Absolute Poverty, Relative Poverty, or Lower-End Inequality

by Reihan Salam

Comparative discussions on poverty are often plagued by a conceptual confusion: are we contrasting the absolute incomes of households at, say, the 10th percentile, or are we contrasting where households at the 10th percentile stand relative to households the 50th percentile? That is, are we talking about absolute poverty or relative poverty? Two countries in which households at the tenth percentile have similar incomes might have markedly different relative poverty rates, as Country A might have a substantially higher median household income than Country B, yet this doesn’t necessarily have much bearing on consumption. As Lane Kenworthy has suggested, referring to lower-end inequality instead of relative poverty is more precise, as it underlines the fact that we are considering the distance between households at the 10th and 50th percentiles. And focus on lower-end inequality highlights the fact that household income dispersion in the U.S. has been driven much more by an increase in upper-tail inequality, or the ratio of incomes at the 50th and 90th percentiles, at least since the mid-1980s.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.