Explaining Differences Between Income Poverty and Deprivation

Poverty research often relies on household resources as measured by equivalised household income. This approach implicitly assumes that a household rationally uses its income to improve its welfare and there is no considerable regional variation in price levels. Evidence suggests that these assumptions may not hold. An alternative approach directly measures a household’s standard of living and defines households below a certain threshold as deprived. This study focuses on the inconsistency between the two approaches. Which households are deprived despite having sufficient income and which are able to achieve a sufficient standard of living despite income poverty? Data from the German panel survey “Labour Market and Social Security” (PASS), which focuses on welfare receipt and labour market participation, are used to investigate mechanisms leading to these two types of incongruity. The findings indicate that education, social networks, personality traits and individual health influence poverty transmission and that the influence of regional price levels is surprisingly small.