Measuring Poverty: Context-Specific but not Relative

Poverty in developed countries is commonly defined in relative terms. It is argued that a relative definition formalises the insight that poverty is a context-specific phenomenon, and that the understanding of what constitutes poverty changes with overall economic development. Yet this article argues that tagging a poverty line to mean or median incomes does not automatically anchor it in its social context. Relative measures rely on the implicit assumptions that social norms are formed at the national level, and that median income earners set social standards. A comparison with studies on 'Subjective Well-Being' (SWB) shows that these assumptions are rather arbitrary. At the same time, relative indicators do not take account of changes in the product market structure that disproportionately affect the poor. If low-cost substitutes for expensive items become available, the poor will be relatively more affected than median income earners. Conventional 'absolute poverty' indicators will be equally dismissed for not solving these problems either. A combined 'Consensual Material Deprivation' and 'Budget Standard Approach' indicator will be proposed as a more robust alternative.