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Measuring Poverty: A New Approach
The net effect of implementing the proposed measure with a higher threshold is to increase the number of poor, but not all of the movement is in the same direction. Under alternative 1 (0.75 scale economy factor), 4.2 million people are moved out of poverty and 13.3 million people are moved into poverty (32.7 million people are poor under both measures). As in the analysis with a constant poverty rate, most of the movement occurs near the poverty line. Thus, 93 percent of the 4.2 million people who are no longer categorized as poor move from the category of income between 50 and 100 percent of the poverty line to the category of income between 100 and 150 percent of the poverty line. Conversely, 72 percent of the 13.3 million people who are newly categorized as poor move from the category of income between 100 and 150 percent of the poverty line to the category of income between 50 and 100 percent of the poverty line.
Below, we show in broad terms the effects of the proposed changes to the thresholds and to the family resource definition on the increase in the overall poverty rate, which is 3.6 percentage points for alternative 1 and 4.5 percentage points for alternative 2 (see "Marginal Effects" for a more detailed decomposition):
Type of Change
0.75 scale economy factor
0.65 scale economy factor
Housing cost index
Proposed resource definition
Net interaction effect
The use of a higher reference family threshold accounts for only 0.7 percentage point of the increase in the poverty rate. The use of a 0.75 scale economy factor (alternative 1) offsets the effect of a higher reference family threshold: it decreases the poverty rate by 0.7 percentage point. In contrast, the use of a 0.65 scale economy factor (alternative 2) has no effect, which is why the overall increase in the rate is higher for alternative 2 than for alternative 1. (See the discussion below as to why the two scale economy factors have these different outcomes.) Adjusting the threshold for geographic area differences in the cost of housing has little effect on the overall poverty rate for the nation as a whole.
In contrast, the changes to the family resource definition account for a large part of the increase in the poverty rate, 2.0 percentage points.10 There is
This amount is the sum of the effect of each specific change—e.g., adding the value of in-kind benefits to income or subtracting child care costs from income—considered alone.