Multidimensional Poverty in Germany: A Capability Approach

Abstract

The German government decided to use Amartya Sen's capability approach as the conceptual framework for the national ‘Poverty and Wealth Reports’ but concluded at the same time that the purely income-based at-risk-of-poverty rate (AROPR) is a satisfactory instrument to operationalise the capability approach. This decision made the latter the official measure to analyse poverty in Germany. This paper studies the question whether this conclusion is indeed justified by introducing two different multidimensional poverty measures to operationalise the capability approach. A thorough empirical analysis compares the poverty evaluations of the three poverty measures over time. It reveals that they differ considerably with regard to poverty trends, the identification of the most deprived and the impact of location, especially regarding West and East Germany, which may have considerable implications for targeting and demonstrates that there is indeed an urgent need for multidimensional poverty measures that complement the traditional AROPR.

JEL classifications:

• D63
• I32

Keywords:

• Germany
• multidimensional poverty measurement
• inequality
• correlation sensitivity

Acknowledgements

I am very grateful to Stephan Klasen, Milorad Kovacevic, Peter Krause, Sebastian Vollmer and an anonymous referee as well as the research staff at the German Institute for Economic Research (DIW) for valuable comments and suggestions and thought-provoking discussions. Thanks as well to the participants of the Human Development and Capability Association annual conference 2012 (Jakarta) for helpful comments and suggestions.

Notes

¹ The rate is defined as the percentage of the population with a net equivalence income below 60% of the median. The concept of the net equivalence income accounts for the fact that bigger households have saving opportunities through the joint use of household items. Therefore, the new scale of the organisation for economic co-operation and development attributes a weight of 1 to the first adult, a weight of 0.5 for every additional person aged 15 or over and a weight of 0.3 for persons below the age of 15. Thus, the net equivalence income is the household's net income divided by the weighted sum of household members.

² A function has a non-decreasing marginal if whenever .

³ Tables A1 and A2 in the Appendix provide a detailed overview of the missing values for the different dimensions and indicators of the GCSPI and SCSPI. Note that this reduction in the sample size is one of the main reasons for the discrepancy between the AROPR as calculated in this paper and those that are officially reported in the German poverty reports. The other main reason being the fact that official calculations utilise the German Microcensus instead of the GSOEP.

⁴ For instance, though the operationalisation of capability one would be desirable and ‘life expectancy’ would be a good indictor to capture it, the GSOEP does not provide enough information to calculate such an indicator.

⁵ There has been a lot of discussion about the best way to capture individual health conditions that is due to a new research direction in anthropology initiated by Arthur Kleinman and others (Kleinman, Eisenberg, & Good, 1978; Kleinman, 1988; Sen, 2009). The experts strongly criticise the traditional way of utilising health statistics to evaluate health in a society. Instead, Kleinman (1988, p. 3) defines illness as ‘the innately human experiences of symptoms and suffering’ that has to be captured by patient interviews. The questions he proposes for this self-evaluation have become known as Kleinman's Questions. Considering the strength of arguments and the fact that this is the current state-of-the-art approach in anthropology, I decided to make an exception and use subjective instead of objective indicators.

⁶ This is a monthly wage of 1,370 EUR (based on a 38-h work week) which is higher than the official minimum wage of the UK (1,202 EUR), but considerably lower than the official minimum wages of France (1,398 EUR), Belgium (1,444 EUR), Netherlands (1,447 EUR), Ireland (1,462 EUR) and Luxembourg (1,802 EUR).

⁷ Note that a bad health condition could also limit a person's mobility and could therefore be included as a third indicator. I nevertheless refrain to do so in order to prevent double-counting as a bad health condition is already included in the health dimension.

⁸ Please note that a disadvantage of this indicator is that the GSOEP retrieves this information only every 5 years. Its inclusion thus creates missing values whenever there is no information about a person's whereabouts in the years for which the respective question was not included in the survey.

⁹ The prevalence or frequency-based weighting approach weights each indicator in dependence of the proportion of the individuals in the population who are not deprived in that indicator at each point in time. The higher the proportion of those who are not deprived in a given indicator, the higher is the weight assigned to it. The reasoning behind this approach is that the lower the likelihood that a person is deprived in an indicator, the more he or she has reason to feel deprived. Thus, the higher weight acknowledges the stronger indicative nature of this specific indicator with regard to deprivation. Moreover, as prevalence weights are calculated for each point in time, this weighting approach is able to account for a situation in which the condition of a person does not change while the condition of the society as a whole improves.

¹⁰ When changing from the equal weighting approach to prevalence weighting, there are four minor rank changes, one in 2002 (Rhineland–Palatinate, initially rank 6, switches places with Berlin, initially rank 7); two in 2004 (Schleswig–Holstein, initially rank 1, switches places with Hamburg, initially rank 2; Saarland, initially rank 14, switches places with Berlin, initially rank 15) and one in 2010 (Saxony–Anhalt, initially rank 13, switches places with Saxony, initially rank 14).

¹¹ I refrained from using only the headcounts of the GCSPI and the SCSPI in order to make use of the interesting properties of the two indices which are a product of poverty incidence (as measured by the headcount), poverty intensity (as measured by the aggregate deprivation count ratio) and inequality among the poor (as measured by the Generalised Entropy of deprivation counts) (Rippin, 2012, 2013).

¹² The percentage reduction in the social budget in the course of the economic recession of 2003 is unusual but might be due to the fact that there had been a rather strong increase in the previous year when the social budget was raised from almost 662 billion in 2001 to more than 685 billion in 2002—maybe an election gift.

¹³ Other interesting stories could be told from the figure, for instance with regard to the steep increase in income inequality from 2005 to 2006, the year in which a new set of rules for the long-term unemployed and social welfare assistance was introduced, the Hartz IV regulations, only to name one. To tell them all, however, would go beyond the scope of this paper.

¹⁴ Note that a comparison by Bundesland is impossible due to the fact that the GSOEP is not representative at Laender level. A comparison of East and West Germany is, however, possible and provides interesting results.