Chronic and Transitory Poverty in Australia 2001-2004

Many people experience poverty at some time in their lives. Tertiary students are an example, but most of them will escape poverty at the conclusion of their studies. People in transition between jobs may be in poverty temporarily and have to consume out of past savings. This type of poverty – transitory poverty – should be of less concern than prolonged, chronic poverty yet little is known about the extent of chronic poverty in Australia. This paper uses data from the Household, Income and Labour Dynamics in Australia Survey to measure chronic and transitory poverty from 2000-01 to 2003-04. An individual is considered to be in chronic poverty if he or she has insufficient permanent income to meet basic needs. Transitory poverty occurs when the individual’s permanent income exceeds a given minimum standard but annual income falls below that standard in some years. Chronic and transitory poverty are measured using two axiomatically sound indices of aggregate poverty. For comparison purposes we also employ the crude, but easily interpretable, head-count ratio and we compare the results with those obtained using a tabulation approach. Our results are presented as poverty profiles, which show the sensitivity of the various poverty measures to the poverty threshold. We find that, for equivalised poverty lines from $10,000 through $18,000 per annum (in 2003-04 dollars), the proportion of people with permanent income less than the poverty threshold is at least double the proportion of people who are poor in all four years. Our preferred index – that of Foster, Greer and Thorbecke – indicates that when the real equivalised poverty line is increased from $10,000 through $18,000 per annum, the proportion of total poverty that is chronic in nature increases from approximately 16 per cent to 51 per cent.