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14. Urban poverty in developed countries

03 Apr 2003-Research Papers in Economics (Emerald Group Publishing Limited)-Vol. 9

AbstractIn this paper we investigate the urban/rural dimension of poverty in developed countries. We provide original estimates for Italy, we gather published statistics for France and the United States, and we produce novel cross-country estimates from the LIS database. We show that the size of urban poverty depends on where the boundaries of metropolitan districts are drawn and we observe that overlooking geographical differences in the cost of living is a particularly relevant hypothesis. We find that in France and the United States post-war economic growth and urbanisation were accompanied by a substantial reduction of the poverty risk for the rural population, while poverty rates improved less, or even sometimes deteriorated, for the urban population. The lack of a standard definition of urban/rural area precludes a rigorous comparative study. Our results indicate, however, that only in few countries (Denmark, the United Kingdom and the United States) the greatest poverty rates are found in central cities, while in all other developed countries poor persons are still relatively more frequent in rural areas. This pattern is stronger in the four non-developed economies examined here.

Topics: Rural area (61%), Urbanization (60%), Population (58%), Poverty (58%), Metropolitan area (53%)

Summary (2 min read)

Introduction

  • The urban/rural dimension of poverty has received much attention in social sciences.
  • In section 2 the authors present their estimates for Italy in the period 1987-2000, using data drawn from the Bank of Italy’s Survey of Household Income and Wealth (SHIW).

2.1 The definition of urban area

  • This problem overlaps with the choice of the reference territorial unit, which is typically constrained by the available data.
  • The minimum territorial unit to study urban poverty in Italy is the municipality, since no information is available on family incomes at the census trac t level.
  • This choice may be too restrictive for the largest urban agglomerations, where residential and business districts may extend over many neighbouring municipalities.
  • Alternatively, the authors may favour a socio - economic characterisation and focus on “local labour systems”, i.e. clusters of economically integrated and adjacent municipalities, whose boundaries are set after analysing daily journeys to work (Istat, 1997).

2.2 The Survey of Household Income and Wealth and measurement hypotheses

  • Italian income data are drawn from the Survey of Household Income and Wealth (SHIW), which has been conducted by the Bank of Italy since 1965 (see Banca d’Italia, 2002, for the last release, and Brandolini, 1999, for a historical description and an overall assessment).
  • Household income comprises income from work (as employees or self-employed), pens ions, public assistance, private transfers, income from real properties, the imputed rental income from owner-occupied dwellings, and interest on financial assets net of interest paid on mortgages.
  • Observations are weighted by the adjusted weights, available in the HA, obtained by post-stratifying the samples to re-establish the marginal distributions of components by sex, age group, type of job, geographical area and demographic size of the municipality of residence, as registered in population and labour force statistics.
  • Distribution is thus measured between individuals, attributing to each person the equivalent income of the household to which he or she belongs.
  • As extreme values are more likely to contain measurement errors, equivalent incomes below the 2nd percentile and above the 98th have been re-coded to equal the value of the corresponding percentile.

2.3 Urban poverty in Italy

  • According to the SHIW-HA data, metropolitan population makes up between an eighth and a quarter of the Italian population, depending on its definition.
  • These figures indicate that the population of the provinces surrounding the 6 largest cities resembles the whole Italian population, while residents in central cities are relatively wealthier.
  • Fir st, the comparison between metropolitan and nonmetropolitan areas at the national level suffers from a composition effect that hides the fact that poverty rates are higher in metropolitan areas in the South, although not in the North.
  • Second, the impossibility to take into account the geographical variability of the cost of living may have led us to underestimate the extent of urban poverty.

3. Long-run changes in urban poverty rates: France and the United States

  • As mentioned in the introduction, spatial differences in poverty are regularly examined both in France and the United States.
  • Published statistics for these two countries cover relatively long time spans, from 1970 to 1996 for France, and from 1959 to 2000 for the United States.
  • A metropolitan area is defined by the U.S. Census Bureau (2002a) as “… a large population nucleus, together with adjacent communities that have a high degree of economic and social integration with that nucleus”.
  • Suburbs of metropolitan areas constantly exhibited the lowest headcount poverty ratios, but their share of the poor population more than doubled from 17 to 36 percent, due to the growth of their population (from 31 to 53 percent of the total).

