Poverty is broadly defined as economic deprivation; that is, people's lack of financial resources preventing a decent standard of living.
Absolute poverty is present when the lack of financial means results in one's inability to acquire the most basic life needs. The intrinsic factor of absolute poverty allows for a harmonised definition across countries. For example, a homeless person is regarded as such, irrespective of whether this person resides in a highly developed or a less developed country.
Contrarily, relative poverty refers to a segment in any given society, whose standard of living is below the average of the rest of the society. Therefore, although having the means to afford basic living needs, such persons may not be able to have the same living conditions, whether socially or financially as the average person.
The meaning of relative poverty varies among countries since, when discussing the relatively poor, the country's specific social and financial characteristics must be considered. Consequently, a relatively poor person in one country does not necessarily mean that this person – having the same resources – would be relatively poor should s/he be living in a different country.
EU-SILC survey as a source of official statistics on relative poverty
The National Statistics Office (NSO) publishes official statistics on relative poverty based on the European Statistics on Income and Living Conditions (EU-SILC) survey annually and has been doing so since 2005. This household survey is governed by the "European Framework Regulation (EU) 2019/1700 establishing a common framework for European statistics relating to persons and households, based on data at individual level collected from samples" that ensures high quality and full comparability of official statistics on income, poverty and social exclusion across the European Union.
The EU-SILC survey is carried out among a sample of private households and is designed in a way that seeks to measure relative poverty mostly basing on household income and material deprivation. The latter gives an insight into what material things people can and cannot afford. Every year this survey covers a sample of more than 4,000 households. The EU-SILC survey sample is designed based on a rotational design whereby every household is surveyed over the course of four consecutive years. This sampling methodology enhances consistency and thus allows for high quality cross-sectional and longitudinal analysis.
The At-Risk-of-Poverty rate
One of the primary indicators derived from the EU-SILC survey is the At-Risk-of-Poverty (ARP) rate. The methodology used to compute the ARP rate considers both the total disposable household income earned by each responding household and its "equivalent household size". The latter is calculated based on a standard weight applied to each household member depending on the member's age.
As an example, a four-adult household having a total disposable income of €30,000 would have an estimated equivalised household income of €12,000 (per person). This means that each adult member of this particular household has the same standard of living of a person earning €12,000 and living on her/his own.
The at-risk-of-poverty threshold is defined as 60 per cent of the median equivalised household disposable income. For the computation of the ARP rate, all persons whose equivalised household income falls below this line are considered to be at-risk-of-poverty. Consequently, the count of persons who are at-risk-of-poverty includes both the individuals living in absolute poverty and those who are better off, but still with an equivalised income below the minimum established threshold.
The computation of the ARP rate assumes that all the household members contribute to shared household expenditure. Hence, institutions are excluded from this survey since one cannot assume that all occupants of collective residential homes such as, an old people's home, share their income toward a common expenditure.
As previously stated, the EU-SILC survey also measures different aspects of material deprivation. In fact, the survey includes many different questions which attempt to measure different aspects of well-being, such as, whether one can afford certain food, household items or whether one is paying off loans on time.
An important indicator derived from the EU-SILC survey is the Severe Material Deprivation (SMD) rate. This construct characterises persons living in households that are deprived of at least four out of nine items (which include the ability to pay for one week's annual holiday away from home and whether they have been in arrears on mortgage or rent payments, utility bills, hire purchase instalments or other loan payments).
Next year, a new official European indicator of severe material deprivation will replace the SMD indicator. The new indicator being introduced will collect information about two facets of deprivation: the social and the material aspect.
Furthermore, the material deprivation items about which information will be collected are more relevant to today’s social realities thus will reflect better the changes in our society and economies.
This new indicator, referred to as the Severe Material and Social Deprivation (SMSD) indicator, is based on thirteen items, seven of which will relate to the respondents' household in general. Another six items will relate directly to the household members aged 16 and above. This radical change in the official indicator of severe material deprivation is likely to affect the consistency and comparability of some of the official statistics on relative poverty, including the AROPE indicator.
Further information on the impact of this revised definition on the official indicators of poverty will be provided in due course.
A rich source of data
A broad survey by nature, the EU-SILC survey is a rich source of other information as well. It provides insights on household income distribution by various income components such as employment income, social benefits, and pensions among others. Data about one's perception of their own health state is also collected. Perceived health as defined here is the way the respondent feels for her/his age and health condition/s.
The survey provides an abundance of information about household composition and types of dwellings, also detailing the types of difficulties faced by respondents. For example, a household might be facing problems with the surrounding environment because it is too noisy, dirty or has a higher rate of crime when compared to other areas. Information about the state of dwellings – whether these have structural issues such as leaking roofs, for example – is also collected.
The EU-SILC survey also sheds light on the lifestyle of the respondents.
Information is gleaned about involvement in voluntary work – whether formally with an organisation, or on an individual level such as helping neighbours. Data about the number of hours that a child spends in childcare during a typical week is also collected. The term childcare here is used broadly since it also includes children staying in both public or private childcare centres.
Limitations of the survey
The EU-SILC survey is one of the most extensive household surveys in the country. Nevertheless, household surveys do not allow for a high degree of segregation. There are instances where high-quality estimates pertaining to small groups of households cannot be provided. This does not mean that small populations are not adequately covered in the more aggregated estimates.
It is often argued that possible over- or under-representations of some population categories might lead to biased results. For example, under-representation of the poor household category might lead to under-reporting in the ARP rate. While the NSO does acknowledge the possibilities that this may be so in certain instances, weighting constructs during data analysis mitigates this shortcoming and its effect on the final results. Additionally, many checks are carried out during the data analysis stage with administrative data sources to ensure data coherence. This process is carried out every year to ensure that, statistically, the statistics produced from the EU-SILC survey reflect the characteristics of the population being studied.
The NSO is proud of carrying out such an important survey and keeps abreast with any social or technological developments to ensure high-quality data. This includes co-operation with foreign national statistical institutes to ensure that Malta’s data quality is at par with other member states. The office has consistently run this survey for the past 15 years, thus providing a very strong time series of the data collected. Eurostat regularly makes sure that methodologies are adhered to.
Apart from the EU-SILC survey, the NSO also makes use of other measures that indirectly collect information about poverty. For example, every year, the NSO analyses administrative data relating to persons in receipt of subsidies by place of residence. Such data sheds light on which areas on the island might be experiencing a lower standard of living. Another source is the Household Budgetary Survey (HBS) which is conducted by NSO every five years. Data collected through the HBS enables comparison of the surveyed households' expenditure patterns by their level of income.
The NSO recognises the fact that to cover other facets of poverty, both in qualitative and quantitative forms, additional supporting research studies are needed. As always, the NSO remains open to discussions and collaboration with NGOs and other research bodies enabling developments of other measurement instruments that will better aid national policy.
Jennifer Mifsud is a senior communications officer at the National Statistics Office.