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Measuring Poverty: A New Approach
ability to buy food and other items in bulk and jointly use many durable goods.
Evidence of cost-of-living differences among geographic areas—such as between metropolitan and nonmetropolitan areas—suggests that the poverty thresholds should be adjusted accordingly, but inadequate data make it difficult to determine appropriate adjustments. As a first and partial step, we recommend that the housing component of the poverty thresholds be indexed to reflect variations in housing costs across the country. This adjustment can be made by analyzing decennial census data with the methodology developed by the U.S. Department of Housing and Urban Development (HUD) to estimate rents for comparable apartments in different localities. We believe the available data support reasonable adjustments for several population size groups of metropolitan areas within each of nine regions of the country. The resulting geographic index should be applied to the housing component of the thresholds. It may also be possible to update the index values each year (rather than at 10-year intervals) by applying the updating methods used by HUD.
We do not recommend adjustments for other budget items at this time because good data for such adjustments are lacking and because the available research suggests that variations in the costs of other budget items are not large. However, more research would be very helpful to develop refined methods and data by which to adjust the poverty thresholds more accurately for geographic cost-of-living differences for housing and other goods and services. One source of improved data could be the area price index program of the Bureau of Labor Statistics (BLS).
RECOMMENDATION3.1. The four-person (two adult/two child) poverty threshold should be adjusted for other family types by means of an equivalence scale that reflects differences in consumption by adults and children under 18 and economies of scale for larger families. A scale that meets these criteria is the following: children under 18 are treated as consuming 70 percent as much as adults on average; economies of scale are computed by taking the number of adult equivalents in a family (i.e., the number of adults plus 0.70 times the number of children), and then by raising this number to a power of from 0.65 to 0.75.
RECOMMENDATION3.2. The poverty thresholds should be adjusted for differences in the cost of housing across geographic areas of the country. Available data from the decennial census permit the development of a reasonable cost-of-housing index for nine regions and, within each region, for several population size categories of metropolitan areas. The index should be applied to the housing portion of the poverty thresholds.