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Measuring Poverty: A New Approach
The proposed concept has an important advantage for updating the poverty thresholds over time. Historically, spending on food, clothing, and shelter has increased at a slower rate in real terms than has total spending; hence, the proposed updating procedure will tend to update the thresholds in a conservative or a quasi-relative rather than a completely relative manner. However, because the proposed procedure is new, it will be important to evaluate the behavior of the resulting thresholds in relation to the thresholds that would result from a simple adjustment for the change in the Consumer Price Index.
RECOMMENDATION2.1. A poverty threshold with which to initiate a new series of official U.S. poverty statistics should be derived from Consumer Expenditure Survey data for a reference family of four persons (two adults and two children). The procedure should be to specify a percentage of median annual expenditures for such families on the sum of three basic goods and services—food, clothing, and shelter (including utilities)—and apply a specified multiplier to the corresponding dollar level so as to add a small amount for other needs.
RECOMMENDATION2.2. The new poverty threshold should be updated each year to reflect changes in consumption of the basic goods and services contained in the poverty budget: determine the dollar value that represents the designated percentage of the median level of expenditures on the sum of food, clothing, and shelter for two-adult/two-child families and apply the designated multiplier. To smooth out year-to-year fluctuations and to lag the adjustment to some extent, perform the calculations for each year by averaging the most recent 3 years' worth of data from the Consumer Expenditure Survey, with the data for each of those years brought forward to the current period by using the change in the Consumer Price Index.
RECOMMENDATION2.3. When the new poverty threshold concept is first implemented and for several years thereafter, the Census Bureau should produce a second set of poverty rates for evaluation purposes by using the new thresholds updated only for price changes (rather than for changes in consumption of the basic goods and services in the poverty budget).
Setting the Initial Threshold
Although we recommend a threshold concept and a procedure for updating the poverty thresholds, we do not recommend an initial level with which to initiate a new series of official poverty statistics under the proposed measure.