Once an aggregate income, consumption or non-monetary measure is defined at the household or individual level, the next step is to define one or more poverty lines. Poverty lines are cut-off points separating the poor from the non-poor. They can be monetary (e.g. a certain level of consumption) or non-monetary (e.g. a certain level of literacy). The use of multiple lines can help in distinguishing different levels of poverty. There are two main ways of setting poverty lines—in a relative or absolute way:
Alternative poverty lines are also sometimes used. They can be set on the basis of subjective or self reported measures of poverty. Alternatively, one can combine absolute and relative poverty lines. This technique allows to take inequality and the relative position of households into account while recognizing the importance of an absolute minimum below which livelihood is not possible.
Ultimately, the choice of a poverty line is arbitrary. In order to ensure wide understanding and wide acceptance of a poverty line, it is therefore important to ensure that the poverty line chosen does resonate with social norms (with the common understanding of what represents a minimum). For example, in some countries, it might make sense to use the minimum wage or the value of some existing benefit which is widely known and recognized as representing a minimum. Using qualitative data could also be useful to decide what goods would go in the basket of basic needs (when constructing an absolute poverty line). For comparisons over time, the stability and consistency of the poverty line need to be ensured.
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