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Measuring Poverty: A New Approach
The official poverty measure has important effects—direct and indirect—on government policies and programs. Some government assistance programs for low-income people determine eligibility for benefits or services by comparing families' resources to the poverty thresholds or a multiple of them.3 Also, some formulas for allocating federal funds include state or local poverty rates as a factor.
The poverty measure influences policy making more broadly as an indicator of economic well-being to which policy makers, advocates, analysts, and the general public are sensitive. Trends in poverty rates over time and differences in poverty rates across population groups are often cited as reasons that a particular policy (or set of policies) is, or is not, needed. For example, the recent expansion of the Earned Income Tax Credit (EITC) was prompted by statistics on poverty among working families.
The poverty measure also plays a role in evaluating government programs for low-income people and, more generally, the effects of government policies and economic growth on the distribution of income. In academia, there is a large literature on the characteristics of the poor, factors leading to poverty and other kinds of deprivation, and the effects of poverty on other behaviors and outcomes.
Consequently, each year's poverty figures are sought by policy makers, researchers, and the media, who look to see if the rate has changed for the nation as a whole and for specific population groups and to understand the causes and consequences of changes in the rate and their implications for public policy. For all of these users, it is critical that the measure provide an accurate picture of trends over time and of differences among groups, such as children, the elderly, minorities, working people, people receiving government assistance, people in cities, and people in rural areas.
Poverty statistics regularly make the headlines, but, increasingly over the past decade, so do stories that question the soundness of the concepts and methodology from which the official numbers derive. In response to a request of the U.S. Congress, the Committee on National Statistics of the National Research Council established a study panel to address the concerns about the poverty measure and also to consider related conceptual and methodological issues in establishing standards for welfare payments to needy families.
Our panel—the Panel on Poverty and Family Assistance: Concepts, Information Needs, and Measurement Methods—has concluded that revisions to the current poverty measure are long overdue. We have developed a new measure, embracing both the concept of the poverty standard or threshold
Most of the programs that relate eligibility to the poverty measure actually use the poverty guidelines, which were originally developed by OEO and are issued annually by the U.S. Department of Health and Human Services. The poverty guidelines are constructed by smoothing the official thresholds for different size families (see Fisher, 1992c). For historical reasons, the guidelines are higher than the thresholds for Alaska (by 25%) and Hawaii (by 15%).