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Chapter 8. Poverty and Undernutrition. Preview. What is poverty? Measuring poverty Empirical facts on poverty Functional impact of poverty. Conceptual Issues. Poverty Line

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Poverty and Undernutrition

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    1. Chapter 8 Poverty and Undernutrition

    2. Preview • What is poverty? • Measuring poverty • Empirical facts on poverty • Functional impact of poverty

    3. Conceptual Issues • Poverty Line • A critical threshold of income, consumption, or access to goods and services below which individuals are declared to be poor. • A minimum level of “acceptable” economic participation in a society • Consumption or Nutrition-based poverty line • Minimum nutrient levels for an adequate diet (price of food or consumption of calories) • Cost of shelter (rent) and clothing • Income-based poverty line • Legally declared minimum wage • Arbitrary threshold: say, 60% of mean income in a society

    4. Problems with Measuring Poverty • Overall expenditure versus item-by-item consumption • Should we compare the characteristics of a consumption basket with a benchmark basket? • Or, should we compare consumption expenditures with a minimum threshold? • Nutrition levels may not rise with income (demand for canned foods or fast foods) • Income simply represents the capacity to consume, not consumption itself • However, income or expenditure-based poverty lines are easier to use, given constraints imposed by available data

    5. Problems with Measuring Poverty • Absolute versus Relative Poverty • What is an “acceptable level of participation in a society?” • Owning a TV may be deemed socially necessary in one country, but not another • Similar examples can be motivated for cars, higher education, leisure, etc • Constituents of a poverty line may vary widely across countries, making comparisons difficult • Poverty should be evaluated relative to prevailing socio-economic standards in a society

    6. Problems with Measuring Poverty • Temporary or Chronic Poverty? • We must be careful to distinguish between “structural” or “chronic” poverty and “temporary” poverty • Unanticipated shocks can push people temporarily below the poverty line (natural disasters, disease, poor rainfall, etc) • Policies to deal with temporary poverty can be very different from those required for chronic poverty

    7. Problems with Measuring Poverty • Households or Individuals? • Available expenditure data is often at the household level • Should we divide total household consumption expenditures by number of individuals in the household? • This gives an idea of average or “per-capita” expenses • Problems: • Allocation of expenditures within the household are skewed • Discrimination against females and elderly (gender and age bias) • Large households typically have more children, who consume less than adults • Fixed costs of setting up or running a household

    8. Do We Really Need a Poverty Line? • Poverty lines are always an approximation to a very “fuzzy” threshold • Sustained deprivation can be insidious: effects are often felt at a later point of time • However, the poverty line gives us a starting point to study poverty

    9. Measures of Poverty • Some notation: • y denotes income or expenditure • Subscripts i, j,…, refer to individuals • p denotes the poverty line, converted to a common currency • For nutrition-based poverty lines, p represents the money required to attain the minimum calorie threshold • the mean income in the economy is m

    10. Headcount and Headcount Ratio • Headcount (HC): number of people below the poverty line, i.e., number of individuals i such that • Headcount Ratio (HCR): gives an idea of the relative incidence of the poor where n is the size of the population

    11. Problems with the HC and HCR • Fails to capture the extent to which income falls below the poverty line • People near the poverty line are less poor than those far below it • Can lead to problematic policy decisions: • Policies are systematically biased in favor of individuals very close to the poverty line, because they offer the biggest bang for the buck (politically)

    12. Poverty Gap Ratio (PGR) • The PGR is a measure of the average shortfall of income from the poverty line • How much extra income or consumption, on average, is required to get ALL poor people to the poverty line? • Division by mean income: an idea of how large the poverty gap is relative to the resources that must be used to close the gap

    13. Income Gap Ratio (IGR) • One problem with the PGR: • In societies with high inequality (where average income is high), the PGR looks very small even though there may be a lot of poverty • An alternative : • Income shortfall is divided by the total income required to bring all poor people to the poverty line

