Poverty

Counting the poor, measuring poverty

SWS poverty

Just before the Holy Week break, the Philippine Statistics Authority (PSA) reported that the country’s poverty incidence dropped to 16.1% of families in the first half of 2018 from 22.2% during the same period in 2015. Among individuals, the poverty incidence fell to 21% from 27.6 percent. This supposedly means that the Duterte administration is on track to meet its target of lifting one million Filipinos from poverty every year.

Absurdly low threshold

Expectedly, government’s claim of improved poverty situation has been met with strong criticisms, not to mention ridicule, from various sectors. The biggest flak remains the absurdly low threshold that the PSA continues to use to count the number of poor Filipinos. For the first half of 2018, the poverty threshold was pegged at Php10,481 per month, which for government represents the minimum amount that a family of five needs to be considered not poor.

That threshold translates to a measly sum of Php69.87 per person per day. As state statisticians try in vain to defend the methodology that produced their preposterous poverty threshold, the simple challenge from the incredulous public is for government officials to live off Php70 a day.

Malacañang officials did not accept the challenge, and instead argued that poverty is a matter of lifestyle. Depende sa lifestyle nung kumakain. Kasi kapag tanungin mo iyon mahirap, sabihin niya, asin lang. Magdidildil kami ng asin, nakakakain na kami,” presidential spokesperson Salvador Panelo was quoted as saying when asked if a family can survive on the PSA threshold.

And there’s the rub. For government, poverty is an issue of lifestyle, not based on any reasonable or acceptable standard of income and consumption, and of access to adequate social services such as health, education and shelter. If a household can survive on salt, then Php70 for each of the family members must be enough.

But the idea of measuring poverty is not simply to count how many are poor. Ultimately, it is about ensuring, as a matter of policy, that people achieve a decent living to become not poor. Decent living thus is not an issue of lifestyle but creating, among other things, enough economic opportunities and a conducive social environment for people to afford life’s basic necessities and achieve a certain level of comfort in a sustainable way. Any poverty threshold should be set based on such standard and principle.

Need for higher standards

At the global level, there are already many studies that attempt to define the quality and quantity of decent living. These efforts are in response to the deemed inadequacy of existing global standards in measuring poverty such as World Bank’s US$1.90 per capita poverty threshold (the International Poverty Line or IPL) based on 2011 Purchasing Power Parity (PPP). In macroeconomic theory, PPP compares different countries’ currencies through a “basket of goods” approach.

In Philippine peso, a US$1.90 PPP poverty line translates to an even lower threshold of Php40.20 in 2015, according to World Bank calculations. The PSA’s annual per capita poverty threshold in 2015 (full-year) was Php21,753 or Php59.60 per day.

Much like the PSA, World Bank is widely criticized for systematically understating the extent of global poverty by using a low poverty line. Partially acknowledging the criticisms, World Bank for the first time presented alternative and higher poverty lines (i.e., at US$3.20 per day for lower-middle income countries such as the Philippines and at US$5.50 per day for upper-middle income countries) in its latest (2018) annual global poverty report.

But the adjustments still fall way short in depicting a more realistic picture of poverty. For instance, World Bank standard of US$3.20 PPP poverty line for the Philippines as a lower-middle income country translates to just about Php67.80 in 2015.

Nonetheless, the magnitude of poverty among the population increases significantly even with insignificant increases in the poverty line. To illustrate, 21.93 million Filipinos fell below the PSA poverty threshold of Php59.60 in 2015. With an additional eight pesos to match World Bank’s new poverty line for countries like the Philippines (i.e., Php67.80 in 2015), the number of poor swells by almost six million to 27.5 million Filipinos.

