Using an absolute line, any two people with the same purchasing power over commodities, but living in different countries, are treated the same way, in that both are either poor or not poor. However, relative poverty measures only treat them the same way if the two countries have the same mean income. Two main arguments can be identified in support of the use of relative lines.<sup>8</sup> The first views poverty lines as money-metrics of utility and claims that people attach value to their income relative to the mean in their country of residence. Since this presumes that relative income is a source of utility it can be described as “welfarist.” While the idea that utility anchors poverty lines is not common in applied work, it is consistent with a strand of the literature on welfare measurement in economics whereby cost-of-living indices and equivalence scales are anchored to some reference level of utility.<sup>9</sup> The second (“non-welfarist”) argument is more common in practice. Essentially this says that poverty lines should allow for differences in the cost of social inclusion, which can be defined as the expenditure needed to cover certain commodities that are deemed to have a role in assuring that a person can participate with dignity in customary social and economic activities.10 This argument does not rest on the view that social inclusion is a (direct or indirect) source of utility. Rather it is seen as a desired capability for not being deemed “poor” in a specific context. The most influential exponent of this line of argument has clearly been Sen (1983, 1985), who argued that it is a person’s capabilities that should be seen as absolute; in the context of poverty measurement, this means that “...an absolute approach in the space of capabilities translates into a relative approach in the space of commodities” (Sen, 1983, p. 168). Relative poverty in the income space is then seen as the logical implication of absolute poverty in the capability space. If, additionally, the cost of social inclusion is directly proportional to mean income in the country of residence then one can justify a strongly relative poverty line.

> 8 A third justification sometimes heard is that strongly relative measures remove the effects of cross-country differences in survey methods and measurement practices; see, for example, UNDP (2005, Box 3). This only holds for distribution-neutral differences and if one accepts the following welfare justifications for strongly relative measures; if they are not accepted then it is unclear in what sense strongly relative lines are comparable across countries, given that their real values are likely to vary so much. The data justification is thus secondary.

> 9 On the welfarist interpretation of a poverty line as a point on the consumer’s cost function corresponding to a reference level of utility see Blackorby and Donaldson (1987). For a broader overview of economic approaches to welfare measurement see Slesnick (1998). 10

It can be granted that “social inclusion” is a broader concept than this definition allows, and may well require more than commodities, including, for example, freedom from discrimination according to gender or ethnicity. However, the concern here is with the measurement of poverty in terms of command over commodities.

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