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Spatial microsimulation as a method for estimating different poverty rates in Australia

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Abstract

This paper uses spatial microsimulation to calculate small area poverty severity and headcount poverty in Australia using the Foster-Greer-Thorbeck method. The estimates of poverty severity across Australia, and for certain subgroups of the population, are then compared with headcount poverty rates. Areas of difference are highlighted, and the reasons for some of these differences are investigated further. Because the spatial microsimulation gives unit record data on incomes in each small area, we can compare the microsimulated income distributions for the small areas to see what drives the difference between headcount poverty and poverty severity.

We find that the headcount poverty rate is in the same quintile as poverty severity for 63% of people in Australia. The headcount poverty rate tends to be lower than poverty severity in areas where there is extreme poverty, and this is confirmed by looking at the microsimulated income distribution of areas where the differences were greater. This may be because poverty severity is giving greater weight to the extreme poor compared with headcount poverty. There were very few areas where the headcount poverty was higher than poverty severity.

Looking at older single people, the picture was very different. Only 36% of aged single people were in the same quintile. In many areas, the headcount poverty was much higher than poverty severity. Areas where the headcount poverty rate was higher than the poverty severity tended to be areas where there were a number of people very close to the poverty line, which is common for aged single people on a pension. Copyright © 2009 John Wiley & Sons, Ltd.

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