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Page History: 1.6 Proportion of employed people living below $1 (PPP) per day

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Page Revision: 2011/10/13 10:54


Contents

GOAL AND TARGET ADDRESSED

Goal 1. Eradicate extreme poverty and hunger Target 1.B: Achieve full and productive employment and decent work for all, including women and young people

DEFINITION AND METHOD OF COMPUTATION

Definition

The proportion of employed people living below the poverty line, or the working poor, is calculated as the proportion of individuals who are in the labour force, but nonetheless live in a household whose members are estimated to be living below the poverty line. Either the national poverty line or the international poverty line of $1.25 purchasing power parity (PPP) per day may be used as threshold. This indicator is expressed as a percentage of the total employment.

Concepts

Working poor refers to persons in the labour force living below the poverty line.

Labour force is the economically active population, aged 15 and above, or the sum of the employed and unemployed.

The poverty line is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country. National poverty lines are thresholds defined at the country level, below which a person is deemed to be poor (see Indicator 1.1a) For international comparisons, a poverty line of $1.25 a day measured at 2005 international prices and adjusted for PPP is used (see “DEFINITION AND METHOD OF COMPUTATION” for Indicator 1.1).

The purchasing power parity (PPP) conversion factor is the number of units of a country's currency required to buy the same amounts of goods and services in the domestic market as one United States dollar would buy in the United States.

Employed refers to persons above the nationally defined working age (different in every country, but generally close to 15 years) who worked or held a job during a specified reference period. Included are persons who worked for pay or profit (or pay in kind); persons who were temporarily absent from a job for such reasons as illness, maternity or parental leave, holiday, training or industrial dispute; and unpaid family workers who worked for at least one hour, although many countries use a higher hour limit in their definition. The measure of employment is intended to capture persons working in both the formal and informal sectors.

Unemployed refers to all persons not in employment who would have accepted a suitable job or started an enterprise during the reference period if the opportunity arose, and who actively looked for ways to obtain a job or start an enterprise in the recent past.

Method of Computation

The number of working poor is calculated by multiplying the labour force by the poverty rate.

The key assumption behind using the labour force instead of employment numbers to calculate the working poor is that all, or nearly all, of the poor in the labour force are employed. This assumption is made because in countries where social safety nets do not exist, poor individuals must work in order to maintain a subsistence level of living. While 15 years and over is typically used to define the standard working-age population of a country, some countries apply other age limits. It is the nationally-defined working-age population which should be used for this calculation.

The proportion of working poor in total employment equals the number of persons in the labour force living in a household with income below the poverty line divided by total employment multiplied by 100.

RATIONALE AND INTERPRETATION

The proportion of working poor in total employment gives an indication of the lack of decent work in a country. Jobs that do not provide incomes high enough to lift individuals and their families out of poverty, at the very least, do not fulfil the income component of the definition of decent work. Within the development process, the share of working poor should decrease, and in turn, further foster development.

The working poor definition combines poverty data with countries’ specific labour market characteristics, such as the size of the labour force. Working poor estimates thereby provide a picture of the relationship between poverty and employment that is not depicted by standard poverty data.

SOURCES AND DATA COLLECTION

To estimate the number and proportion of the working poor, it is necessary to establish the poverty line. National poverty lines are defined differently across countries based on different calculation methods (see Indicator 1.1a).

Data on the labour market (labour force and total employment) are obtained from population censuses, labour force or other household surveys, establishment surveys, administrative records and official estimates based on results from several of these sources. Labour force surveys can be designed to cover virtually the entire population of a country, all branches of economic activity, all sectors of the economy, and all categories of workers, including own-account workers, unpaid family workers and persons engaged in casual work or marginal economic activity. For this reason, household-based labour force surveys offer a unique advantage in obtaining information on the labour market of a country and its structure.

However, labour force and household surveys may have limited geographical and population coverage. The ideal geographic coverage is the entire country (no geographic exclusions) and the entire population (with no exclusion of population groups).

Other sources such as population censuses and administrative records differ in scope, coverage, units of measurement and methods of data collection. Each source has advantages and limitations in terms of the cost, quality and type of information gained.

The best method for calculating the number of working poor is on the basis of cross-tabulations from micro survey data sets that include variables on both poverty status and labour force characteristics. However, these data are usually not available.

DISAGGREGATION

While it might be desirable to disaggregate the proportion of working poor by sex or age groups, disaggregation is frequently not feasible for the main reason that it is difficult to produce disaggregated poverty data. However, if estimates are derived from survey micro datasets, disaggregation is sometimes feasible.

