More at-risk-of-poverty despite economic growth : what is going on?

Abstract

The proportion of individuals in material deprivation has almost halved to 8.7% in 2018 when compared to the year the indicator started being collected, 2009. Yet, with a few exceptions, the number of individuals at-risk-of-poverty increased at a yearly rate to reach 16.8% by 2018. At first glance, such divergent trends might appear anomalous, and highlight that poverty dynamics and related indicators warrant a deeper assessment. There is no correct way to define poverty in a society: value judgements play an important role. A long-standing debate is whether poverty is absolute or relative. Some say that the poverty line should reflect the absolute poverty threshold i.e., the cost of purchasing a fixed basket of goods and services that allows people to meet their basic needs; the demarcation between the poor and the non-poor. Others contend that we should instead think of poverty as a relative threshold, i.e., relative to the country’s living standard. Those who view poverty in relative terms would argue that the poorest members of society appear to have lagged behind the others; hence the term ‘at-risk-of-poverty’. In the absence of an absolute poverty indicator, debates on poverty can easily reach an impasse, as a change in relative poverty may not necessarily reflect a change in absolute poverty. The simplest poverty indicator is obtained by calculating the proportion of the total number of people below the poverty line in society. However, relying on the over-simplification argument that an increase in relative poverty is bad would be analogous to saying that an increase in taxes is bad. Such judgments should be complemented by other analysis such as the rate of taxation, whether the individual is in unemployment or in a high-paying job, and the ultimate purpose of taxation to finance government expenditure. For this reason, even if there is agreement about the appropriate poverty line to use when measuring poverty, various indicators of poverty must be considered besides the headcount ratio. Indeed, the same society may have the exact year-on-year poverty incidence, but the total cost of alleviating all the poor up to the poverty line might be very different each year depending on changes in the poverty gap. Furthermore, the extent to which the incomes of the poor are concentrated in particular income ranges might also vary: many poor might be close to the poverty threshold, with only a few individuals being in extreme poverty, or vice-versa. Another aspect to consider in the poverty debate is the relative poverty threshold: today’s living standard is unrecognisable from 2005. In view of a dearth of information on the topic, this study complements existing studies on poverty incidence with other measures relating to poverty intensity and inequality amongst the poor. We also dig deeper in relative poverty headcount rates to identify the factors contributing to such changes over the years. For this purpose, we study poverty dynamics in Malta between 2005 and 2018, with special attention to household characteristics.