenditures, consumption module, counterfactual, data set, data sets, decomposable poverty measures, density function, developed countries, developing countries, development economics, development studies, economics, economies of scale, education level, error term, expenditures, female-headed households, financial support, headcount poverty, headcount ratio, health insurance, household characteristics, household consumption, household consumption expenditures, household expenditures, household head, household survey, income, income risk, indicator targeting, inequality, informal sector, insurance, mean consumption, mean expenditures, mean income, national poverty, national poverty reduction strategy, old age, participatory poverty, participatory poverty assessments, policy implications, policy level, policy research, political economy, political economy of targeting, poor households, poverty analysis, poverty assessments, poverty dynamics, poverty line, poverty lines, poverty measure, poverty profiles, poverty programs, poverty rate, poverty rates, poverty reduction, rural areas, rural households, rural residence, safety net, safety nets, sample size, savings, social development, social impacts, social insurance, social insurance programs, social protection, social security, standard deviation, targeting, transient poverty, transition economies, unemployment, urban areas, urban households,
Online Access:http://hdl.handle.net/10986/21355
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Summary:Vulnerability is an important aspect of households' experience of poverty. Many households, while not currently in poverty, recognize that they are vulnerable to events - a bad harvest, a lost job, an illness, and unexpected expense, an economic downturn - that could easily push them into poverty. Most operational measures define poverty as some function of the shortfall of current income, or consumption expenditures from a poverty line, and hence measure poverty only at a single point in time. The authors propose a simple expansion of those measures to quantify vulnerability to poverty. They define vulnerability as a probability, the risk that a household will experience at least one episode of poverty in the near future. A household is defined as vulnerable if it has 50-50 odds, or worse of falling into poverty. Using those definitions, they calculate the "vulnerability of poverty line" (VPL) as the level of expenditures below which a household is vulnerable to poverty. The VPL allows the calculation of a "headcount vulnerability rate" (the proportion of households vulnerable to poverty), a direct analogue of the "headcount poverty rate". The authors implement this approach using two sets of panel data from Indonesia. First they show that if the poverty line is set so that the headcount poverty rate is twenty percent, the proportion of households vulnerable to poverty is roughly 30-50 percent. In addition to the twenty percent currently poor, an additional 10-30 percent of the population is at substantial risk of poverty. They illustrate the usefulness of this approach for targeting, by examining differences in vulnerability between households by gender, level of education, urban-rural residence, land-holding status, and sector of occupation of the head of household.

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