The purpose is to utilize comprehensive measures of economic welfare to account for the level and composition of child poverty. We emphasize that the supplementary poverty measures should be policy-relevant and informative when evaluating the effects of policies aimed at reducing child poverty.
A measure of persistent poverty is used by Statistics Norway to identify households and families with low incomes. Households with incomes below the persistent poverty line are considered at-risk-of poverty. The indicator for persistent poverty is based on disposable (after-tax) income, which is considered as a main definition in the official income statistics. We discuss various challenges stemming from the fact that disposable (after-tax) income is an incomplete measure of economic welfare. Furthermore, we discuss problems of comparability of the disposable (after-tax) income measure across households.
There are four main approaches for measuring poverty, which differ by the types of data that are employed. The description of poverty is based on data on income, wealth, consumption or living conditions. In this report, we use all four types of data and their combinations to develop supplementary poverty measures. We propose a poverty measure that excludes households with high wealth. Moreover, we consider an index for material and social deprivation as a relevant indicator of poverty.
Since housing consumption accounts for a significant proportion of total consumption, we discuss limitations when disposable (after-tax) income excludes interest payments on loans, rental and housing costs, and the value of housing consumption. To develop a supplementary poverty measure, we include net imputed rent from owner-occupied housing in the measure of income. Hence, the extended income measure provides a more complete description of economic welfare. Net imputed rent is particularly high among homeowners with expensive homes and a low loan-to-value ratio on the home.
As an alternative, the income measure includes capital gains on housing and net inflation gains due to redistribution of nominal wealth. Since inflation reduces the value of nominal debt, inflation redistributes real wealth from lenders to borrowers. When the income measure includes such gains, we find that poverty rate estimates are adjusted upwards among tenants and downwards among homeowners.
The report discusses and analyzes how inflation, interest payments and rental market prices affect the cost of living and the real incomes of households. We consider poverty measures that account for regional price variation on specific commodities such as housing and energy. When we employ such a poverty measure, we find that poverty rate estimates are adjusted upwards in regions with high housing prices and downwards in regions with low housing prices.
The empirical results show that the level and composition of poverty is significantly affected when making use of alternative poverty indicators. We conclude by recommending two supplementary indicators of poverty that we consider as particularly relevant. The first supplementary indicator excludes households with high wealth. The second supplementary indicator includes net imputed rent in the income that forms the basis of the poverty measure.