How to Calculate a Relative Poverty Threshold
A relative poverty threshold equals a set percentage of median equivalized household income, usually 50% or 60%, and households below it count as poor.
The Relative Poverty Threshold formula
Calculator
Enter median equivalized income and the threshold percentage to get the relative poverty line and test a household.
The middle income once each household's income is adjusted for its size.
The share of the median the study uses, most often 50 or 60.
Adjusted income of the household you are testing against the line.
Shows how much the poverty count depends on the percentage chosen.
Households with equivalized income under $24,000 count as being in relative poverty.
- Threshold at the second percentage
- $20,000
- Household income as a share of the median
- 54%
- Gap below the threshold
- $2,400
- Gap as a share of the threshold
- 10%
- Household status
- Below the relative poverty line
The stricter or looser threshold puts the line at $20,000, and the households between the two lines are counted as poor by one study and not the other.
This household lives on 54% of what the middle household has.
The household falls $2,400 short of the line.
Stated relative to the line itself the gap is 10%, which is how depth is compared across countries with different currencies.
Relative poverty is measured against the middle of this country's distribution, so the same income can clear the line in one country and fail it in another.
How to calculate Relative Poverty Threshold, step by step
- 1Use the median, not the mean. Line up every household's income and take the middle value. A handful of very large incomes pulls the mean upward and would put the threshold above what most households have.
- 2Equivalize incomes for household size. Divide each household's income by an equivalence factor so a single person and a family of four can be set side by side. Statistical agencies publish the weights they use.
- 3Multiply the median by the chosen percentage. Threshold = percentage × median equivalized income. Fifty and sixty percent are the two figures reported most often, and the choice is a convention rather than a finding.
- 4Count the households below it. Any household whose equivalized income falls under the threshold is in relative poverty, and their share of all households is the relative poverty rate.
Worked example: Relative Poverty Threshold
Median equivalized household income is $40,000. At the 60% threshold the relative poverty line = 0.60 × $40,000 = $24,000, and at 50% it is $20,000. A household with $21,600 of equivalized income sits at 54% of the median, so it falls $2,400 below the 60% line, a gap of 10% of that line, while clearing the 50% line. Which threshold the study picks decides whether this household is counted as poor at all.
Relative Poverty Threshold questions
Why use the median instead of mean income?
The median is the income of the middle household, so it describes a typical living standard. The mean is dragged upward by very high incomes, and a threshold built on it would classify households as poor who sit close to the middle of the distribution.
What does equivalized income mean?
It is household income adjusted for how many people it has to support, using weights that give the first adult full weight and additional adults and children smaller ones. Without that adjustment a large family and a single person on the same income would look equally well off.
Can relative poverty fall while people get poorer?
Yes. The threshold moves with the median, so in a downturn where middle incomes fall the line falls too and some households end up above it with no gain in what they can buy. That is exactly why absolute measures are reported alongside relative ones.
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