No. 2026-30 - The European Supplemental Poverty Measure: A Poverty Measure that Better Identifies Financially Disadvantaged Households

Abstract:

The European Union’s headline poverty indicator, the at-risk-of-poverty rate (AROP), counts a person as poor when their household’s equivalised disposable income falls below 60 percent of the national median. The measure faces well-documented limitations, namely its sensitivity to median income declines (e.g., during economic recessions), inability to account for changes in prices, and the different living standards that a common percentage of the median represents across Member States. We construct an alternative poverty measure – the European Supplemental Poverty Measure (EU-SPM) – to address these concerns. The EU-SPM compares household income to an expenditure-based threshold derived from typical household spending on food, clothing, shelter and utilities, and is adjusted for variation in housing costs within countries. The EU-SPM closely mirrors the U.S. Supplemental Poverty Measure. Applying the EU-SPM to EU-SILC over 2004–2024, we find that the measure tracks material hardship and subjective poverty more closely than the AROP both across countries and within countries over time. Across 290 validation tests, the EU-SPM performs significantly better in 168 and the AROP in only 8. We propose the EU-SPM as a supplement to the EU’s existing poverty indicators and discuss the data investments that would support its regular production.