Seminar: Mery Ferrando, CORE

Evolution of Income Poverty Under Unequal Growth: Settling the Dispute Between Absolutists and Relativists

Mery Ferrando, CORE

We study the impact on income poverty of unequal growth experienced in the US over 1989-2013 using a new measure of poverty. This measure accounts for both the relative and absolute aspects of income poverty. It depends on a key normative parameter that defines how much weight is given to each of these two aspects. The preferred parameter value for an absolutist moral observer lies at one extreme of the parameter range, whereas that of a relativist observer lies at the other extreme. Under unequal growth, absolutists often disagree with relativists. The former typically consider that poverty decreases and the latter that poverty increases. We first develop simple theoretical conditions under which the poverty judgments obtained with our measure are fully robust to the choice of its normative parameter. For partially robust cases, we derive a simple formula returning the threshold parameter value at which the judgment is reversed. We then apply our measure to study the evolution of poverty in the US over the recent period of unequal growth. Results show that our measure provides sensible poverty judgments that are not drastically different from those obtained with the official measure but far enough to justify its pertinence.  Making pairwise comparisons of poverty over time or across states, our measure reaches opposite conclusions to those of the official measure when inequality is significantly higher in the high-income distribution. Specifically, unlike the official poverty rate, our measure deems the core unequal growth period between 1993 and 2008 as poverty increasing. Interestingly, poverty judgments are largely robust to the choice of the normative parameter.