The poverty line is the level of income below which one cannot afford to purchase all the resources one requires to live. People who have an income below the poverty line have no discretionary disposable income, by definition.
The actual monetary value of the poverty line differs from place to place but is usually near some fixed value within a country. The actual value of the poverty line differs because the resources needed for living have different prices in different places. Even within a country, the poverty line can be markedly different between cities and farming towns, between areas of cold and warm climate, and so forth.
Almost all societies have some of their citizens living in poverty. The poverty line is useful as an economic tool by which to measure such people and consider socioeconomic reforms such as welfare and unemployment insurance to reduce poverty. It is not in a society's interest to have a large percentage of its citizens living below the poverty line as they have no disposable income and thus adversely affect economic growth. A baseline goal for a progressive government is to have all of its constituents possess an income level at least that of the poverty line.
Determining the poverty line is done by considering the essential resources that an average human adult consumes in one year and then summing their cost. The largest of these resources is typically the rent required to live in an apartment, so historically, economists have paid particular attention to the real estate market and housing prices as a strong poverty line affecter.
Other factors are often thrown in to handle various circumstances, such as whether one is a parent, elderly, a child, married, etc. Some analysts also prefer to factor in "value of life" resource costs, such as entertainment, in societies where merely surviving is considered a little below the true poverty line.
A poverty line is an arbitrary indicator, in the sense that having an income marginally above it is not substantially different from having an income marginally below it: the negative effects of poverty tend to be continuous rather than discrete, and the same low income affects different people in different ways. It has been defined in several ways:
- Social Security benefit based: if a government guarantees to make income up to some particular level then being below that line is presumably being in poverty - the problem is that if a government becomes more stingy, then poverty may appear to decrease;
- a relative income line, related to some fraction of typical incomes: the European Union uses 60% of national median equivalised household income;
- a relative figure fixed in time and only adjusted for inflation -- thus avoiding the possibility that if income inequality increases, then poverty may otherwise also increase;
- needs based, where an assessment is made of the minimum expenditure needed to maintain a tolerable life: this was the original basis of the poverty line in the United States, which has since been uprated for price changes.
A poverty line does not have to measure income alone. It could measure expenditure, or take into account material deprivation, showing a lack of what are judged to be necessities.
Poverty line is also based on the performance of local and federal government. This occurs when government makes bad decisions regarding types of jobs that will set up in an area.