    14. Poverty: Some Stylized Facts

    15. Demographic Features of the Poor • Size of households below the poverty line typically tend to be larger than the average family size for the economy • Number of children per family is highly correlated with poverty • Burden of poverty falls disproportionately on the young • Affects childhood nutrition and education: long-term consequences for the economy • Women are disproportionately represented as heads of poor households • Absence of a principal male earner is closely related to poverty • This trend is widespread in Africa, Latin America, and South and East Asia

    16. Rural and Urban Poverty • Poverty in rural areas is significantly higher than that in urban areas (even after adjusting for cost of living) • Poverty is highly correlated with the lack of ownership of productive assets • Lack of assets leads to poverty • Poverty leads to the sale of assets • Poverty and small-scale agriculture are strongly correlated • Bulk of the poor are either landless or near landless

    17. Rural versus Urban Poverty

    18. Poverty and Landholding

    19. Urban Poverty • Most poor reside in the “informal” sector • Mix of self-employment and low-wage labor • Self employment: Vendors, petty traders, tea-stall owners, beggars, shoe-shine boys, garbage-sifters, load carriers, rickshaw pullers, roadside hawkers, etc. • Wage Labor: often seasonal or casual, not subject to minimum wage laws • Low levels of human capital • High levels of illiteracy • Lack of access to credit to acquire human capital

    20. Nutrition • Poverty and undernutrition are closely correlated, especially among children • Muscle wastage, stunting, illness & infection • Low cognitive skills and capacity to do productive work in adults • One issue: increases in income may or may not have a significant impact on nutrition • Direct nutrition supplements may have a greater impact than an increase in income

    21. Income and Nutrition • Why is the relationship between income and nutrition ambiguous? • Good nourishment is desirable, because of health and productivity benefits • By contrast, individuals may have preferences for • foods that taste good (meat) • foods that are well advertised (fast foods) • foods that are indicators of social and economic attainment (canned food, expensive varieties) • These types of food may have little nutritional value Nutritional elasticity: What is the percentage change in the consumption of calories when household budgets change by one percentage point?

    22. Income and Nutrition: Evidence

    23. The Functional Impact of Poverty • Poverty affects the access that poor people have to markets • Credit • Labor • Education • Land (for cultivation) • Lack of access to these markets can have fundamental consequences for an economy

    24. Credit • The poor have little or no access to credit markets • Lack of collateral that can be put up for loan repayment • In societies where labor mobility is low, one form of informal collateral is labor • Can lead to permanent indebtedness • The poor have limited incentives to repay loans

    25. The Incentive to Default

    26. Insurance • Why do people insure? • What is needed for successful insurance? • Incident against which insurance is sought must be • Verifiable • Must not be subject to Moral Hazard • This is why “perfect insurance” is never available • Example: deductibles, contingencies, etc.

    27. Insurance • Formal insurance markets often don’t exist in developing countries because of problems with verifiability and moral hazard • Example: think of crop failure: • What is the exact degree of crop failure? • Was it due to bad weather or lack of hard work?

    28. Insurance • However, moral hazard problems are actually small for the poor • Opportunity cost of labor for the poor is low • Poor are unemployed or underemployed to begin with, so cost of time is low • This permits them to credibly supply more effort • Therefore, where formal insurance is not available, informal schemes of insurance can work (example: shared labor or resources)

    29. Nutrition and Labor Markets • A very large proportion of the poor around the world are also significantly below adequate standards of nutrition • Effects of undernutrition: • Muscle wastage, retardation, vulnerability to illness & infection • Lower work capacity • Psychological effects: metal apathy, depression, lower intellectual capacity, lack of motivation • Low life expectancy

    30. Energy Balance • Energy Input: periodic consumption of food • Nutrition meets economics: • Access to food = access to income • For poor, access to income = returns to labor supply (poor don’t have much capital assets) • Resting Metabolism: energy required to • Maintain body temperature • Sustain heart and respiratory action • Supply minimum energy requirements of “resting tissues”

    31. Energy Balance • How much energy is required for adequate “resting metabolism”? • FAO’s “reference man” • European male with a weight of 65 kg (143 lbs) • Energy requirement: 1700 Kcal per day • Energy Required for Work: • FAO’s “reference man” requires 400 Kcal per day for “moderate activity.” • For the poor who have to work hard in the fields all day, this is a very conservative estimate

    32. Energy Balance • Some estimates of energy requirements: • West African agriculture: • 213 kcal per hour for carrying a 20 kg log • 372 kcal per hour for bush clearing • 502 kcal per hour for felling a tree • “The FAO’s reference man, a European male weighing 65 kg, therefore spends most of his day rather ambiguously defined, but apparently not working very hard.”

