Poverty threshold

A poverty threshold is a specific level of income used to define poverty. It is often called a poverty line, poverty limit, or breadline. This measurement represents the minimum income deemed adequate within a specific country. Economists typically calculate this by estimating the total annual cost of necessities for an average adult. Housing costs, such as apartment rent, usually represent the largest part of this estimate. Because of this, experts track real estate markets to see how they influence the poverty line. Thresholds are often adjusted annually to account for changing costs.

There are two primary ways to categorize poverty: absolute and relative. Absolute poverty, also known as extreme poverty, is the absence of enough resources to secure basic life necessities. This includes essentials like food, water, and shelter. Relative poverty is different because it looks at income compared to others in a specific society. It is based on the idea that a person's status depends on their income share relative to their neighbors. A person might not lack food, but they may still experience relative poverty. This can lead to social exclusion from housing, education, or job opportunities.

Researchers have worked for a long time to define these limits. At the turn of the 20th century, Charles Booth investigated poverty in London. He popularized the idea of a poverty line by setting a minimum amount for families to subsist. Around the same time, Seebohm Rowntree surveyed families in York, England. Rowntree calculated the cheapest price for the nutrition needed to prevent illness. He included fuel, light, rent, food, and clothing in his calculations. His study found that 27.84% of York lived below his poverty line. This proved that poverty was a widespread issue across Britain, not just in London.

In the mid-20th century, new methods for measuring income inadequacy emerged. Between 1963 and 1964, Mollie Orshansky developed a poverty threshold. She calculated this by taking the cost of a food plan for a family and multiplying it by three. Today, the World Bank manages the International Poverty Line (IPL) to track global poverty. In June 2025, the World Bank updated these figures for different economic levels. For low-income countries, the IPL is $3.00 per person per day. For lower-middle income countries, it is $4.20 per day. For upper-middle income countries, the line is $8.30 per day.

Global data shows significant changes in these numbers over time. Based on the $3.00 per day standard, the percentage of the global population in poverty has dropped. In 1981, the poverty rate was 47.1%. By 2024, it fell to 10.3%. This means about 839 million people lived in poverty in 2024. However, measuring this is difficult because prices vary by country. Experts use Purchasing Power Parity (PPP) to compare prices between nations. This helps account for the fact that a dollar buys different amounts in different places.

Some experts use a "basic needs" approach to measure absolute poverty. This method focuses on the minimum resources required for long-term physical well-being. The International Labour Organization introduced this approach in 1976. A traditional list of needs includes food, water, and shelter. Modern lists often add sanitation, education, and healthcare. A 1995 UN declaration defined absolute poverty as a lack of many services. This includes safe drinking water, health, and even access to information.

Measuring poverty involves complex debates about what truly matters for survival. Some critics argue that the basic needs approach lacks scientific rigor. They suggest it focuses too much on consumption. Others, like Amartya Sen, focus on "capabilities" rather than just what people consume. There is also difficulty in choosing the right "basket of goods" for PPP calculations. Most baskets include items like washing machines, which the poor may not buy. Economist Robert C. Allen suggested using standardized baskets of cheap local grains. This helps create a more accurate picture of what the poor actually need to survive.