Realistic poverty thresholds by household size

This column focuses on the realism of poverty thresholds in the National Capital Region (NCR) in particular, on the assumption that its readers are more familiar with the cost of living in NCR than anywhere else. Its analysis can also be done for other areas of the country, and the conclusions will still hold.

In “Unrealistic official poverty” (Opinion, 11/12/16), I wrote: “For the National Capital Region, the official total threshold per person is P25,007 for the year, or P68.51 per day. Multiplying that by 5 and by 30 gives a wishful line of P10,276 per family per month for NCR.” As a result, official poverty in NCR in 2015, the latest year available, was a highly unrealistic 2.7 percent of families.

Here I consider Self-Rated Poverty in NCR for the latest full year by pooling the four quarterly Social Weather Surveys of 2016. This expands the NCR data base from 300 households for one quarter to 1,200 households for the entire year.

For the pooled 2016 data, SWS Self-Rated Poverty (SRP) in NCR was 32 percent of households. That is over 10 times the official poverty incidence rate in 2015. For the SRP-poor, the Self-Rated Poverty Threshold has a median of P20,000 per month; this is what the poorer half of the poor need.

The SRP threshold has slightly higher arithmetic mean (i.e., simple average, of P20,859 per month). Multiplying this average by the total number of the poor gives the total home budget needed by all of the poor.

However, I must point out that official poverty estimation works by choosing a threshold first, and then applying it to a survey-based distribution of income. On the other hand, the SRP system works by surveying first how many household heads feel their family is poor, and then asking the poor ones a follow-up question, of what monthly budget for the home they would need in order not to feel that way.

The home budget need of a poor household depends strongly on how large it is. In the pooled 2016 SWS data for NCR, the average household has 4.85 members, but the average SRP-poor household has 5.03 members (i.e., the poor have larger families than the nonpoor).

For the pooled 2016 NCR sample, here are the average monthly poverty thresholds (rounded) of the poor, by size of family: one person, P10,100; two persons, P16,300; three persons, P16,000; four persons, P20,800; five persons, P22,900; six persons, P24,500; seven persons, P23,900; eight persons, P24,500; nine persons, P25,500; and 10+ persons, P24,800.

Nonproportionality.  The threshold does not strictly increase with the size of the household, but the general pattern is very clear and realistic. In particular, the threshold of the poor is not proportional to the size of the household. Due to economies of consumption, a household of four does not have twice the need of a household of two.  A household of eight does not need twice that of a household of four.  Setting poverty lines on a per capita basis, as the government does, is inherently flawed.

For food in particular, here are the average monthly food thresholds (rounded) of the poor for the pooled 2016 NCR sample, by size of family: one person, P5,400; two persons, P7,000; three persons, P8,500; four persons, P9,000; five persons, P10,800; six persons, P11,100; seven persons, P10,700; eight persons, P11,700; nine persons, P11,900; and 10+ persons, P9,500. The food threshold is not proportional to household size either. The average food-poor household has 5.19 members (i.e., is larger than the average poor household).

Food is only half of what the poor need.  The thresholds make it clear that the total home budget needed by the poor in NCR is roughly split 50:50 between food and nonfood items. This contrasts with the simplistic official threshold division of 70:30 between food and nonfood, which biases government policy against helping the poor to cope with inflation in nonfood items.

Contact mahar.mangahas@sws.org.ph. Pooling and processing of the 2016 surveys were done by Josefina Mar of the SWS data archive.