COMMENTS AND LIMITATIONS

If the methodology used for the surveys from which poverty data are derived changes over time, it is extremely difficult to make useful temporal comparisons. However, if the same poverty line is used consistently over time and the same survey methodology has been used for collecting income and expenditure data, it should be possible to make valid temporal comparisons. Even if these conditions are met, however, poverty rates may vary quite substantially from year to year because of economic or weather conditions. For example, natural disasters or financial crises can have a major effect on poverty rates, at least in the short term.

This indicator is also limited because of the way in which non-market production and consumption are valued. In some countries these activities may represent an important part of income and consumption, and decisions must be made about the value to attach to these items. The attached value will have an important effect on poverty rates.

GENDER EQUALITY ISSUES

If disaggregation by sex is feasible in view of data availability, the indicator can be used to analyse gender differentials in the incidence of working poverty.

DATA FOR GLOBAL AND REGIONAL MONITORING

The International Labour Organization (ILO) produces estimates for this indicator. Estimates of the working poor are based on labour market input data (working-age population, labour force and employment) from econometric models that utilize available national data and apply multivariate regression techniques to impute missing values at the country level. The first step in each model is to assemble all available data for each indicator in question. It is important to note that only data that are national in coverage and comparable across countries and over time are used as inputs. This selection criterion is fundamental because models are designed to use the relationship between labour market indicators and their macroeconomic correlates—such as per-capita gross domestic product (GDP), GDP growth rates, demographic trends, country membership in the Highly Indebted Poor Country Initiative, geographic indicators and country and time dummy variables. Comparability of the labour market data used as inputs in the imputation models is essential to ensure that the models accurately capture the relationships between the labour market indicators and the macroeconomic variables.

For the calculation of the number of working poor, ILO uses poverty data from the World Bank based on the international poverty line of $1.25 a day. Because country-level estimates are model-driven and produced so that harmonized data are provided for every country and every year, there may be discrepancies between international and national data.

REFERENCES

See “REFERENCES” for Indicator 1.1 and Indicator 1.4.

























GOAL AND TARGET ADDRESSED

Goal 1. Eradicate extreme poverty and hunger. Target 1.B Achieve full and productive employment and decent work for all, including women and young people.

DEFINITION AND METHOD OF COMPUTATION

Definition This indicator is calculated by measuring the working poor—the proportion of individuals who are in the labour force, but nonetheless live in a household whose members are estimated to be living below the international poverty line of $1.25 purchasing power parity (PPP) per day—as a proportion of total employment. This indicator is expressed in units of percentage.

Concepts Working poor refers to persons in the labour force living below $1.25 PPP per day. Labour force is the economically active population, aged 15 and above, or the sum of the employed and unemployed. The poverty line is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country. For international comparisons, a poverty line of $1.25 a day measured at 2005 international prices and adjusted for PPP is used. (See Indicator 1.1 for the methodology and computation) The purchasing power parity (PPP) conversion factor is the number of units of a country's currency required to buy the same amounts of goods and services in the domestic market as the United States dollar would buy in the United States. Employed refers to persons above the nationally defined working age (different in every country, but generally close to 15 years) who worked or held a job during a specified reference period. Included are persons who worked for pay or profit (or pay in kind); persons who were temporarily absent from a job for such reasons as illness, maternity or parental leave, holiday, training or industrial dispute; and unpaid family workers who worked for at least one hour, although many countries use a higher hour limit in their definition. The measure of employment is intended to capture persons working in both the formal and informal sectors. Unemployed refers to all persons not in employment who would have accepted a suitable job or started an enterprise during the reference period if the opportunity arose, and who actively looked for ways to obtain a job or start an enterprise in the recent past.

Method of computation The number of working poor is calculated by multiplying the labour force by the poverty rate.

Working Poor

 = 

Poverty Rate x Labor Force


Poverty Rate

 = 

Population Living Below Poverty Line

Total Population



The key assumption behind using the labour force instead of employment numbers to calculate the working poor is that all, or nearly all, of the poor in the labour force are employed. This assumption is made because in countries where social safety nets do not exist, poor individuals must work in order to maintain a subsistence level of living. While 15 years and over is typically used to define the standard working-age population of a country, some countries apply other age limits. It is the nationally-defined working-age population which should be used for this calculation. The proportion of working poor in total employment equals the number of persons in the labour force living in a household with income below the poverty line divided by total employment multiplied by 100.

