The poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living. In practice, like the definition of poverty, the official or common understanding of the poverty line is significantly higher in developed countries than in developing countries.Almost all societies have some citizens living in poverty. The poverty threshold is useful as an economic tool with which to measure such people and consider socioeconomic reforms such as welfare and unemployment insurance to reduce poverty.
Determining the poverty line is usually done by finding the total cost of all the essential resources that an average human adult consumes in one year. This approach is needs-based in that an assessment is made of the minimum expenditure needed to maintain a tolerable life. This was the original basis of the poverty line in the United States, whose poverty threshold has since been raised due to inflation. In developing countries, the most expensive of these resources is typically the rent required to live in an apartment. Economists thus pay particular attention to the real estate market and housing prices because of their strong influence on the poverty threshold.
Individual factors are often used to account for various circumstances, such as whether one is a parent, elderly, a child, married, etc. The poverty threshold is adjusted each year. In 2006, in the United States of America, the poverty threshold for a single person under 65 was US$10,488; the threshold for a family group of four, including two children, was US$20,444.
Defining poverty thresholds
Poverty thresholds can be defined in different ways:
Social Security benefit based. If a government guarantees to make income up to some particular level then it may be presumed that that level is the poverty threshold. This is a problematic definition, because an uncharitable government may reduce the guaranteed income, thus reducing the incidence of poverty so defined while increasing the incidence of actual poverty.
A relative income line, related to some fraction of typical incomes. This excludes the wealthiest individuals from the calculation. For example, the OECD and the European Union uses 60% of national median equivalised household income.
A relative figure fixed in time and only adjusted for inflation - thus avoiding the possibility that if income inequality increases, then poverty may otherwise also increase.
When the World Bank calculates its "$1 a day" statistics, it uses a poverty threshold.
Social Security benefit based. If a government guarantees to make income up to some particular level then it may be presumed that that level is the poverty threshold. This is a problematic definition, because an uncharitable government may reduce the guaranteed income, thus reducing the incidence of poverty so defined while increasing the incidence of actual poverty.
A relative income line, related to some fraction of typical incomes. This excludes the wealthiest individuals from the calculation. For example, the OECD and the European Union uses 60% of national median equivalised household income.
A relative figure fixed in time and only adjusted for inflation - thus avoiding the possibility that if income inequality increases, then poverty may otherwise also increase.
When the World Bank calculates its "$1 a day" statistics, it uses a poverty threshold.