Relative or Absolute Poverty in the US and EU? The Battle of the Rates

Abstract

There are striking differences between relative and absolute poverty rates in the European Union and the United States. In this paper, we apply the official poverty measurement methods of the United States (absolute) and the European Union (relative) to both regions. Official poverty rates differ from other poverty statistics in the sense that they are more often used as a benchmark by policymaking and advocacy groups. In our analysis we use within and between country perspectives to explain differences in poverty levels and trends and show the impact of each of these aspects on poverty levels and over time while keeping other explanatory factors constant. Using annual data of the EU and the US from 1994 to 2000 we illustrate how some poverty differences are inherent to choosing either an absolute or a relative approach to poverty while other differences are related to more general aspects of poverty measurement. The results of our analysis suggest that governments should use both; an absolute approach that helps to identify those people who are not able to attain a minimum living standard and a relative approach to identify those whose living standard is low compared to the society they live in.

Keywords: poverty, absolute, relative, United States, European Union