Finally, in contrast to the pattern for all other groups, measure 2 decreases poverty for five-person and larger families by 1 percentage point compared with measure 1. (See below for further discussion of equivalence scale effects.)

Marginal Effects

This section considers the effects of the individual components of the proposed poverty measure, including the various adjustments to both the thresholds and the family resource definition. We show why, for example, the proposed poverty measure increases the poverty rate for people in working families and decreases the rate for people in welfare families. Table 5-9 shows the marginal effect on the rate for specific groups of making each of the following changes in isolation: the adjustment to the thresholds for geographic area differences in the cost of housing, the use of a 0.75 scale economy factor, the use of a 0.65 scale economy factor, adding the value of in-kind benefits to income, subtracting out-of-pocket medical care expenses from income, subtracting income and payroll taxes from income, subtracting child care expenses from income, and subtracting other work-related expenses from income. Not shown is the marginal effect of a particular reference family threshold or the net interaction effect.12

The adjustment to the thresholds for area differences in the cost of housing increases the overall poverty rate by a negligible amount (see Table 5-9, first column). This result is expected because the housing cost adjustment is an index with values higher and lower than 1, which should approximately balance out overall. By region, the housing cost index has marked effects, increasing the poverty rate in the Northeast by 2 percentage points and in the West by 1.7 percentage points (all figures are standardized). In contrast, the housing cost index decreases the poverty rate in the South by 1.1 percentage points and in the Midwest by 0.8 percentage point. The housing cost index has negligible effects on the poverty rate for other groups, with the exception of Hispanics, who reside disproportionately in East and West coast cities with higher-than-average housing costs; the index increases their poverty rate by 1.1 percentage points.

The use of an equivalence scale with a scale economy factor of 0.75 reduces the overall poverty rate by 0.7 percentage point. In contrast, the use of a scale economy factor of 0.65 has almost no effect on the poverty rate. The

12  

For the total population, as noted above, the marginal effect of a $14,800 reference family threshold (compared with the current threshold of $14,228) is to increase the overall poverty rate by 0.7 percentage point; the net interaction effect increases the rate by 1.5 and 1.7 percentage points for alternatives 1 and 2, respectively. In the analysis that keeps the overall poverty rate constant, the marginal effect of a $13,175 reference family threshold (compared with the current threshold of $14,228) is to decrease the rate by 1.2 percentage points; the interaction effect decreases the rate by 0.2 percentage point.



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