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Measuring Poverty: A New Approach
We have reviewed the adjustments for family type that are embodied in the official poverty thresholds, as well as those that are implicit in other government programs. We have also considered numerous other proposals in the literature, including those that use empirical analysis in an attempt to establish an objective adjustment on the basis of comparing the behavior of families of different types. Although the empirical evidence helps determine the limits of what makes sense, there is no objective procedure for measuring the different needs for different family types. As with the determination of the reference family poverty threshold itself, for which empirical evidence can inform but not prescribe what is fundamentally a social or political judgement, so with the adjustments for different family types. Thus, similarly, we have opted for a procedure that, while taking into account the empirical evidence and previous experience, recognizes that the decision is based on judgement and seeks to make the process as transparent as possible.
Our recommended procedure follows from our conclusion that the equivalence scale implicit in the official poverty thresholds is problematic and should be replaced. We say "implicit" because the official thresholds were developed separately for each family type rather than by the application of a formal scale to a reference family threshold. The basis for the official thresholds was a set of estimates of different food requirements for adults and children of various ages in families of different sizes. The assumptions underlying the differences are questionable, as is the assumption that differences in food needs adequately capture differences in needs for housing and other goods. One particularly questionable assumption is that people aged 65 and older need less to eat and so should have lower poverty thresholds than younger people; this assumption underlies the official thresholds for unrelated individuals and members of two-person families. Also, the implicit scale (which can be calculated by comparing the differences among the official thresholds for various family types) exhibits a number of irregularities and anomalies: for example, the second child in a family adds more costs than the first child.
We propose that poverty thresholds for different family types be developed by applying an explicit scale to the reference family poverty threshold. The scale should distinguish the needs of children under 18 and adults but not make other distinctions by age; the scale should also recognize economies of scale for larger families. A scale of this type is the following:
where A is the number of adults in the family, K is the number of children, each of whom is treated as a proportion P of an adult, and F is the scale economy factor. The formula calculates the number of adult equivalents (A + PK) and raises the result to a power F that reflects economies of scale for larger families. We recommend values for both P and F near 0.70; to be specific, we recommend setting P at 0.70 (i.e., each child is treated as 70% of an adult) and