Below the poverty line – an International Comparison

There is a growing literature regarding the effect of the welfare state on poverty. Yet there is not one definition of poverty and the outcome certainly differs depending on how poverty is defined. Relative poverty is often defined as the number of people falling below 50% of the median income of the given country. Absolute poverty however, is often defined by a universal cutoff such as $11/day. For international comparisons this universal line is not based on the median income of any of the countries compared, therefore it is difficult to consider why absolute poverty may differ from relative poverty in the countries in question.

The Luxembourg Income Study is a commonly used source which compiles country studies from the major developed countries on income and other household and individual data. Using the numbers from that study, the following becomes clear. The US has more inequality -- more people below our own 50% of median income -- than countries with larger welfare states, on the whole. But, when using 50% of the median income of the US as an absolute cutoff, the other developed countries have more people in absolute poverty than the US.

Importantly, these numbers are after tax and transfer, they are disposable income; this includes all monetary and some non-monetary government benefits.

The US has the highest net DPI median income (about $18,000).

This means we have the highest 50% of median income (about $9,000).


So, naturally, we have the largest percent of people below that number (about 18%).


But, when every country is compared using our poverty line, we do not have the highest rate of people falling below that number ($9000), we have 18% and France has 19% the UK has 28%.


The only welfare state country that does not fit this model is Canada, where there are actually fewer below our half-median - only 11%.  What these numbers mean is that the US has the highest rate of inequality, but by this definition of poverty, the US does not have the highest rate of absolute poverty.  The inequality is caused by the US having more rich, not more poor.