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Measuring Poverty: A New Approach
procedure (the maximum proportion spent on necessities) by reference to actual spending patterns, so that both that proportion and the implicit allowance in the LICOs for other spending are determined in a relative manner.25
Recently, Statistics Canada decided to publish another series, on an experimental basis, in which the determination of low-income status is based on a set of ''low-income measures" or LIMs, which are derived in an explicitly relative manner (Statistics Canada, 1991: App.; see also Wolfson and Evans, 1989, who reviewed a range of alternative measures, including LIMs). The decision to add this series (and possibly in the future to publish it as the main or preferred series) stemmed mainly from Statistics Canada's conclusion that no type of low-income measure is clearly superior to others and that all measures have arbitrary components. In that agency's view, it seems best to minimize the number of arbitrary judgements and to make them as clear and explicit as possible.
Wolfson and Evans (1989) note that a relative measure can be tied to a number of national measures, such as an average wage index, per capita gross domestic product (GDP), median consumption or expenditures, or median family income. Statistics Canada chose to tie the Canadian measure to median family income adjusted for family size by means of an equivalence scale, setting one-half the median as the low-income line. Although an average wage index is a reasonable indicator of changes in the average income per person, it fails to account for the trend toward an increasing number of wage earners per family and decreasing family size. Average per capita GDP (or personal income or consumption from the national accounts) has a similar failing. Additionally, GDP is subject to historical revisions and includes non-household income. Median adjusted family income, in contrast, directly measures family income and adjusts for the needs of families of different sizes through an equivalence scale. (Median adjusted family consumption or expenditures could also be used, but expenditure surveys are conducted only periodically in Canada, while income surveys are conducted annually.)
U.S. Expert Committee on Family Budget Revisions
The Expert Committee on Family Budget Revisions (1980), when assigned the job of assessing the BLS Family Budgets Program (described above), recommended abandoning the budgets that had been built commodity by commodity and substituting a relative set of standards. The committee asserted that a scientific basis does not exist by which to develop commodity-
A variant of the approach used to develop the LICOs is based on the idea that the smaller the proportion of total income that is spent on necessities, the better off the household is. Hence, a maximum on the proportion of total income that is devoted to fixed costs (such as food and shelter) is designated as the poverty threshold. For an application of this approach in the Netherlands, see Hagenaars and De Vos (1988).