Multidimensional poverty measurement in Europe: An application of the adjusted headcount approach

Abstract

As awareness of the limitations of relying solely on income to measure poverty has become more widespread, attention has been increasingly focused on multi-dimensional approaches, to the point where the European Union (EU) has adopted a multidimensional poverty and social exclusion target for 2020. The rationale advanced is that the computation of a multidimensional poverty index is an effective way of communicating in a political environment, and a necessary tool in order to monitor 27 different national situations. In contrast with the rather ad hoc way in which the EU 2020 poverty target has been framed and rationalized, the adjusted head count ratio applied here has a number of desirable axiomatic properties. It constitutes a significant improvement on union and intersection approaches and allows for the decomposition of multidimensional poverty in terms of dimensions of deprivation and socio-economic attributes. Since understanding poverty as multidimensional does not necessarily require constructing a multidimensional poverty index, on the basis of our analysis we provide a more general consideration of the value of developing a multidimensional index of poverty for the EU.