Poverty gap – What is it, definition and concept | 2022

The poverty gap is the difference between the average income of people living in poverty and the value of the poverty line. This, for a specific country or geographical area.

That is, the poverty gap is the distance between the average income of the poor population and the poverty line. Thus, this indicator measures how intense or severe poverty is.

At this point, we must clarify two concepts. First, poverty is the deprivation of access to basic services such as food, clean water, sanitation facilities, housing and education. So, if a family, given their income, cannot cover these needs, they are considered to be in poverty.

Likewise, the poverty line corresponds precisely to the cost of goods and services considered essential.

That is, if the household income is less than the poverty line, they are in a state of poverty.

Another important point to keep in mind is that the poverty gap can be calculated based on extreme poverty. Unlike poverty, extreme poverty is more serious, when the person cannot cover, among their most basic needs, those that are most essential to survive, mainly food and health.

How to calculate it

A simple way to calculate the poverty gap is with the following formula:

Picture 745

The poverty gap index, which we will call PGI for the acronym of its name in English (Poverty Gap Index), is composed as we see in the figure above by N which is the total population, in are the incomes of people in poverty, he is the poverty line p is the total number of individuals with income equal to or less than that threshold he.

When calculating this index, the result is a number or percentage between 0 and 1. If it were 0, it would mean that no one is in a situation of poverty, while if it were 1 or 100%, it would be interpreted that everyone has income equal to zero.

Now, we can explain the calculation of the poverty gap in a more intuitive way. Suppose that the income of poor people in a country is on average 800 monetary units (CU) per month. Likewise, the poverty line is 1,000 monetary units. Then, the following calculation could be done:

poverty gap: 1,000-800/1,000=0.2=20%

Now, let us note that if we multiply the poverty line by the poverty gap, we obtain the necessary average increase in the income of the poor to get them out of this situation.



Importance of the poverty gap

The importance of the poverty gap lies in the fact that it is an indicator of the severity of poverty. In other words, it not only tells me how many poor people or families there are in the country, but also how far they are from being able to cover their basic needs.

However, it is not a perfect indicator, since it is still, like per capita income, for example, an average. This means that there could be countries with different levels of inequality, among the same poor, where the calculation of the poverty gap could give us the same result.

To illustrate the above, we will see a very simple example. In country A, the family with the lowest income earns 300 monetary units (CU) per month, and the poor family closest to overcoming the poverty line earns 690 CU. Meanwhile, in nation B, the family with the lowest income earns 450 ums, and the one that is closest to getting out of poverty, 670 ums. For both countries, you could get the same poverty gap. However, in the first country the differences, at least at first glance, seem to be wider.

*In the article we have talked about families and people in poverty. If poverty is measured by family unit, income would be divided by the number of people in the household to calculate income per person. This should not cause confusion. What happens is that we speak of household income because not all members of a family usually generate income.

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