Imagine then the impact of a truly meaningful upward adjustment in poverty lines in terms of measuring the real magnitude of poverty. Just by way of illustrating this point, look at the number of poor people worldwide using World Bank’s poverty lines for low-income countries (i.e., US$1.90) and upper-middle income countries (i.e., US$5.50). At US$1.90, the number of poor people in 2015 by World Bank calculations was only 10% of global population (736 million people); but at US$5.50, poverty incidence rises to 46% of global population (almost 3.4 billion people).

Cost of decent living

So, what should be the higher standard with which to measure if Filipinos are poor or not? Concretely, how much is the cost decent living? Duterte’s economic managers apparently know that current official poverty threshold does not allow a family to afford a life out of poverty, much less a decent living.

Remember when the National Economic and Development Authority (NEDA) came under fire last year for reportedly claiming that Php10,000 is enough budget for a family of five to survive? The ruckus forced Duterte’s socioeconomic planning secretary Ernesto Pernia to give an estimate on how much a family would actually need to live decently – i.e., Php42,000 a month.

Pernia, of course, would later clarify that the Php42,000 is “not official NEDA figures” and was just “top of mind”, aware of the implications on government’s wage policy. But that amount was not pulled out of thin air. The NEDA chief said he came up with the figure based on the assumption that there are two people working in the family and each earns at least Php21,000 a month. It approximates the average family monthly income of about Php23,000, based on the latest (2017) Annual Poverty Indicators Survey (APIS) of the PSA.

Using Php21,000 to Php23,000 as proxy for the cost of decent living, how do Filipino families measure up in terms of income? Based on the 2017 APIS, 70% of Filipino families are earning below Php22,500 a month. Put another way, seven out of every 10 Filipino families fail to meet the “cost of decent living”. This is a far cry from the two out of every 10 families that the PSA counts as poor.

Other ways of measuring poverty

Family income is actually just one aspect of measuring poverty. Decent living is only completely achieved if a family has sufficient access to basic services such as education, housing, health, utilities, transportation, etc. as well as provision for rest and recreation and savings for emergency expenses. While a substantial income will allow a family to meet most of these basic needs, availability of infrastructure and provision of state support is also equally crucial.

As a consequence of lack of sufficient income and of an even greater lack of public investments, a significant portion of Filipino families are deprived of these basic services. According to the 2017 APIS, 33% of those in school age (i.e., 3 to 24 years old) from all families are not attending school; 39.8% of them cited high cost of education or financial concern and need to look for work as reasons for not attending school. Also, only 10.9% of all family members finished college while only 19.5% finished high school. For the poorest 30% of families, only 1.9% finished college and 15.4% finished high school.

Almost half (49.4%) of Filipino families do not have access to individual or household taps (i.e., piped into dwelling) and get their water from unsafe sources including public taps, wells, springs, etc. About 78% of the poorest 30% of families get their water from sources other than individual or household taps. Meanwhile, 95.4% of all families do not have access to pipe/sewer system; for the poorest 30%, 97.8% do not have access to such sanitation facility. Some 35.8% of all families have houses (i.e., walls) built from light and salvaged materials; for the poorest 30%, it is at 61.1 percent.

Aside from these indicators of access to and deprivation of basic needs, another way of measuring poverty is to ask the people if they feel they are poor such as the regular self-rated poverty survey of the Social Weather Stations (SWS). In its latest quarterly survey (Dec 16-19, 2018), SWS reported that 50% of Filipino families consider themselves poor. That’s equivalent to an estimated 11.6 million poor families.

The SWS itself pointed out that the results of its self-rated poverty surveys are consistent with the easing trend in poverty (but obviously not in terms of scale) indicated in the official PSA survey (i.e. comparing the first half of 2015 to the first half of 2018). But looking at the trend between the two periods actually shows a deteriorating poverty situation that could only be explained by the policies Duterte implemented which directly impacted people’s income such as the TRAIN Law and the high inflation it triggered.

