Number of people living in extreme poverty

In particular, richer and poorer countries set very different poverty lines in order to measure poverty in a way that is informative and relevant to the level of incomes of their citizens.

For instance, while in the United States a person is counted as being in poverty if they live on less than roughly $27.10 per day, in Ethiopia the poverty line is set more than 10 times lower – at $2.59 per day. You can read more about how these comparable national poverty lines are calculated in this footnote.4

To measure poverty globally, however, we need to apply a poverty line that is consistent across countries.

This is the goal of the International Poverty Line of $3 per day – shown in red in the chart – which is set by the World Bank and used by the UN to monitor extreme poverty around the world.

We see that, in global terms, this is an extremely low threshold indeed – set to reflect the poverty lines adopted nationally in the world’s poorest countries. It marks an incredibly low standard of living – a level of income much lower than just the cost of a healthy diet.

How does the World Bank set the International Poverty Line?

The exact method used by the World Bank to set the International Poverty Line has changed somewhat over past updates. But each time the objective has been broadly the same – to find a “typical standard by which the poorest countries of the world judge their citizens to be impoverished.”5

The method used in the latest update to arrive at a figure of $3, measured in 2021 international-$, is based on a set of harmonized national poverty lines produced by Dean Joliffe and others – shown in the chart here.

As you can see, there is a strong correlation between the poverty lines countries set, shown on the Y axis, and their income level – as measured here by GDP per capita, and plotted along the X axis.

The International Poverty Line is calculated as the median national poverty line adopted among low-income countries – using the World Bank’s income classification system. These are the countries shaded in red in the chart and found in the bottom left corner.

Although the International Poverty Line is by far the most prominent international line, the same method is also used by the World Bank to set two higher poverty lines that reflect the national definitions adopted in lower-middle and upper-middle income groups shown in green and purple respectively. The median poverty line among these two groups of countries are $4.20 and $8.30, and these form the World Bank’s lower-middle income and upper middle-income poverty lines.

You can read more about the methodology used to set these lines in the World Bank’s flagship report on poverty, Poverty and Shared Prosperity.

Before these figures can be meaningfully compared, they need to be converted into common units. International dollars (int.-$) are a hypothetical currency that is used for this.

The idea is simple: one international dollar should buy the same quantity and quality of goods and services, no matter where or when it is spent. To achieve this, international dollars adjust for two things. First, they account for inflation within each country, so that values from different years can be compared (showing “constant” prices). Second, they account for differences in living costs across countries. This second adjustment uses purchasing power parity (PPP) rates, which reflect how much local currency is needed to buy what one US dollar would buy in the United States.

The United States is the benchmark, so that one 2021 int.-$ is defined as the value of goods and services that one US dollar would buy in the US in 2021. One 2011 int.-$ is defined in the same way, but for prices in 2011.

You can read more in our article, What are international dollars?

One important issue is that, whilst in most high-income countries the surveys capture people’s incomes, in poorer countries these surveys tend to capture people’s consumption.

Pooling the data available from different kinds of survey data is unavoidable if we want to get a global picture of poverty or inequality. But it’s important to bear in mind that, depending on the country or year, somewhat different things are being measured.

The two concepts are nevertheless closely related: the income of a household equals their consumption plus any saving, or minus any borrowing or spending out of savings.

One important difference is that, while zero consumption is not a feasible value – people must consume something to survive – a zero income is a feasible value. At the bottom end of the distribution, people’s consumption may be somewhat higher than their income. A common example here is retired people who are using their savings: they may have a very low, or even zero, income, but still have a high level of consumption.

Conversely, at the top end of the distribution, consumption is typically lower than income. The gap rises with income, with households generally saving a higher share of their income the richer they are. For both these reasons, the distribution of consumption is generally more equal than the distribution of income.

There are a number of other ways in which comparability across surveys can be limited. In collating this survey data the World Bank takes a range of steps to harmonize it where possible, but comparability issues remain. The PIP Methodology Handbook provides a good summary of the comparability and data quality issues affecting this data and how it tries to address them.

To help communicate this limitation of the data, the World Bank produces a companion indicator that groups data points within each individual country into ‘spells’. The surveys underlying the data within a given spell for a particular country are considered by World Bank researchers to be more comparable. The breaks between these comparable spells are shown in the chart below for the share of population living in extreme poverty. You can select to see these breaks for any indicator in our Data Explorer of the World Bank data.

For its poverty and inequality data the World Bank relies on household surveys that are conducted nationally. In order to produce global or regional estimates, the survey data from different countries needs to be lined up and aggregated. For each year, the World Bank finds the closest survey for each country and projects the data forward or backwards to the year being estimated. This is necessary particularly since surveys are less frequently available in poorer countries and for earlier decades.

These projections are generally made on the assumption that incomes or expenditure grow in line with the growth rates observed in national accounts data.

You can read more about the interpolation methods used by the World Bank in Chapter 5 of the Poverty and Inequality Platform Methodology Handbook.