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Measuring Poverty: A New Approach
DETERMINING PROGRAM BENEFIT LEVELS
We recommend (in Chapter 7) that serious consideration be given to the use of the proposed poverty measure as an eligibility standard for programs that tie eligibility for benefits and services to the current poverty measure. It might seem a logical next step to suggest a direct relationship of the proposed poverty measure to program benefits. Certainly, the existence of a poverty threshold that makes reasonable adjustments for differences in family circumstances, including differences in the cost of living across regions of the country, creates an impetus for program benefits to be related to that threshold. However, there are many factors that properly enter into a determination of benefit levels, only one of which is a poverty threshold.
At present, there is wide variation in AFDC benefits across the 50 states and the District of Columbia, and, in most states, benefits are considerably below the official poverty threshold. As of January 1994, the states' median standard of need for a three-person family was 60 percent of the corresponding official poverty threshold, and the median maximum benefit was 38 percent of the poverty threshold. 1 The median of the maximum combined AFDC and food stamp benefit for the states was 69 percent of the poverty threshold. Looking across states, the maximum AFDC benefit for a three-person family in January 1994 varied from $923 per month in Alaska to $120 in Mississippi, with a median of $366, a mean of $396, and a coefficient of variation of 40 percent; see Table 8-1.2 The maximum AFDC benefit ranged from $240 to $552 (25-58% of the poverty threshold) in about two-thirds of the states; eight states exceeded this range, and eight states fell below it.
The maximum combined AFDC and food stamp benefit for a three-person family exhibited somewhat less dispersion, varying from $1,208 in Alaska to $415 in Mississippi, with a median of $658, a mean of $675, and a coefficient of variation of 22 percent. Food stamps have this effect because of the program's benefit formula, which assumes that families will devote 30 percent of their countable income to food expenditures (see Chapter 7). Hence, an increase of $1 in AFDC benefits (or other countable income) decreases food stamp benefits by 30 cents, and a decrease of $1 in AFDC benefits (or other countable income) increases food stamp benefits by 30 cents. The maximum combined AFDC and food stamp benefit ranged from $528 to $822 (55-86% of the poverty threshold) in 39 states. Adjusting AFDC and food stamp benefit levels to take account of differences in the cost of living by state further reduces the variation, although only to a limited extent (see below).
The three-person family (parent or caretaker and two children) is the usual reference family for AFDC.
The coefficient of variation is the standard deviation of a distribution as a percentage of the mean value; the standard deviation is the value that when added to or subtracted from the mean includes about two-thirds of the observations (states in this case).