Wednesday, July 04, 2007

Poverty update

The number of poor (and poverty rate) has declined, according to the latest BPS press release, based on the March 2007 SUSENAS data. Some people, the usual people, don't believe this. I believe the finding is 'within the range of acceptance.' I am happy to see that poverty declines whatsoever. But I am not too happy to see only a small decline. We haven't even returned to the 2005 level.

Those who don't believe the BPS number argued that how on earth can poverty declines when, at the same time:
  • The (unconditional) cash transfer program - BLT - scheme has finished, while the proposed Conditional Cash Transfer scheme has yet to start.
  • The prices of basic commodities are still high.
  • The purchasing power is still low; real wages don't change and farmer's terms of trade index is decreasing.
  • Job creation is slow
It's fine to have a different concept and definition of poverty, and the methodology for calculating it. I'd like to see them coming with their own calculation, if any. But the above points make at best weak arguments for disputing the BPS finding.

For a start, remember that the poverty numbers are the result of the 'negative' and 'positive' forces. The BLT is one of the 'positive' forces. True it finished a while ago. But that doesn't mean the impact stopped. The beneficiaries may have been able to use the cash transfer for productive activities that enabled them to have increase their consumption more than the price increase (which was reflected in the inflated poverty line).

On the other hand, true that high commodity prices is a 'negative' force. In fact, using this logic, poverty should have been much lower if had the government been able to control the price of rice. (Do you get my point?). The recent cooking oil price increase was also a problem. But I don't think that was already captured by the poverty statistics.

I don't have the real wages statistics readily available for this post. But let's say it doesn't change, or even declined. That should not be that significant in explaining poverty numbers, since most of the poor are outside the (formal) labor force. So real wage statistics are not too relevant. Farmers' terms of trade is a more relevant variable. In fact, the BPS found that farmers' ToT increases from 101 to 109 between March 2006-March 2007.

For the same reason, job creation should not be a significant factor in explaining the change in poverty rate for the past one year. Nevertheless, actually the open unemployment rate also declined by February 2007 (although we need to reduce it more). Of course, the same 'camp' doesn't believe in the unemployment statistics either.

But hey, what can I say?

  1. I forgot to mention about the consumption-smoothing mechanism among the poor, which was very likely helped by the BLT, Raskin and School Operational Support (BOS) schemes.
  2. Average medium-quality rice price increased by 20% from March 2006-March 2007, compared to 33% in the previous period (Bulog website)
  3. Only 15% of working-age poor individuals are wage workers (SUSENAS 2006).
  4. Average real wage for all workers increased by 4.7% from November 2005-August 2006 (SAKERNAS 2005, 2006).
  5. Average daily wage of labour-farmer declined but only slightly by 0.2% from March 2006-March 2007. (BPS press release).
  6. Household-head unemployment rate is the lowest at the bottom expenditure deciles, suggesting the "unemployment as luxury" hypothesis.

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