4. International comparisons: evidence from the Luxembourg Income Study

  • The lack of an internationally agreed criterion to distinguish “urban” from “rural” is an important obstacle to comparative analysis, which compounds with the many difficulties arising in cross-country comparisons of income poverty and inequality (Atkinson and Brandolini, 2001).
  • In March 2002, the LIS database included about 100 surveys covering 26 countries, from which the authors selected for each country the most recent data-set containing the type of the 11 household area of residence (variable D20 or, in few cases, D7).
  • The separation of metropolitan areas into central cities and suburbs is also a feature of data for West Germany and 7.
  • Even where classification criteria are relatively homogenous, comparability problems may derive from differences in class limits.
  • Austria, Denmark, Norway, Sweden and the United States exhibit a U-shaped pattern, whereby the highest poverty rates are found both in the largest metropolitan areas (especially in their inner cities) and in rural areas .

5. Conclusion

  • The authors have used national sources to provide original estimates for Italy and to gather published statistics for France and the United States.
  • 15 Fourth, in France and the United States post-war economic growth and urbanisation were accompanied by a substantial reduction of the poverty incidence among the rural population, while the poverty risk of the urban population improved less, or even deteriorated in some cases.
  • (a) Data refer to all households, excluding those comprised of students, which have nonnegative pre-tax income and positive disposable income.

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Luxembourg Income Study
Working Paper Series
Luxembourg Income Study (LIS), asbl
Working Paper No. 329
Urban Poverty in Developed Countries
Andrea Brandolini and Piero Cipollone
October 2002

URBAN POVERTY IN DEVELOPED COUNTRIES
by Andrea Brandolini
*
and Piero Cipollone
*
October 2002
Abstract
In this paper we investigate the urban/rural dimension of poverty in developed
countries. We provide original estimates for Italy, we gather published statistics for France
and the United States, and we produce novel cross-country estimates from the LIS database.
We show that the size of urban poverty depends on where the boundaries of metropolitan
districts are drawn and we observe that overlooking geographical differences in the cost of
living is a particularly relevant hypothesis. We find that in France and the United States post-
war economic growth and urbanisation were accompanied by a substantial reduction of the
poverty risk for the rural population, while poverty rates improved less, or even sometimes
deteriorated, for the urban population. The lack of a standard definition of urban/rural area
precludes a rigorous comparative study. Our results indicate, however, that only in few
countries (Denmark, the United Kingdom and the United States) the greatest poverty rates
are found in central cities, while in all other developed countries poor persons are still
relatively more frequent in rural areas. This pattern is stronger in the four non-developed
economies examined here.
JEL classification: I32, R2.
Keywords: poverty, urban/rural areas.
Contents
1. Introduction ..........................................................................................................................1
2. The definition of urban area and the evidence for Italy .......................................................3
2.1 The definition of urban area ..........................................................................................3
2.2 The Survey of Household Income and Wealth and measurement hypotheses..............4
2.3 Urban poverty in Italy ...................................................................................................5
3. Long-run changes in urban poverty rates: France and the United States.............................7
4. International comparisons: evidence from the Luxembourg Income Study......................10
5. Conclusion..........................................................................................................................14
References...............................................................................................................................34
*
Bank of Italy, Economic Research Department.

1. Introduction
1
The urban/rural dimension of poverty has received much attention in social sciences.
In deve loping countries rural poverty rates are still much higher than urban rates, often from
2 to 3 times, although the territorial distribution of poverty is forecasted to change radically
if the ongoing process of urbanisation continues (e.g. World Bank, 2000, Table 4, pp. 280-1;
Haddad, Ruel and Garrett, 1999; Ravallion, 2001; and Eastwood and Lipton, 2000, for a
somewhat different evidence). With regards to developed countries, some researchers,
especially among sociologists, have stressed that poverty may have been increasing more in
cities than in rural areas as a consequence of the downsizing of industry and the growth of
the more heterogeneous service sector, the spreading of contingent work, the retreating of
welfare states, the loosening of family links, the migrations from developing countries. In
North America, the interest for urban poverty has frequently gone hand in hand with the
analysis of the spatial segregation on racial and ethnic bases (e.g. Moynihan, 1968; Peterson,
1991-92; Hajnal, 1995; Jargowsky, 1996; Mills and Sendé Lubuele, 1997; Mayer, 2001).
Nevertheless, the systematic investigation of differences between rural and urban areas in
developed countries is not common both in official sources and the scientific literature.
In the United States, the Census Bureau regularly compares poverty rates in
metropolitan and nonmetropolitan areas (Dalaker, 2001). Recent reports by the National
Council of Welfare (2000) in Canada and by Insee (1997, 1998, 2001) in France examine
how the proportion of low-income families varies with the community or municipality size.
On the other hand, the urban/rural breakdown is not a standard feature of poverty statistics at
the European level (Eurostat, 2000), nor in Italy (Istat, 2001) and the United Kingdom
1
We thank Federico Cingano, Giovanni D’Alessio and Paolo Fabbri for helpful discussions in the writing
of the paper. Microdata of the Luxembourg Income Study for the United Kingdom are taken from the Family
Expenditure Survey for 1995 and are Crown Copyright; they were made available by the United Kingdom
Office for National Statistics through the ESRC Data Archive and their use has been authorised. Neither the
Office for National Statistics, nor the ESRC Data Archive are responsible for the analysis or interpretation of
the data given here. The views expressed herein are those of the authors and do not necessarily reflect those of
the Bank of Italy. Corresponding author: Andrea Brandolini, Banca d’Italia, Economic Research Department,
via Nazionale 91, 00184 Roma, Italy. E-mail: brandolini.andrea@insedia.interbusiness.it.

