Etienne Caruana | Wednesday, 13 January 2010

Measuring Relative Poverty in Malta

Etienne Caruana

During the past years, the European Union invested many resources to effectively measure relative poverty by using harmonised methodologies across its Member States. The European Household Survey on Income and Living Conditions (EU-SILC), regulated by legislation at EU level, is today one of the main sources for official statistics on poverty. This survey is coordinated by Eurostat and is conducted annually by national statistical institutes in all Member States. In Malta, the survey is carried out annually by the NSO among around 3,400 households, which correspond to 10,000 individuals every year.
The EU-SILC aims to measure two major aspects of poverty: deprivation of income and unmet household needs. Indicators on income poverty are calculated on the regular household income component, whose distribution is collected in detail from the EU-SILC. In fact, the EU-SILC includes many questions addressing household regular disposable income (i.e. the regular income earned by all household members after deducting household transfers, taxes and national insurance contributions). As a result, in many countries, it is a unique source for the calculation of household income distribution.
Deprivation of household necessities is measured basing on a number of questions addressing amenities which were agreed to be owned or enjoyed by the majority of the households in all EU countries. Questions asked in order to measure this phenomenon include: the ability of households to eat meat (or an equivalent meal) every second day; their ability to keep their homes sufficiently warm in winter; problems with shortage of space in their dwelling; state of repair of the household’s main dwelling; whether households have problems with noise, violence or pollution in their neighbourhood; and others.
Although deprivation of household necessities can be easily measured through simple frequency distributions, the calculation of indicators related to income poverty is more complicated. This is due to the fact that the methodology applied involves the creation of a ‘fictitious’ income component which takes into account both the household disposable income and the household characteristics.
For example a household comprising two adults earning a certain income is treated differently from a four-member household with the same income; naturally, the latter household has an inferior economic situation, given that the income earned needs to be shared among four people and not two. The income component thus created is referred to as ‘equivalised household income’ and is shared among all household members.
Although a detailed explanation of the calculation of the relative poverty rates is beyond the scope of this article, it is worth noting that the main relative-poverty indicator, namely the European at-risk-of-poverty threshold, is defined as 60 per cent of the median equivalised income, while the at-risk-of-poverty rate is the ratio of the total household population whose equivalised income falls below this threshold.
Past EU-SILC surveys in Malta indicated an average at-risk-of-poverty rate of 14 per cent - this may be interpreted to mean that, based on the data collected from these surveys, 14 persons out of every 100 were living in households whose regular income was comparatively lower than the remaining majority. The EU-SILC results also demonstrate that children, elderly people and persons living in jobless households are more at risk of being ‘poor’ since their at-risk-of-poverty rates are relatively higher than the national average.
The methodology used for measuring relative poverty has some limitations. One main drawback of using EU-SILC as an official source of measuring poverty is that it does not take into account household expenditure, which shows different patterns between poor and richer households. Moreover, the methodology used to measure the at-risk-of-poverty rate is purely relative, and ignores irregular household income (e.g. inheritance) and wealth. In fact, this is the main reason why we use the term ‘at-risk-of-poverty’, not simply ‘poor’. A third limitation is that answers on household necessities may be subjective and therefore prone to inaccuracies.
These limitations leave room for more work to be done within this field of statistics by researchers, policy makers and national statistics institutes. Research at a national and European level is an ongoing process that has, to date, led to important results, with great benefits for the entire European community. In view of this, credit is due to all households that have participated in past EU-SILC surveys.

Mr Caruana is Director of Social Statistics and Information Society at the National Statistics Office



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13 January 2010


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