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Measuring Poverty: A New Approach
effects of the two scale economy factors are similar for most groups, with the exceptions noted above and discussed below.
The addition to gross income of values for in-kind benefits has a marked effect on reducing the overall poverty rate—1.7 percentage points. The reduction in the poverty rate from adding the value of in-kind benefits is particularly large for several groups: the elderly, -2.2; Northeasterners, -2.3; and people in welfare families, -2.5. The reduction in the poverty rate from this change to the resource definition is least for people in families without health insurance, -1.1 percentage points.
The subtraction from gross income of out-of-pocket medical care expenses (including health insurance premiums) has a large effect on increasing the overall poverty rate—2.1 percentage points. The increase in the poverty rate from this component is particularly large for several groups: people in families without health insurance, 2.9; people in families with workers, 3.0; people in two-person families, 3.2; and elderly people, 3.5. The increase in the poverty rate from this component is less striking for blacks, 1.0; and people in welfare families, 0.5.
The subtraction of taxes increases the overall poverty rate by 0.5 percentage point. (The EITC does not fully offset payroll and state income taxes.) The subtraction of child care expenses has a smaller effect (0.3 percentage point), which is expected because this deduction applies only to working families with children in which both parents (or one if there is just one) work and the family pays for child care. The subtraction of other work-related expenses increases the overall rate by 0.8 percentage point. Summing the marginal effects of these three components, the result is an increase in the overall poverty rate of 1.6 percentage points. The increase in the poverty rate from subtracting these three components from income is much less for the elderly, 0.2 percentage point; there is also a smaller-than-average effect for blacks, 1.0 percentage point, and for people in welfare families, 0.4 percentage point. For people in working families, there is a larger-than-average effect: subtracting these three components from income increases their poverty rate by 2.9 percentage points.
We do not have a directly comparable estimate of the effect of child support payments on poverty rates. Tabulations prepared for us from the 1990 SIPP panel, which compare aggregate poverty rates under the current measure and under a measure in which child support payments are subtracted from income, indicate that the effect might be to increase the overall poverty rate by about 0.3-0.5 percentage point, similar to the effect of child care expenses.
Looking across all of the components provides insight as to why the proposed measure disproportionately affects the poverty rates under alternatives 1 and 2 for some groups relative to the overall increase of 3.6 to 4.5 percentage points. For example, the poverty rate for welfare family members decreases by 1 percentage point (on a standardized basis), although it remains