Measuring Economic Inequality: Deprivation, Economising and Possessing

Abstract

One way of measuring the deprivation or poverty of persons is to use money-based measures: a person is regarded as ‘poor’ if his/her income (or expenditure) falls below a poverty line value. Such an approach – usually termed poverty analysis – has spawned a large literature embodying several sophisticated measures of poverty. The downside to this is that low income or expenditure may not be very good indicators of deprivation. Another way, usually termed ‘deprivation analysis’, is to define an index whose value, for each person, is the number (or proportion) of items from a prescribed list that he/she possesses: persons are then regarded as ‘deprived’ if their index value is below some threshold. This offers an alternative method of identifying deprived persons. The disadvantage of deprivation analysis is that it measures deprivation exclusively in terms of the proportion of deprived persons within the total number of persons. The purpose of this paper is to bridge the gap between poverty and deprivation analysis by constructing a wider set of measures of economic inequality and by showing, with data for Northern Ireland, how they might be applied. The result is an analysis sensitive to intra-population heterogeneity.