A new measure of income poverty for Europe

In Europe poverty is usually measured with the at-risk-of-poverty indicator which defines the poverty threshold as 60 per cent of national median income. With this indicator, poverty seems to be lower in some ‘poor’ EU countries than in some of the richest EU Member States. Also, when the median income changes quickly, the evolution of poverty as shown by the indicator can be counterintuitive, for instance resulting in stagnation or even a decrease in poverty when median incomes fall and living conditions of the poor deteriorate. In this article we propose a new poverty indicator, the Poverty Gap Ratio with priority to the pan-European poor (PGR-PAN) which is not subject to these limitations. The indicator is based on two lines: a hybrid poverty line which increases with national average income and a pan-European poverty line which is fixed in real terms across time and across countries. We use reference budgets to identify a set of useful poverty thresholds. On the basis of EU-SILC data we show that our indicator results in results that are in better agreement with intuitive notions about poverty within the EU and captures more adequately changes as well as cross-national differences in living standards. Furthermore, we contend that the use of our indicator can lead to a more consistent evaluation of poverty in comparison with other indicators of poverty and social exclusion.