Using SWS self-rated poverty surveys, poverty appears to be worsening under President Duterte. In the first half of 2016 (or the immediate period before Duterte assumed power), there was an estimated average of 10.4 million families that count themselves as poor. The number declined to 9.7 million families in the second half of 2016 but climbed to 10.6 million families in full year 2017 (or average of the four SWS quarterly surveys) and further to 11.2 million in full year 2018.

Thus, based on these estimates, the number of poor families that consider themselves poor increased by an estimated 800,000 under the Duterte administration – from 10.4 million in first half 2016 to 11.2 million in 2018.

That’s equivalent to about four million additional poor people. Instead of lifting one million people out of poverty annually based on its target, the Duterte administration apparently is pushing almost two million people to poverty every year. ###

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Economy, Labor & employment

Minimum wage is only 13 to 27% of NEDA’s cost of decent living

Under fire for its Php10,000-gaffe, the National Economic and Development Authority (NEDA) is now saying, through Secretary Ernesto Pernia, that the cost of decent living for an ordinary family is Php42,000.

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This admission by the country’s chief economist on the amount required by a Filipino household to afford a decent living has underlined the need and urgency of a substantial wage hike, including the proposed Php750-national minimum wage, which ironically Pernia and other economic managers of the Duterte administration are opposing.

Using data from the National Wages and Productivity Commission (NWPC), it appears that current wages in the country could only meet as low as 13% to just 27% of NEDA’s estimated cost of decent living.

In the National Capital Region (NCR), for instance, the daily minimum wage is just Php475 (for retail/service establishments with 15 or less workers) to Php512 (all other non-agriculture industries). These translate to a monthly income of about Php10,331.25 to Php11,136.00.

(Note: These estimates are based on the assumption that there are 261 work days a year or about 21.75 days a month. It excludes Saturdays and Sundays plus an extra day to account for a leap year. See here.)

This means that the minimum wage in NCR is equivalent to only 25% to 27% of NEDA’s estimated cost of decent living. Put another way, an ordinary household in NCR needs four minimum wage earners to afford a decent living.

The situation is much worse in regions outside NCR where the minimum wage is way lower. In the Autonomous Region in Muslim Mindanao (ARMM), for example, the minimum wage is a paltry Php270 (agriculture) to Php280 (non-agriculture) per day. Per month, the minimum wage in the region is about Php5,872.50 to Php6,090.00, which meets a meager 14% to 15% of the cost of decent living.

And worse, amid ever increasing prices and rising inflation and additional tax burden such as those under the TRAIN (Tax Reform for Acceleration and Inclusion) Law, the already meager wages of Filipino workers are further being eroded.

Meanwhile, the proposed Php750-national minimum wage is even less than 40% of NEDA’s cost of decent living. The workers are asking much less of what their families need to live decently and they are still being deprived.

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Consumer issues, Economy, Poverty

The curious case of NEDA’s Php10,000

NEDA (National Economic and Development Authority) did not say that a family of five could live decently with Php10,000 a month, according to Rappler’s “Fact-Check”. End of debate?

Actually no. While NEDA may not have directly referred to the Php10,000 as enough for decent living, the whole issue is what the amount of Php10,000 represents.

That “hypothetical” amount – the budget of an average Filipino family, said NEDA – was in fact based on the official poverty threshold fora family of five (i.e., Php9,140 as of first semester 2015, latest official data).

The PSA (Philippine Statistics Authority) defines poverty threshold this way:

“Food threshold is the minimum income required to meet basic food needs and satisfy the nutritional requirements set by the Food and Nutrition Research Institute (FNRI) to ensure that one remains economically and socially productive. Poverty threshold is a similar concept, expanded to include basic non-food needs such as clothing, housing, transportation, health, and education expenses).”

For the government, that is around Php10,000.

And there lies the problem. Using the ridiculously low poverty threshold as reference to show that the impact of high inflation and the TRAIN law on ordinary households is tolerable highlights the basic flaw of government’s appreciation of the true extent of poverty in general and of the impact soaring prices and regressive taxes in particular. #

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