How to Calculate the Poverty Headcount Ratio
The poverty headcount ratio equals the number of people below the poverty line divided by the total population, times 100.
The Poverty Headcount Ratio formula
Calculator
Enter the number below the line and the population to get the headcount ratio, plus the poverty gap index.
Individuals whose income or consumption falls under the line, not households.
Everyone in the country, poor and not poor.
Annual income or consumption the line is drawn at.
Mean income of the people who fall below the line.
12% of the population lives below the line, which is the share people mean by the poverty rate.
- Average shortfall below the line
- $300
- Shortfall as a share of the line
- 25%
- Poverty gap index
- 3%
- Cost of closing the gap
- $180,000,000
The typical poor person falls $300 short of the line over the year.
That shortfall is 25% of the line, the depth measure the headcount ratio leaves out.
Headcount times average shortfall gives 3%, the total shortfall as a share of what it would cost to give everyone in the country the line income.
Handing every poor person exactly their shortfall would take $180,000,000, assuming the transfer reaches them and nobody changes behaviour.
How to calculate Poverty Headcount Ratio, step by step
- 1Fix the poverty line. Draw the threshold first, whether it is an absolute basket-based line or a share of median income. Every number below depends on where it sits.
- 2Count the people under it. Use household survey data to count individuals, not households, whose income or consumption falls below the line.
- 3Divide by the whole population. Headcount ratio = people below the line ÷ total population × 100. The denominator is everyone, including the people who are nowhere near the line.
- 4Add the poverty gap index for depth. Work out the average shortfall of the poor as a share of the line, then multiply by the headcount ratio. That says how far below people are, which a count alone hides.
Worked example: Poverty Headcount Ratio
A country of 5,000,000 people has 600,000 living below a poverty line of $1,200 a year, so the headcount ratio = 600,000 ÷ 5,000,000 × 100 = 12%. Those 600,000 people average $900 a year, an average shortfall of $300, which is 25% of the line. The poverty gap index = 12% × 25% = 3%. Multiplying the shortfall by the number of poor gives $180,000,000, the transfer that would in principle lift every one of them up to the line.
Poverty Headcount Ratio questions
Why is the headcount ratio not enough on its own?
It treats someone a dollar below the line the same as someone with nothing. A programme that nudges the least poor just over the line improves the headcount ratio without helping the poorest at all, which is why the poverty gap index is reported beside it.
What does a poverty gap index of 3% mean?
It means the total shortfall of the poor equals 3% of what it would cost to hand every person in the country the poverty line income. It measures depth, so it falls when the poor move closer to the line even if nobody crosses it.
Does the headcount ratio depend on where the line is drawn?
Heavily. Incomes bunch around typical values, so shifting the line a little can move a large number of households across it. Comparisons between countries mean something only when both use the same line and the same survey method.
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