Poverty rates have been decreasing in many parts of the world, but the number of people living below the international poverty line remains high, especially in Sub-Saharan Africa. Data on the number of people living on less than $1.25 per day (the international standard of extreme poverty) and on less than $2.00 per day (another international poverty benchmark) is based on dissimilar national studies from a limited number of countries, and thus should be approached with caution. Recent World Bank data estimates the number of people living on under $1.25 a day at about 1.4 billion worldwide. About half of Sub-Saharan Africans live on under $1.25 a day. Many more live just above this line. Over 2.5 billion people live on less than $2 a day, with nearly three-quarters of the population of Sub-Saharan Africa falling into this category. (Note: These figures are calculated for purchasing power parity (PPP), meaning that someone earning “$2 a day” does not literally earn this much but the equivalent of what 2 U.S. dollars could buy in the United States.)
What does it mean to live on under $1 or $2 per day?
Most of the points below are taken from analysis by Abhijit Banerjee and Esther Duflo of survey data from 13 countries. We also consider information from Portfolios of the Poor, which tracked the financial lives of over 250 households in 3 countries at a high level of detail.
Most of income is spent on food. People living on less than $1 or $2 per day reported spending a large proportion (between 55 and 80%) of their incomes on food. The proportion of income spent on food was not substantially different between the under $1 and under $2 per day groups.
There is little ownership of “productive assets.” People living on under $1 a day generally reported owning few “productive” assets such as bicycles, sewing machines, phones, or tractors, though in some areas a large proportion of poor households own small plots of land.
Varying ownership of TV and radios. Ownership of non-productive assets also varied widely across countries and between urban and rural areas. In Tanzania, for example, almost no one living on under $1 a day reported owning a television, while 57% of those living on the same (adjusted) income in Hyderabad, India owned one. Rates of radio ownership were higher than those for television. About 70% of those living on under $1 a day in Peru, South Africa, and Nicaragua own radios, and in several other places ownership rates were over 40%.
Varying access to electricity, water and sanitation. The poor often lacked access to basic infrastructure, and as with assets, there was large variability among households around the world. In Mexico and Indonesia, for example, electricity access was nearly universal, but in-house tap water and ownership of a toilet or latrine were far less prevalent in Indonesia (data for Mexico not available). In Tanzania, the pattern was quite different: nearly every poor household owned a toilet and very few had access to electricity or in-house tap water.
A poor urban community in Cape Town, South Africa with access to electricity but without household latrines or in-house tap water.
Poor health. The poor reported often being sick. Among the surveys cited by Banerjee and Duflo (2006), no surveys yielded an average ‘percent of household members sick’ (in the month before the survey) of below 10%, and many reported rates above 25%.
Multiple occupations. Banerjee and Duflo (2006) also looked into how the poor earn their incomes. One pattern they found in many parts of the world was the tendency of the poor to engage in multiple occupations. Common occupations were running very small businesses, small-plot agriculture, and day labor. The authors argue that by spreading themselves across a variety of occupations and operating their businesses at such small scales, the poor miss out on gains from specialization and scale economies. They believe that this poverty-perpetuating behavior comes from the desire of the poor to minimize risk as well as their inability to raise the capital needed to operate more efficiently.
Unpredictability and risk. Banerjee and Duflo (2007) argue that what often separates the ‘middle class’ (which they define as living on between $2 and $10 per day) from the poor in developing countries are steady well-paying jobs, not greater success at running small businesses. Banerjee and Duflo hypothesize that more reliable income flows may be the reason the middle class invest more of their income in the future than the poor do. (However, we note that it is also possible that, to some degree, people who are more future-oriented in general are the same people who end up with higher incomes.)
Portfolios of the Poor suggests that in addition to having small incomes, the poor often have irregular and unpredictable incomes. The book reports on Collins, et al.’s studies of how the poor in India, Bangladesh, and South Africa manage the fact that “the reality of living on two dollars a day is that you don’t literally earn that sum each day.”
