The most widely quoted measure of poverty is relative poverty which is the defined as ‘having an income of less than 60% of the median income’ (if you imagine everyone in society lined up, poorest to richest, the income of the person in the middle of the line would have the median income).
The thinking behind this measure is that, if we were to define a fixed poverty line, then as the population as a whole gets gradually richer, people just above that fixed line would fall further and further behind what the normal member of society can afford. And this gap in itself could cut them off from the ability to play a part as a normal member of society.
For example, in 1980, hardly anybody could afford a mobile telephone – and therefore not being able to afford one in no way reduced your ability to be a normal member of society. Not having a smartphone today is both unusual and a real handicap: many employers are cautious about employing somebody who for much of the time might be unreachable by ‘phone or email. So today, being unable to afford a mobile phone would be a sign of poverty.
That all makes sense in a world where most people are getting richer over time. And in many countries, most people are still getting richer over time. But as the chart below shows, in quite a few they are not – including the UK.
So what about in countries suffering from mass impoverishment, where most people are becoming poorer over time? Does the idea still make sense then?
In a country with mass impoverishment, using relative poverty as a measure disguises the problem; we need new measures:
- mass impoverishment operates by hollowing out the middle-class;
- this means that the relative poverty line falls even as the economy grows; so
- relative poverty doesn’t ‘work’ as a measure in the world of mass impoverishment – we need new metrics.
Mass Impoverishment Operates by Hollowing Out the Middle-Class
The US started its exposure to mass impoverishment earlier than many other countries (and, conversely, recently it has done better than many others).
As you can see, since 1980, the US has had several extended periods of falling wages – most notably since the year 2000. In fact, the chart probably flatters the true experience of many Americans because it appears to show a rise in average wages after the Global Financial Crisis and during the COVID pandemic. The most likely explanation of this is not that wages rose as a result of these crises, but that a significant number of lower-paid workers were no longer employed as full-time employees, raising the average of those who remained. It also understates the incomes of the wealthy, most of which do not come in the form of wages and salaries.
But even if we take the graph at face value, it is clear that the US had more than a decade of falling wages after 2000, followed shortly afterwards by another extended period of mass impoverishment.
And we can see how mass impoverishment operates in practice.
If we look at that period post-2000, we see that the poorest 20% of the population were in some sense protected, but the middle 60% of the population was not: most of them saw their incomes falling over that period; and only the top 20%, and in particular the top 5% saw their incomes growing.
Mass impoverishment is a process of levelling-down amongst all but the wealthy, hollowing-out the middle classes as it goes.
The Relative Poverty Line Falls even as the Economy Grows
In particular, during periods of mass impoverishment, the median income falls – and therefore by definition so does the poverty line.
The chart below looks at the UK. It shows the median earnings of all employees in 2019, which were just under £25,000. And the relative poverty line, which is therefore just under £15,000.
Where will the UK be in 2050? Of course it depends on what trends we follow over the next three decades. If we follow the pre-2010 trends, the median earnings will rise to over £40,000, and the poverty line will rise to just about today’s median earnings. If we follow the trends that have been in place from 2010 – 2019, the median earnings will fall to around £21,000 and the poverty line to around £13,000. And if a combination of the lingering effects of Brexit and a hypothetical (misguided) policy of austerity produces even lower growth, we could be looking at median wages of around £16,000 and a poverty line of just under £10,000.
Relative Poverty Doesn’t ‘Work’ in a World of Mass Impoverishment
Of course, measuring relative poverty would not work well in this last scenario. The reality would be that almost 50% of the UK population was living below today’s poverty line; but the relative poverty statistics might show that only about one quarter of the population were in poverty (as is the case today).
So in a world of mass impoverishment – which unfortunately is the world the UK is living in at the moment – we need new measures. The most obvious measure is absolute poverty which in the UK is defined as having less than 60% of the median income in 2010/11 (adjusted for inflation). But even that might not show a problem if the bottom 20% were ‘protected’ as in the US.
The Joseph Rowntree Foundation has done a lot of work on defining poverty:
“Poverty means not being able to heat your home, pay your rent, or buy the essentials for your children. It means waking up every day facing insecurity, uncertainty, and impossible decisions about money. It means facing marginalisation – and even discrimination – because of your financial circumstances. The constant stress it causes can lead to problems that deprive people of the chance to play a full part in society.”
They point out that no single measure can capture all aspects of poverty, and highlight the following suggestions:
- JRF’s Minimum Income Standard (MIS) – MIS itself is not a measure of poverty, but is what the public has told us is sufficient income to afford a minimum acceptable standard of living
- relative income poverty, where households have less than 60% of contemporary median income
- absolute income poverty, where households have less than 60% of the median income in 2010/11, uprated by inflation
- material deprivation, where you can’t afford certain essential items and activities
- destitution, where you can’t afford basics such as shelter, heating and clothing.”
And in combination these suggestions do a good job of highlighting the plight of those who are already in poverty.
But that is not enough in a world of mass impoverishment. We need to measure mass impoverishment itself: to capture those who are not yet in poverty but being pushed steadily towards it, year after year. Otherwise, by 2050, we could see most people living near today’s poverty line while the government celebrates its triumphs in containing poverty.
In the book, 99%, we suggested two additional measures:
- the impoverishment ratio – the proportion of the population whose real incomes are falling year-on-year, which for the UK we estimate is well over 50%; and
- the leave-behind ratio – the proportion of the population whose real incomes are growing more slowly than real per capita GDP, in other words those who are not getting their fair share of economic growth. This is an even higher percentage.
If you share our concerns about mass impoverishment in the UK (and of course other countries), please do sign-up and join the 99% Organisation.