Can poverty be measured with income satisfaction data?

It may be possible to track poverty by reference to data on income satisfaction, according to a researcher in Germany. He sets out the results of matching survey data against existing poverty measures, such as the European Commission's '60 per cent of median income' measure.

Key points

  • The paper proposes a 'satisfaction-driven poverty line' (SDPL) that maximises the statistical link between poverty status and income dissatisfaction.
  • The SDPL is calculated for European countries using data on 'satisfaction with the household's financial situation' from the European Community Household Panel.
  • The income satisfaction data fits well with the European Commission's poverty measure, at least in relation to Germany. The fit is less close in some other countries: but this can be explained quite well by variations in the level of 'inequality aversion'. Overall, the results suggest that the SDPL approach may serve as a unified strategy for poverty measurement across countries.
  • The approach used also provides evidence for the existence of a 'sharp' poverty line, rather than a 'fuzzy' one.

Source: Andos Juhász, A Satisfaction-Driven Poverty Indicator: A Bustle around the Poverty Line, SOEP 461-2012, German Institute for Economic Research
Link: Paper