POVERTY REDUCTION STRATEGY TN

would have some poverty. Hence, a society may have relative poverty and at the same
time have no absolute poverty.
The existence of a relative element in the nature of poverty has long been
recognised. For example, Adam Smith had observed that ‘necessaries’ include ‘not only
the commodities which are indispensably necessary for the support of life, but whatever
the custom of the country renders it indecent for creditable people, even of the lowest
order, to be without’. Recent measurement approaches derive the relative poverty line
(z*) more directly from information on incomes in the society in question, without the
need to specify or estimate the cost of a basket of necessities, i.e., z* = f(s), z* = g(y min ,
y), z* = h(y), where the income information used may be on social security payment
rates (s), perceptions of minimally adequate income (y min ) and/or actual incomes
themselves (y).
Relative poverty measures do not reflect the well being of those who are poor. A
person may be relatively poor but may or may not be absolutely poor. It is also difficult
to interpret an improvement in relative poverty. There may be a reduction in relative
poverty along with an increase in absolute poverty. Similarly, relative poverty may
increase while absolute poverty may decline. Relative measures are not so useful for
policy makers who are concerned with reducing the number or intensity of absolute
poverty. However, changes in relative poverty do provide useful information on changes
in the degree of inequality.
Combining absolute and relative poverty lines, attempts have been made to
construct ‘hybrid poverty thresholds’. For example, Foster (1998) has considered that
hybrid poverty thresholds depend both on an absolute and a relative standard. He
proposed a hybrid poverty line as weighted geometric average of a relative threshold z r =
ρ 1−ρ
αr and an absolute threshold z a , namely, z = z r
z a
, where 0 < ρ < 1. A hybrid line like
this has the property that a 1 percent increase in the living standard ‘r’ leads to a ‘ρ’
percent increase in the poverty line, where ‘ρ’ is the elasticity of the poverty line with
respect to the living standard. Fisher (1995) had termed this the income elasticity of the
poverty line. It is also possible to interpret ρ = (dz/dr)(r/z) as a measure of the extent to
which a given threshold ‘z’ is relative. When ρ = 0, z corresponds to an absolute poverty
line, and when ρ = 1, it is a relative poverty line.
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