    33. Energy Balance • Storage and Borrowing • Over the short/medium term, energy deficits/surpluses can be absorbed/cushioned by the human body • A sustained, long-term deficit in the body’s energy requirements can have disastrous consequences • Illness • Incapacitating debility • death

    34. Labor Markets and Capacity to Work • Labor markets create income and access to nutrition and good health • Good nutrition, in turn, affects the capacity of the body to perform tasks that generate income • This circular argument points to the existence of “poverty traps” in developing countries

    35. The “Capacity Curve”

    36. Nutrition and Work Capacity • Low nutrition is capable of creating low incomes  reduces possibilities for good nutrition in the future • This leads to a “vicious cycle” of poverty • Several questions can be raised in this regard: • Why is the vicious cycle of low nutrition-low income not possible for the poor in rich countries? • Can’t people simply borrow their way out of the vicious cycle? • If work capacity affects future work output, why don’t employers take advantage of this and offer long-term contracts? • If long-term contracts indeed exist for other reasons, then does this affect nutritional status?

    37. Why does the vicious cycle of poverty not exist for rich countries? • In rich countries, labor markets are tight • Low supply relative to demand • Attractive opportunities in other markets • Labor markets in rich countries are very diversified • In tight labor markets, the returns to labor are, on average, quite high, even for people with low work capacity • Example: hourly income for barbers or janitors • This breaks the vicious cycle, as high wages permit adequate nutrition (even for the poor in rich countries)

    38. Why can’t people simply borrow their way out of the vicious cycle? • Poor simply do not have access to credit markets • There may not be a way to improve nutrition for the poor without redistribution of income from the rich • We have seen before that redistributing wealth can be both economically and politically contentious

    39. If work capacity affects future output, why don’t employers offer long-term contracts? • It is unlikely that an employer would offer a long-term contract, just to extract future gains from work capacity • There is no guarantee that the employee will keep working for a given employer (he/she may choose to work for another employer, or might migrate to another village) • If an employer makes a nutrition-enhancing investment, the market may bid up the wage for the employee  employee will reap the entire benefits of the employer’s investment!

    40. If long-term contracts existed for other reasons, can this affect nutritional status? • When nutrition is used by the employer to build up work capacity of the employee, there must be separate set of factors that sustains this contract • Slave economy • Slaves were a valuable commodity, due to intense competition for their services in the labor market • Slave diets on plantations in the US South exceeded that for all non-indentured labor in the 19th century

    41. If long-term contracts existed for other reasons, can this affect nutritional status? • Industry • Positive relationship between nutrition and productivity • Feeding low-paid workers well forces them to consume a greater proportion of their wages as food • Domestic Servants • Servants are associated with characteristics acquired on the job that make them costly to replace • “The quality of food given to domestic superior to that obtainable by members of working-class families from which servants are drawn.” (Booth, 1903)

    42. Poverty and the HouseholdThe Unequal Sharing of Poverty • In poor households, if scarce resources are equally allocated, then per-capita resources are very small • This may limit total household work capacity • This fact can cause an unequal sharing of poverty within the household • Systematic discrimination against some members of the household • “Lifeboat ethic”

    43. Poverty and the HouseholdThe Unequal Sharing of Poverty • What types of household members are discriminated against? • Females (both adults and children) • Old and infirm • Social institutions often form perceptions about future earning capacities • Female children are seen as a financial burden, where the institution of dowry exists • Household work of adult females may be non-monetized and hence not internalized • Wage-earning females who earn less than males • Medical expenses for the old and infirm who have no future earning potential

    44. Poverty and the HouseholdThe Unequal Sharing of Poverty

    45. Poverty and the HouseholdThe Unequal Sharing of Poverty

    46. The Case of the “Missing” Women in Asia