Poverty Gap

What Is the Poverty Gap?

The poverty gap is a ratio showing the average shortfall of the total population from the poverty line — the minimum level of income required to secure the basic necessities for survival. In other words, it reflects the intensity of poverty in a nation.

Understanding the Poverty Gap

The poverty gap indicator is produced by the World Bank Development Research Group. It measures poverty by looking at household per capita income and consumption.

The World Bank seeks to measure all people against the same standard. As such, it sets an international poverty line at periodic intervals, calculating the cost of living at any given time by taking into account the going rate for basic food, clothing, and shelter around the world.

In 2015, this threshold was updated from $1.25 to $1.90 per day. It is difficult to set a common international poverty threshold since different countries have different thresholds for poverty.

The World Bank’s poverty gap data is available for 115 countries worldwide and is updated semi-annually in April and September.

U.S. Poverty Gap

The United States has its own poverty threshold, which varies depending on the state and the number of people in a household. As of 2020, the average threshold for a family of four stood at $26,200. That means that a married couple with two children and an annual household income of $20,000 is judged to live below the poverty line. The poverty gap in this example would be $6,200.

2020 Poverty Guidelines for the 48 Contiguous States and the District of Columbia

 Persons in family/household

 Poverty guideline

Source: The Department of Health and Human Services (HHS)

*For households with more than 8 persons, add $4,480 for each additional person.

The 2020 U.S. poverty guidelines for Alaska and Hawaii differ, starting at $15,950 and $14,680 for a one-person household, respectively.

In 2019, the U.S. Census Bureau reported that there were 6.55 million families and 11.3 million individuals in the country with an income below the poverty threshold. According to its data, the poverty gap for these families and individuals, on average, was $10,668 and $7,375, respectively, culminating in a total nationwide poverty gap of $154 billion.

In 2019, the U.S. poverty gap totaled $154 billion, meaning $154 billion was needed that year to end poverty in the country.

Special Considerations

The commonly used poverty headcount ratio provides a simple count of all the people below a poverty line in a given population, considering them equally poor. For this reason, it is deemed by some to be a flawed measurement.

Poverty Gap Index

The poverty gap statistic is most valuable to economists and government officials for calculating the poverty gap index. The index, also produced by the World Bank, takes the mean shortfall from the poverty line and divides it by the value of the poverty line.

If you multiply a country's poverty gap index by both the poverty line and the total number of individuals in the country, you get the total amount of money needed to bring the poor in the population out of extreme poverty and up to the poverty line, assuming perfect targeting of transfers.

A higher poverty gap index means that poverty is more severe.

For example, suppose a country has 10 million citizens, a poverty line of $500 per year, and a poverty gap index of 5%. In such a case, an average increase of $25 per individual, per year, would eliminate extreme poverty. The $25 is 5% of the poverty line, and the total increase needed to eliminate poverty is $250 million — $25 multiplied by 10 million individuals.

The poverty gap index is additive. In other words, the index can be used as an aggregate poverty measure, as well as be decomposed for various sub-groups of the population, such as by region, employment sector, education level, gender, age, or ethnic group.