Thursday, 13 October 2011

Lies, damn lies and statistics

At the IEA blog Kristian Niemietz notes that in the U.K., at least, Poverty falls, because we are getting poorer.
In poverty measurement, this is precisely what happens. We don’t have final data on the recession’s effect on poverty yet, because these only go until 2009 so far. But judging from the latest forecasts by the Institute for Fiscal Studies, it seems that the recession has decreased poverty. Between 2008 and 2011, the rate of relative child poverty has fallen by 2.6 percentage points and the rate of relative working age poverty by 0.4 percentage points. This is a recurring phenomenon: the recessions of the early 1970s, the early 1980s and the early 1990s have also been effective anti-poverty programmes, at least statistically. But an index of poverty which falls during recessions is like an index of binge-drinking which falls on Friday nights.
Why? you are asking,
The phenomenon is explained by the following pattern: during recessions, incomes fall across the board, but they fall at different paces. For households at the bottom of the distribution, the most important income source is government transfers, while for households in the middle of the distribution, it is wages. Transfers are not as exposed to the recession as wages, so the middle often takes a harder hit. When middle incomes fall, they automatically take the poverty line with them, and poverty ‘falls’.
Useful things poverty measures.

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