RATIONALE AND INTERPRETATION

The proportion of working poor in total employment gives an indication of the lack of decent work in a country. Jobs that do not provide incomes high enough to lift individuals and their families out of poverty, at the very least, do not fulfil the income component of decent work and it is likely that other components are not being fulfilled either. Within the development process, the share of working poor should decrease, and in turn, further foster development. The working poor definition combines poverty data with countries’ specific labour market characteristics, such as the size of the labour force. Working poor estimates thereby provide a picture of the relationship between poverty and employment that is not depicted by standard poverty data.

SOURCES AND DATA COLLECTION

To estimate the number and proportion of the working poor, it is necessary to establish the poverty line. In many countries the poverty line is established from information obtained through surveys on personal consumption expenditure or, in a few cases, personal income. Personal consumption data is usually preferred, since it tends to be more reliable, and also because it tends to give a better reflection of the real, current living standards of households. The level of personal consumption expenditure (or income) below which individuals or households are considered to be poor is set to reflect the amount of net income (and therefore expenditure) necessary to buy a specified minimum quantity of household goods. Labour market information (labour force and total employment) are obtained from population censuses, labour force or other household surveys, establishment surveys, administrative records and official estimates based on results from several of these sources. Labour force surveys can be designed to cover virtually the entire population of a country, all branches of economic activity, all sectors of the economy, and all categories of workers, including own-account workers, unpaid family workers and persons engaged in casual work or marginal economic activity. For this reason, household-based labour force surveys offer a unique advantage for obtaining information on the labour market of a country and its structure. Other sources such as population censuses and administrative records differ in scope, coverage, units of measurement and methods of data collection. Labour force and household surveys may have limited geographical and population coverage. Each source has advantages and limitations in terms of the cost, quality and type of information gained. The ideal geographic coverage is the entire country (no geographic exclusions) and entire populations (no exclusion of population groups). The best method for calculating the number of working poor is on the basis of cross-tabulations from micro survey data sets that include variables on both poverty status and labour force characteristics. However, these data are usually not available.

DISAGGREGATION

While it might be desirable to disaggregate the proportion of working poor by sex or age group, disaggregation is frequently not feasible. This is mainly because of the difficulties of producing disaggregated poverty rate information. However, if estimates are derived from micro survey datasets, disaggregation is sometimes feasible.

COMMENTS AND LIMITATIONS

If the methodology used in the poverty surveys in a particular country changes over time, it is extremely difficult to make useful temporal comparisons. However, if the same poverty line is used consistently over time and the same survey methodology has been used for collecting the income and expenditure data, it should be possible to make valid temporal comparisons. Even if these conditions are met, however, poverty rates may vary quite substantially from year to year because of economic or weather conditions. For example, natural disasters (such as the Asian tsunami) or financial crises (such as the 1997 financial crash in South East Asia) can have a major effect on poverty rates, at least in the short term. This indicator is also limited because of the way in which non-market production and consumption are valued. In some countries these activities may represent an important part of income and consumption, and decisions must be made about the value to attach to these items. The attached value will have an important effect on poverty rates.

GENDER EQUALITY ISSUES

If disaggregation by sex is feasible in view of data availability, the indicator can be used to analyse gender differentials in the incidence of working poverty.

DATA FOR GLOBAL AND REGIONAL MONITORING

The International Labour Organization (ILO) produces estimates for this indicator. Estimates of the working poor are based on labour market input data (working-age population, labour force and employment) from econometric models that utilize available national data and apply multivariate regression techniques to impute missing values at the country level. The first step in each model is to assemble every known piece of real information (i.e. every real data point) for each indicator in question. It is important to note that only data that are national in coverage and comparable across countries and over time are used as inputs. This is an important selection criterion when the models are run, because they are designed to use the relationship between the various labour market indicators and their macroeconomic correlates (such as per-capita gross domestic product (GDP), GDP growth rates, demographic trends, country membership in the Highly Indebted Poor Country Initiative, geographic indicators and country and time dummy variables) to produce estimates of the labour market indicators where no data exist. Thus, comparability of the labour market data that are used as inputs in the imputation models is essential to ensure that the models accurately capture the relationship between the labour market indicators and the macroeconomic variables. For the ILO calculation of working poor, poverty data come from the World Bank based on the international poverty line of US$1.25 a day. Because country-level estimates are model-driven and produced such that harmonized data are provided for every country and every year, there may be discrepancies between international and national level indicators.

SUPPLEMENTARY INFORMATION

No information available yet.

EXAMPLES

No information available yet.

REFERENCES


The following references apply to all or most of the indicators:



Specific references for this indicator are:


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