Comparing the Monetary and Living Standards Approaches to Poverty Using the Australian Experience

Abstract

AbstractThis paper compares the monetary and living standards approaches to poverty using Australian data for the period 2006–2017. The aim is to highlight the conceptual and empirical strengths and weaknesses of the two approaches and identify the similarities and differences that emerge when both are applied to examine what happened over the period and to a limited degree, why. The acknowledged limitations of estimating poverty rates by comparing household income with a poverty line have to a degree been addressed by developments in deprivation research that have generated estimates that are more directly related to living standards, more democratic and more credible. But this approach also has limitations, so its growing popularity need not signify the end of poverty line studies. This paper compares the two approaches, with specific attention paid to ensuring that the estimates are internally consistent over time and comparable at a point in time. Both show a consistent pattern of modest improvement in social disadvantage over the period examined, but they reveal different aspects of change. The monetary approach highlights the role of housing costs in driving changes in poverty, while the more nuanced explanation generated by estimates of deprivation provides detailed insights. The results suggest that each has a positive role to play in better understanding the nature of poverty and identifying the factors driving change over time.