Quantifying Vulnerability to Poverty: A Proposed Measure, with Application to Indonesia

Poverty and Inequality Analysis

Vulnerability is an important aspect of households' experience of poverty. Many households, while not currently "in poverty", recognize that they are vulnerable to events that could easily push them into poverty-a bad harvest, a lost job, an unexpected expense, an illness, an economic downturn. Most operational measures define poverty as some function of the shortfall of current consumption expenditures from a poverty line, and hence measure only poverty at a single point in time. We propose a simple expansion of these measures to quantify "vulnerability." We define vulnerability as a probability, the risk a household will experience at least one episode of poverty in the near future. A household is defined to be vulnerable if it has 50-50 odds or worse of falling into poverty. Using these definitions we calculate the "Vulnerability to Poverty Line" (VPL) as the level of expenditures below which a household is vulnerable to poverty. This VPL allows the calculation of the direct analogue of the "Headcount Poverty Rate," which is the proportion of households vulnerable to poverty. We implement this approach using panel data from Indonesia. We first show that if poverty line is set so that the headcount poverty rate is 20 percent, the proportion of households that are vulnerable to poverty is 50 percent. So in addition to the 20 percent that are currently poor, hence are vulnerable, an additional 30 percent of the population is at risk of poverty. Second, we illustrate the usefulness of this approach by examining differences in vulnerability between households by level of education, by land holding status and by gender of the household head. The conclusion speculates on the policy implications of these high levels of vulnerability.

Research Area 
Research Topic 
consumption expenditures
poverty line
poverty rate
Publication Type 
Working Paper
PDF icon Download (259.7 KB)

Share this page