The most commonly used poverty threshold is 60% of the median household income.
In order to determine if an individual is in poverty, their equivalised net disposable household income before and after housing costs must be calculated and compared with the average for the whole population. Individuals are then defined as being in poverty if their equivalised household income is below a specified threshold.
Please note again that it is household income rather than individual income that is used, because the living standard of an individual may depend on the income of other members of the household (say for example a non-working person may live with a high earning partner, with both having a high standard of living). A key assumption therefore is that all individuals in the household benefit equally from the combined income of the household.
Absolute and relative poverty measures
To define and measure those living in poverty over time there are two headline measures, relative and absolute poverty.
The relative poverty measure compares against the median in the same year.
The absolute measure compares against the median in a baseline year, adjusted to remove the effects of inflation.
In essence, the absolute measures whether individuals in the lowest income households are seeing their incomes rise in real terms. The relative measures whether those in the lowest incomes are keeping up with the growth of incomes in the the economy as a whole.
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