‘Three ’I’s of Poverty Curves, with an Analysis of UK Poverty Trends Stephen P. Jenkins; Peter J. Lambert Oxford Economic Papers, New Series, Vol. 49, No. 3 (Jul., 1997), 317-327. Stable URL: fip:flinks jstor-org/sic sici=0030-7653% 28 1997107%292%3A49%3A3%3C317%3AT%270PCWRAB2.0.CORIB2-Y Oxford Econamic Papers is currently published by Oxtord University Press, Your use of the ISTOR archive indicates your acceptance of ISTOR's Terms and Conditions of Use, available at flip: feworwjtor org/aboutterms.htmal. ISTOR's Terms and Conditions of Use provides, in par, that unless you fave obtained pcior permission, you may not dowaload an cnt isus of @ journal or multiple copies of articles, and you may use content inthe ISTOR archive only for your personal, non-commercial uss. Please contact the publisher cegarding any further use of this work. Publisher contact information may be obtained at baupsferwer,jstor.orp/jounals/oup.htal. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transtnission. ISTOR is an independent not-for-profit organization dedicated to creating and preserving a digital archive of scholarly journals. For more information regarding ISTOR, please contact support @jstor.org- hup:thrwwjstor.orgy “Thu Jul 29 11:08:41 2008Oxford Economie Papers 49 (1997), 07-327 THREE ‘I'S OF POVERTY CURVES, WITH AN ANALYSIS OF UK POVERTY TRENDS By STEPHEN P. JENKINS" and PETER J. LAMBERTt * ESRC Research Cenire on Micro-Social Change, University of Essex, Colchester CO4 38Q, internet: stephenj@estex.acuk + Department of Economies, University of York ‘Taree ‘T's of Poverty (TTP) carves, based on distributions of poverty gaps, provide evocave ‘graphical summaries of the incidence, intensity, ad inequality dimensions of poverty, aud a ‘ieaas for checking for usasimous poverty ordeciogsasconding 19a wide class of poverty dices. The orderings may be robust to variations in the deflator se co make nominal comes comparable. Ax analysis of poverty in the UK during the 1980s demonstrates these properties 1. Introduction Recent income inequality research has demonstrated the value of graphical devices such as frequency density, distribution functions, and (generalized) Lorenz. curves for both describing income distributions and implementing tests of whether one distribution dominates another. In this paper we provide 2 device, the ‘Three “I"s of Poverty’ (TIP) curve, which plays the same dual role in poverty analysis. TIP carves are based on distributions of income shortfalls from the poverty line—poverty gaps—and are so named because of their ability to succinctly and simultaneously portray what we label the incidence, intensity, and inequal- ity dimensions of agsregate poverty. Moreover, orderings of distributions by non-intersecting TIP curves correspond to unanimous poverty orderings according to a wide class of poverty indices. These ‘generalized poverty gap’ indices have the properties that not only does an increase in a poor person’s poverly gap increase aggregate poverty, but s0 too does a pure transfer of income from a poorer poor person to @ richer poor person. Tn fact the indices respect Sen's (1976, 1979) influential arguments that aggregate poverty indices should satisfy focus, monotonicity, and transfer axioms Atkinson (1987) and Foster and Shorrocks (1988a, b), have also proposed criteria for unanimous poverty orderings. Our own criterion, which is based on comparisons of TIP curves of poverty gap distributions rather than com- parisons of generalized Lorene curves of income distributions or comparisons ‘of poverty deficit curves, provides a more revealing picture of poverty and its distribution. Moreover our construction permits the strength of the poverty comparison to be tested, revealing that the original poverty ordering may bbe preserved throughout a range of values for the deflator used to make nominal incomes comparable. Thus the TIP curve has useful apptications in poverty comparisons across time, across regions and countries, and between © Oxtnd Uaiventy Pres 197318 THREE “TS OF POVERTY CURVES. UK POVERTY TRENDS population sub-groups of different household composition. We illustrate this ‘with an analysis of poverty in the UK during the 1980s, 2. Poverty in pictures Let x = (4 X24 9) denote a distribution of income among 7 income- receiving units (€g. persons or households), in which the incomes have been arranged in ascending order, 0 < x; 1 ageneaes (1987) Dalton’ typo ‘ohnson (1988) Pyatt (1988) ‘Shoerocks (1995) modited San Thos (1979)" Was (1969) iste das of replication ivaractIneaiog Sucoovexfuncons of goveny gap vectors Qa a2, sei gted os arid rows ps." Or iin fran eos es eae sssssnnss |S. P. JENKINS and P, J. LAMBERT a8 Coitive nam of every ms pt apta Comalav populio tare, 2 Fic. 1, The TIP curve snd the 3 "Ps of poverty ‘Our picture of poverty is obtained by ranking people from poorest to richest, cumulating their poverty gaps (or normalized poverty gaps), and plotting them, We call the resulting picture the TEP curve.! ‘The TIP curve for poverty gaps, denoted by 7YP(g; p) where 0

OCs'2). Such downward shifts are brought about by re-scaling the incomes in y upwards (equivalently, lowering the poverty linc in y, the poorer distribution). The poteatial for doing this will boc greater the larger the vertical distance between P1P(g,, p) and TLPCe., p) at each p- 1000 252 357 23 ‘ese tn), Paver inde duced a Table ad ts 1988/89 even if real incomes in 1988/89 relative to those in 1979 were taken to be almost 7% higher than previously assessed, ‘Our emipirieal results can also be scen from another perspective by interpret- ing the robustaess of the ordering in terms of variations in the poverty line for the poorer distribution (rather than variations im the intertemporal price defistor). It is common in the UK and Europe to use poverty lines defined a fractions of contemporary means or medians, on the grounds that income adequacy should be assessed relative to contemporary living standards, If