2
(Department of Social Security, 2000).
2
In the rapidly growing academic literature on the
structure and evolution of economic poverty the attention for the urban dimension appears to
be scarce. Cross-national comparisons are particularly missing. For instance, a recent
valuable collection of essays on poverty in Nordic countries (Gustafsson and Pedersen, ed.,
2000) provides information broken down by several population characteristics but not by
area of residence.
One important obstacle to comparative analysis is the lack of a generally agreed
criterion to distinguish “urban” from “rural” as well as intermediate cases. This deficiency is
recognised in the United Nations’ Demographic Yearbook: “although statistics classified by
urban/rural areas are widely available, no international standard definition appears to be
possible at this time since the meaning differs from one country or area to another” (United
Nations Department of Economic and Social Affairs, 2000, p. 36). The Yearbook therefore
refrains from providing comparable figures on the size of the urban population and reports
statistics computed according to national definitions. In Austria, Norway and Spain, for
example, urban areas are defined on the basis of demographic size only, whereas in France
also the distance between houses concurs to design urban areas. In Italy, the national
statistical office does not provide any classification of urban and rural municipalities,
although demographic size is sometimes used.
3
The main purpose of this study is to review what information is available on the
differential poverty levels in cities and rural districts in some developed countries. We rely
2
At the policy level, the strategy set out by the British Government against poverty and social exclusion
(Secretary of State for Social Security, 1999) devotes considerable attention to “communities” and to targeting
help to the poorest neighbourhoods, recognising the different nature of poverty in urban and rural areas.
However, Shucksmith and Philip (2000, p. 3) remark that: “The Social Exclusion Unit in England has shown a
marked lack of interest in the incidence of social exclusion in rural areas … In Scotland, in contrast, social
inclusion in rural areas has been identified by the Scottish Office as an important issue requiring further
research and policy development”. The report prepared by Harrop, Kenway and Palmer (2000) for the
Countryside Agency contains a number of indicators on poverty and social exclusion, including the proportion
of individuals in low-income households, separately for remote rural, accessible rural and urban areas in
England.
3
The last official classification was based on 13 socio-demographic indicators (e.g. share of the labour
force in agriculture, demographic density, availability of water and toilets in houses, etc.) drawn from the 1981
Census (Istat, 1986). In the frame of regional indicators for the evaluation of development policies recently set
by Istat in collaboration with the Treasury Ministry, a municipality is classified as rural if the population
density is below 100 inhabitants per square kilometre and the agriculture share in total employment is higher
than 12.4 percent, equal to twice the EU average (Istat, 2002).

3
on both national sources for Italy, France and the United States and the international
database assembled at the Luxembourg Income Study (LIS). In section 2 we present our
estimates for Italy in the period 1987-2000, using data drawn from the Bank of Italy’s
Survey of Household Income and Wealth (SHIW). We also exploit the SHIW database to
experiment how alternative definitions of “urban area” impact on poverty rates. In sections 3
we use the information for France and the United States to shed some light on the long-run
evolution of the urban/rural poverty differential. In section 4 we offer comparative evidence
for a number of developed countries around mid-1990s on the basis of the LIS data. We
summarise the lessons to be drawn from our analysis at the end of the paper.
2. The definition of urban area and the evidence for Italy
4
2.1 The definition of urban area
As mentioned above, there is no generally agreed criterion to separate “urban” from
“rural”. This problem overlaps with the choice of the reference territorial unit, which is
typically constrained by the available data. The minimum territorial unit to study urban
poverty in Italy is the municipality, since no information is available on family incomes at
the census tract level. However, this choice may be too restrictive for the largest urban
agglomerations, where residential and business districts may extend over many neighbouring
municipalities. Among larger territorial units, we may select “provinces” or “metropolitan
areas”, if we keep following administrative criteria. Alternatively, we may favour a socio -
economic characterisation and focus on “local labour systems”, i.e. clusters of economically
integrated and adjacent municipalities, whose boundaries are set after analysing daily
journeys to work (Istat, 1997). We test the sensitivity of results for Italy by specifying four
definitions of “large urban area” or “metropolitan area” (henceforth, used interchangeably):
(a) Municipality: the municipal territories of the 6 Italian cities with more than 500,000
inhabitants during the period under examination, namely Palermo, Genoa, Turin, Naples,
Milan and Rome (including Fiumicino, a nearby town independent since 1992);
4
This section draws on Brandolini (2002).

