Certainly one would not accept the international poverty level of $1.25 a
day in an unquestioning way when planning local poverty work. One practical
strategy for determining a local absolute poverty line is to start by defining
an adequate basket of food, based on nutritional requirements from medical
studies of required calories, protein, and micronutrients. Then, using local
household survey data, one can identify a typical basket of food purchased by
households that just barely meet these nutritional requirements. One then
adds other expenditures of this household, such as clothing, shelter, and medical
care, to determine the local absolute poverty line. Depending on how
these calculations are done, the resulting poverty line may come to more than
$1.25 per day at PPP.
In many respects, however, simply counting the number of people below
an agreed-on poverty line can have its limitations. For example, if the poverty
line is set at U.S. $450 per person, it makes a big difference whether most of
the absolute poor earn $400 or $300 per year. Both are accorded the same
weight when calculating the proportion of the population that lies below the
poverty line; clearly, however, the poverty problem is much more serious in
the latter instance. Economists therefore attempt to calculate a total poverty
gap (TPG) that measures the total amount of income necessary to raise everyone
who is below the poverty line up to that line. Figure 5.6 illustrates how we
could measure the total poverty gap as the shaded area between poverty line,
PV, and the annual income profile of the population.