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Material deprivation
The measure used to identify those at risk of poverty is, as indicated elsewhere, a level of disposable income below a certain percentage - usually taken as 60% in the EU - of the median in the country in question. There are potential problems with the use of this measure. These have to do, in the first place, with the use of income as a measure of the ability of households to purchase goods and services, or of material living standards. Such problems arise, in particular, if income is measured on an annual basis (as it is) for those whose income fluctuates from year to year, or whose present income is significantly out of line with their income in previous years. In these cases, income may provide a misleading indicator of a household's current financial resources or purchasing power. Income as such, therefore, takes no account of accumulated savings and wealth (except in the form of the interest they generate), which equally form part of the financial resources that people have to draw on. Nor, conversely, does it take account of the debt that people might have accumulated and that they need to service out of current income.
A possible solution is to use an indicator of wealth instead of income as a measure of resource availability. This would overcome the problem of income (as conventionally measured) relating only to the resources received in a particular year. It would, accordingly, encompass the resources available from income received in previous years as well. If defined in net terms, it would also take explicit account of any outstanding debt and the costs of servicing this. However, while, in principle, there are strong arguments in favour of using wealth rather than income as an indicator of well-being (or potential well-being), there are, at present, equally strong practical reasons in the form of measurement problems, given the prevailing dearth of statistics (see the section on Wealth for attempts to measure it and their findings).
The second major problem with using the present measure of the risk of poverty concerns the relative nature of the concept, which fails to take account of differences across the EU in the median income in relation to which the risk-of-poverty threshold is defined. These differences are substantial across the EU.
To tackle this problem, a pragmatic approach is to construct indicators specifically designed to address the deficiencies inherent in the use of income as a measure of living standards. These can then be used alongside income to give a more complete and satisfactory insight into differences between households and countries. Such indicators are intended to directly identify people who suffer deprivation (in the sense of not being able to enjoy a standard of living that is generally considered acceptable), instead of doing so indirectly, through their relative income level.
This approach has been advocated by many academics and researchers over the years, culminating in the adoption at the EU level of two indicators of deprivation developed from survey data in the EU-SILC to supplement the use of income as a measure of the risk of poverty (see Box).
The development of indicators of deprivation dates back to a seminal study by Townsend (1979), who interpreted deprivation in the wide sense of not being able to live a decent life, and who suggested how this could be measured in terms of a lack of relevant goods and services. The concept was subsequently redefined as not having adequate resources to lead a minimum acceptable way of life in the country in question (Callan et al., 1993; Nolan and Whelan, 1996; Kangas and Ritakallio, 1998; Layte et al., 2001; Whelan et al., 2002; Perry, 2002) or, alternatively, as lacking the necessities which society regards as essential (Bradshaw and Finch, 2003; Nolan and Whelan, 1996). A number of empirical studies of material deprivation have been undertaken in the EU in recent years, largely based on data from the European Community Household Panel (see Boarini and Mira d’Ercole (2006) for a summary of these).
The development of indicators to monitor the situation across the EU was first suggested by Atkinson et al. (2002) in a report to the Belgian Presidency. This was the origin of the social inclusion review process at the EU level, based on the so-called Laeken indicators. It was subsequently expanded upon by the same authors (Atkinson et al., 2005) in their follow-up report prepared for the Luxembourg Presidency, which argued the case for a multi-dimensional indicator of deprivation. This case was taken up at the end of 2006 by Anne-Catherine Guio and Isabelle Engsted Maquet, who demonstrated that a measure of those affected by material deprivation could usefully complement the present income-based indicator of the risk of poverty in order to capture the people missed by the latter (Guio and Maquet, 2007).