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  • ...…mediumsized cities that have also been undergoing interlinked dynamics of employment change, economic restructuring, social polarisation, and welfare reform (see Albeda and Withorn, 2002; Brandolini and Cipollone, 2003; Hamnett, 1996; Madanipour et al, 1998; Mingione, 1996; 1998; Petsimeris, 2005)....

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References
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Abstract: This report focuses on the dimensions of poverty, and how to create a better world, free of poverty. The analysis explores the nature, and evolution of poverty, and its causes, to present a framework for action. The opportunity for expanding poor people's assets is addressed, arguing that major reductions in human deprivation are indeed possible, that economic growth, inequality, and poverty reduction, can be harnessed through economic integration, and technological change, dependent not only on the evolvement of markets, but on the choices for public action at the global, national, and local levels. Actions to facilitate empowerment include state institutional responsiveness in building social institutions which will improve well-being, and health, to allow increased income-earning potential, access to education, and eventual removal of social barriers. Security aspects are enhanced, by assessing risk management towards reducing vulnerability to economic crises, and natural disasters. The report expands on the dimensions of human deprivation, to include powerlessness and voicelessness, vulnerability and fear. International dimensions are explored, through global actions to fight poverty, analyzing global trade, capital flows, and how to reform development assistance to forge change in the livelihoods of the poor.

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Abstract: This paper examines the role of secondary data-sets in empirical economic research, taking the field of income distribution as a case study. We illustrate problems faced by users of "secondary" statistics, showing how both cross-country comparisons and time-series analysis can depend sensitively on the choice of data. After describing the genealogy of secondary data-sets on income inequality, we consider the main methodological issues and discuss their implications for comparisons of income inequality across OECD countries and over time. The lessons to be drawn for the construction and use of secondary data-sets are summarized at the end of the paper.

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Abstract: Compared to residential segregation by race, economic segregation has received relatively little attention in recent empirical literature. Yet a heated debate has arisen concerning Wilson's (1987) hypothesis that increasing economic segregation among African Americans plays a role in the formation of urban ghettos. The author presents a methodological critique of the measure of economic segregation used by Massey and Eggers (1990) and he argues that their measure confounds changes in the income distribution with spatial changes. He develops a pure measure of economic segregation based on the correlation ratio and present findings for all U.S. metropolitan areas from 1970 to 1990. Economic segregation increased steadily for Whites, Blacks, and Hispanics in the 1970s and 1980s, but the increases have been particularly large and widespread for Blacks and Hispanics in the 1980s. The author explores the causes of these changes in a reduced-form, fixed-effects model. Social distance and structural economic transformations affect economic segregation, but the large increases in economic segregation among minorities in the 1980s cannot be explained by the model. These rapid increases in economic segregation, especially in the context of recent, albeit small, declines in racial segregation, have important implications for urban policy, poverty policy, and the stability of urban communities

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Additional excerpts

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Abstract: The population of the developing world is becoming more urban. Are poverty and undernutrition beginning to relocate to urban areas as well? We use survey data on poverty (from eight countries) and on child undernutrition (from 14 countries) to address this question. Using data from the past 15–20 years we find that in a majority of countries the absolute number of poor and undernourished individuals living in urban areas has increased, as has the share of overall poverty and undernourishment coming from urban areas. Given these trends and the current stock of knowledge as to the levels, determinants and solutions to urban poverty and undernutrition, we argue for more research on these issues.

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Frequently Asked Questions (1)
Q1. What contributions have the authors mentioned in the paper "Urban poverty in developed countries" ?

In this paper the authors investigate the urban/rural dimension of poverty in developed countries. The authors provide original estimates for Italy, they gather published statistics for France and the United States, and they produce novel cross-country estimates from the LIS database. The authors show that the size of urban poverty depends on where the boundaries of metropolitan districts are drawn and they observe that overlooking geographical differences in the cost of living is a particularly relevant hypothesis. The authors find that in France and the United States postwar economic growth and urbanisation were accompanied by a substantial reduction of the poverty risk for the rural population, while poverty rates improved less, or even sometimes deteriorated, for the urban population. The lack of a standard definition of urban/rural area precludes a rigorous comparative study. This pattern is stronger in the four non-developed economies examined here.