Objective and Subjective Measures of Poverty in the European Community Household Panel

In most poverty studies a person is defined as poor if he or she lacks enough resources to reach an acceptable standard of living. Usually the analysis is also restricted to economic deprivation and misery. However, even if most researchers seem to agree on this general definition, there has been a lot of discussion about the best approach to measure poverty. Thus, during recent years there have been several studies concerning the effects of using objective (indirect) and subjective (direct) ways of measuring poverty (see eg. Kangas and Ritakallio, 1995). By subjective measures we mean indicators of the standard of living people actually enjoy, while the objective measures focus on people’s access to different kinds of resources. Examples of subjective indicators are measures of the deficiencies in the consumption of necessities and of perceived over-indebtedness and scarcity. The main problem with the objective approach is to find a valid and reliable measure of the economic resources people are in control of and to define how and where to draw the poverty line. A basic question in empirical poverty research is how sensitive the results concerning the extent and structure of poverty are to the definition of poverty and the choice of poverty measure. In general, studies concerned with the interrelation between poverty measures have shown that the results are quite dependent on the methods and measures chosen. However, there seem to be quite few studies of how possible measurement errors may affect the picture one gets of the level of poverty and the composition of the poor part of the population. In this study we analyze, using the Finnish ECHP (European Community Household Panel) prelilminary data from 1996, how errors in reported income affects measured poverty, and the relation between income poverty and some subjective measures of poverty.