Comparing economies and poverty is complex, as different measures can lead to different results. Olivier Sterck, an associate professor of economics at the University of Oxford, has developed a new method of measuring poverty, which he calls “average poverty.”
He finds that “average poverty is significantly higher in the United States, even though average incomes there are higher than in most Western European countries.”
Comparing per capita Gross Domestic Product (GDP) between the United States and Europe reveals a striking result: the poorest state in America competes with Germany.
In the third quarter of 2024, Mississippi, the poorest state in America, had a per capita GDP of 49,780 at current international dollars ($53,872). In Germany, it stood at 51,304 at current international dollars in 2024, a difference of only about 1,500 international dollars.
In terms of Purchasing Power Parity (PPP), the United States is in a significantly more favorable position than most EU countries, except for Luxembourg and Ireland, as shown in a Euronews Business article.
However, Olivier Sterck points out that considering poverty as a continuum changes the picture. This highlights the shortcomings of poverty thresholds and helps understand the importance of inequalities.
According to Sterck’s research published on SSRN, an online platform for academic publications, “average poverty” corresponds to the average time needed to earn 1 dollar. “This measure is inclusive, sensitive to wealth distribution, decomposable and corresponds to how experts and the general public conceive poverty,” he explains.
This dollar is expressed in international dollars. This means that it can buy the same amount of goods and services in any country as a US dollar in the United States. It is often used in conjunction with PPP data. The “time” refers to a day of life for any person, regardless of age and situation – not just the hours worked by someone with a job.
In Germany, the leading European economy, it takes 26 minutes to earn 1 dollar. In France, this time is 31 minutes, while in the UK, it slightly increases to 34 minutes.
These figures suggest that average poverty in the United States is about twice as high as in these three countries.
Using this measurement, Sterck finds that global poverty has decreased by 55% since 1990. The time needed to earn a dollar has gone from half a day to five hours.
The new measure also shows that average poverty in the United States has increased almost continuously since 1990, despite a strong growth in average incomes. Conversely, it has decreased over time in most other high-income countries.
“For example, in 1990, it took 43 minutes to earn 1 dollar in the United States. It was almost the same in France (42 minutes) and shorter than in the UK (51 minutes). Germany had the shortest time, at 34 minutes.”
“Picking two random people from the populations of these countries: the expected ratio of their incomes is over 4 in the United States, but only about 1.5 in the three European countries. This shows that income levels are much more dispersed in the United States.”
As a result, there is a greater proportion of individuals with low incomes in the United States, and they take more time to earn 1 dollar,” said Olivier Sterck to Euronews Business.
According to this measurement, the time needed to earn 1 dollar increased by 20 minutes, or 47%, in the United States over the past 35 years. The three European economies have recorded decreases, with the most significant being in the UK.
How is this possible? He points out that in the four countries, average incomes have increased by just over 1% per year in recent decades, according to World Bank PIP data. However, in the United States, the average inequality has increased by about 2.2% per year, surpassing income growth.
“This explains why average poverty has increased in the United States: average inequality has increased faster than average income,” he explains.
On the other hand, in the UK, France, and Germany, inequalities have remained relatively stable, so income growth has led to a reduction in average poverty.
“How can a rich country’s economy grow while becoming poorer?” Sterck wonders, referring to the United States in his article for The Conversation.
His answer is simple: inequality.
He notes that poverty can change for two main reasons: incomes increase or decrease, or the distribution of incomes becomes more or less unequal.
In the case of the United States, average poverty is increasing even in a growing economy, as inequalities are growing faster than incomes.
“The United States has one of the most unequal economies in the world, and by far the most unequal among rich countries. In all 50 states, inequalities have increased significantly since 1990, regardless of political orientation, demographic composition, or economic structure,” he writes.
Income inequality, measured by the Gini coefficient, is higher in the United States than in the main European economies. Higher values indicate greater inequality.