we ‘were to identify poverty using half the contemporary mean as the low income cut-off—a fixed relative rather than a fixed absolute real income standard as before the poverty tines for 1979 and 1988/89 would be £92.58 and £118.54 respectively * Now, conditional on the original intertemporal price deflator, we find TIP dominance of normalized poverty gaps, showing that there was greater poveriy in 1988/89 than in 1979, in fact for all 1988/89 poverty lines equal to of greater than 37% of the 1988/89 mean [0.37=(1 — 0.068) -(92.58/ 236.L1)], a range which includes half the 1988/89 mean as weil as half the 1979 mean, Heace our conclusions about the increase in UK poverty between 1979 and 1988/89 are robust to whether or not an absolute or relative poverty line is used, or indeed something in between. We also find that the poverty in 1981 was higher than in 1979 according to all poverty indices belonging to P and for all common poverty lines 2 < £92.58 per week (TIP curve not shown). In 1981 the headcount ratio was 9.0%, the ‘The DSS's HBAL reports use both of these types of relative and absolute cutoff, For recent Saupe ‘poverty comparisons also using doth, see Blackburn (199) and Hagenaars at at 7SS. P, JENKINS and P. J, LAMBERT 35 v8 Pua ‘Cumutative sum of poverty gape ‘ear capita (pounds por Week) & Ge ‘de oso et ‘Cumulative pepuletion share, 8 io, 3. The 1984/89 TIP eurve fmersecis the 1981 TIP curve once from above (poverty ine = ‘half 1979 average income), average per capita poverty gap, £1.78, and the mean poverty gap amongst the poor, £19.74; i. the orderings by the headcount ratio and average poverty saps coincide in this case. Figure 3 illustrates the comparison of the 1981 and 1988/89 distributions, and shows that the 1988/89 TIP curve intersects the 1981 TIP curve once from above. The average poverty gap (and headcount ratio) were larger in 1981, but poverty gaps were less unequally distributed. Although we do not have 2 poverty ordering according (o all members of the classes P or @, the results of Jenkins and Lambert (1994) cnable us to identify the sub-class of indices for which there is one. Since FO7(2) was highcr in 1988/89 than in 1981, we can say for cxample that aggregate poverty was greater in 1988/89 than in 1981 for all members of the Foster er al, (1984) class FG7(a) with a > 1, aud for all Clark e¢ al. (1981) Type 2 poverty indices for which the parameter summarizing aversion to income inequality amongst the poor is greater than 0.86. This includes the Watts index (for which the aversion parameter equals one). See Table 2 for calculations confirming these ordering results. Interestingly the modified-Sen index, which is not a member of the sub-classes of P or Q relevant in this case, provides the opposite ordering. Further concfusions about UK poverty trends can be drawa using results linking the Atkinson and Foster/Shorrocks poverty ordering methodology with ours. For example, we find that the 1988/89 generalized Lorenz curve lies below the 1979 curve up to p= 13.7% (corresponding to an income of £103 in the 1979 distribution, £108 io the 1988/89 distribution), and that the326 THREB“'S OF POVERTY CURVES: UK POVERTY TRENDS 1988/89 curve is everywhere above the 1979 one for all p > 13.7% (see Jen- kins, 1994b, for details). Fquivalently, we have generalized Lorenz dominance of 1979 incomes over 1988/89 incomes for censored distributions im which all incomes of £103 and above are replaced by £103. Hence, by Jenkins and Lambert's (1996) Theorem 2, we can say that, according 10 all poverty indices belonging to P, poverty is higher in 1988/89 than 1979 for all common poverty lines up to £103, i.¢, 56% of average income in 1979. This result extends the range of poverty lines for which we have TIP dominance beyond the popular 50% fraction which we used earlier. 5, Summary and conclusions We have introduced a new construct, the “Three “Is of Poverty’ (TIP) curve, which provides a succinct and evocative graphical summary of the incidence, intensity, and inequality dimensions of aggregate poverty. Comparisons of “TIP curves also provide a means for checking for unanimous poverty orderings bby a wide class of poverty indices, and for checking robustucss of these order ings to variations in deflators used to render nominal income distributions comparable (equivalently, to a change in the poverty line in one distribution). ‘This result has useful applications in poverty comparisons across time, across regions and countries, and between population sub-groups of different house hold composition. ‘Our empirical analysis applies the TIP dominance eritetion and reveals new perspectives on UK poverty trends during the 1980s which are not apparent from the official low income statistics. We have shown that for a range of poverty lines cucompassing ones commonly adopted in public debatcs, poverty unambiguously increased between 1979 and 1988/89 according to all poverty indices inthe classes P and @. Moreover in the case in which the poverty line is fixed at half 1979 mean income, we have shown that the poverty ordering ‘would be prescrved cven if real incomes in 1988/89 relative to those in 1979 were anything up to 6.7% higher than previously astessed. The TIP method- ‘ology also highlights the changing features of poverty during recession and boom years during the 1980s. The incidence of poverty was higher in 1981 than 1988/89, but there were also relatively fewer large poverty gaps. Thus whether aggregate poverty was higher in 1981 than in 1988/89 depends in part on how averse one is to income inequality amongst the poor. ACKNOWLEDGEMENTS We dedicate this paper to the memory ofthe late Aldi Hagesaars lekits acknowledges nancial suppor fom the lox Rowntree Foundation. We thank seminar participants and anodyaocs refeess, Frank Cowell, avid T. Johnson, Martin Ravalion, and Tony Shorrocks for thee come ‘ents ad the DSS forthe HBAI micro-data. 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