Reassessing the econometric measurement of inequality and poverty: toward a cost-of-living approach

Abstract

Abstract The econometric measurement of inequality and poverty in advanced capitalist economies has been preoccupied with aggregate measures of relative deprivation, namely, the Gini Index and a relative poverty rate, both of which are based on economic distances from the population median. Using the case of Hong Kong, this article demonstrates the limitations of relative measures: the Gini Index masks social mobility and the relative poverty line understates actual poverty. This article argues instead for a cost-of-living approach to measure poverty, where the poverty line is defined as the cost of essential goods and services. A cost-of-living approach produces a poverty line of HK$28,815 and attendant poverty rate of 44.47% in 2020, nearly double the poverty line of HK$13,450 and poverty rate of 23.6% according to the conventional relative measure of the poverty line set to 50% of median household income—capturing a shortfall of 551,400 poor households that have been overlooked by relative measures.