Measuring Poverty: A New Approach

PREFACE, xv

SUMMARY AND RECOMMENDATIONS, 1

1. INTRODUCTION AND OVERVIEW, 17
   What Is Poverty?, 19

   The Official U.S. Poverty Measure, 24

   Alternative Poverty Measures and Criteria for a Measure, 31

   A New Approach to Poverty Measurement: Recommendations, 39

   Use of the Poverty Measure in Government Programs, 89

2. POVERTY THRESHOLDS, 97
   Thresholds Concepts, 98

   Recommendations, 100

   Expert Budgets, 107

   Relative Thresholds, 124

   Subjective Thresholds, 134

   Conclusions, 140

   Implementing the Proposed Approach, 145

3. ADJUSTING POVERTY THRESHOLDS, 159
   Adjustments by Family Type, 159

   Adjustments by Geographic Area, 182

4. DEFINING RESOURCES , 203
   Overview and Recommendation, 203

   Alternatives for Defining Resources, 206

   Proposed Resource Definition, 218

5. EFFECTS OF THE PROPOSED POVERTY MEASURE, 247
   Data and Procedures, 248

   Results, 256

   Data Sources, 280

6. OTHER ISSUES IN MEASURING POVERTY, 293
   Time Period, 293

   Unit of Analysis and Presentation, 301

   Indexes of Poverty, 308

   The Limited Scope of Measuring Economic Poverty, 314

7. USE OF THE POVERTY MEASURE IN GOVERNMENT ASSISTANCE PROGRAMS, 317
   Recommendation, 318

   Government Assistance Programs, 320

   Using the Proposed Poverty Measure, 327

8. THE POVERTY MEASURE AND AFDC, 335

   Determining Program Benefit Levels, 336

   Determining State AFDC Standards of Need, 352

APPENDICES

A   DISSENTJohn F. Cogan, 385

B   DATA SOURCES FOR MEASURING POVERTY, 391

C   THE INTERDEPENDENCE OF TIME AND MONEY, 421

D   ASSISTANCE PROGRAMS FOR PEOPLE WITH LOW INCOMES, 433

REFERENCES AND BIBLIOGRAPHY, 449

BIOGRAPHICAL SKETCHES OF PANEL MEMBERS AND STAFF, 483

INDEX, 489

FIGURES

1-1   Alternative poverty thresholds for four-person families in constant 1992 dollars, 35

1-2   Alternative equivalence scales, 61

1-3  Poverty status of hypothetical three-person (one-adult/two-child) families under current and proposed poverty measures, 1992, 73

1-4  Effects of the proposed measure on the percentage of poorer people in working families and families receiving cash welfare, 76

1-5   Effects of the proposed poverty measure on the geographic distribution of poor people, 77

1-6   Effects of selected components of the proposed measure on the poverty rate, 78

1-7   Poverty rates under the current and proposed measures, 1992, 79

3-1  Equivalence scale implicit in the current poverty thresholds: increment for each added family member (relative to a scale value of 1.00 for a single adult under age 65), 165

3-2  Engel method for equivalence scales, 171

3-3   Rothbarth method for equivalence scales, 173

3-4   Alternative equivalence scales: increment for each added family member (relative to a scale value of 1.00 for a single adult), 179

3-5   Current and proposed equivalence scales expressed relative to a value of 1.00 for a family of two adults and two children, 182

8-1   AFDC eligibility and benefits of hypothetical families in states with different eligibility and benefit determination methods , 378

C-1  Time and money tradeoffs in the poverty threshold for a household, 429

TABLES

1-1   Elements of the current and proposed poverty measures, 41

1-2   Policy and other changes affecting poverty statistics, 42

1-3   Poverty thresholds for two-adult/two-child (or four-person) families set by various methods for 1989-1993, in 1992 dollars (rounded), 47

1-4   Poverty thresholds for two-adult/two-child (or four-person) families set by various methods for 1989-1993, as developed and converted, in 1992 dollars (rounded), 54

1-5   Poverty thresholds adjusted for differences in cost of housing, expressed as percentages above or below a national poverty threshold, 63

1-6   Poverty statistics 1992: current measure and proposed measure keeping the overall poverty rate constant, 75

2-1   Comparison of updated poverty thresholds for a two-adult/two-child family using the Orshansky multiplier, the official threshold and two relative thresholds, 1950-1992, in constant 1992 dollars, 112

2-2   Comparison of poverty thresholds for a two-adult/two-child family using two multiplier approaches, selected years, in constant 1992 dollars , 115

2-3   Relative poverty thresholds for a four-person family derived as one -half of median before-tax and after-tax four-person family income, 1947-1992, in constant 1992 dollars, 132

2-4   Subjective poverty thresholds for a four-person family derived from survey data, 1947-1993, in constant 1992 dollars, 138

2-5   Examples of poverty thresholds for four-person families set by various

methods for years around 1980 and 1990, in constant 1992 dollars, 142

2-6   Percentile values of expenditures on the panel's basic bundle by two -adult/two-child families, 1989-1991 Consumer Expenditure Survey, in constant 1992 dollars, with multiplier, 150

2-7   Poverty thresholds developed under panel's proposed procedure, in constant 1992 dollars, 156

3-1   Equivalence scale implicit in official weighted average poverty thresholds for 1992, 164

3-2   Selected alternative equivalence scales: increment in the scale value for a spouse and each added child (relative to a scale value of 1.00 for a single-adult family), 167

3-3   Estimates of the cost of children (using Rothbarth method),178

3-4   Alternative equivalence scales, with scale values expressed relative to a value of 1.00 for a family of two adults and two children, 181

3-5   Hedonic model price indexes for rent and rental equivalence, and combined multilateral index, selected areas, July 1988-June 1989, 192

3-6   Cost-of-housing index values (relative to 1.00 for the United States as a whole) by region (census division) and size of metropolitan area, 196

4-1   Annual family out-of-pocket expenses for personal medical care services as a percent of family income, percentage distribution, 1987, 227

4-2   Poverty rates with and without insurance values for public and private medical care benefits under different valuation approaches, selected age groups, 1986, in percent, 229

5-1   Official poverty thresholds in 1992, by family size and type, 250

5-2   Poverty thresholds in 1992 under proposed measure, by family size and type, 251

5-3   Housing cost adjustments for proposed poverty thresholds, 252

5-4   Distribution of gross money income, with amounts deducted for out -of-pocket medical care expenditures, child care expenses, and other work-related expenses, 1992, in dollars, 257

5-5  Change in poverty status and income-to-poverty ratios under the current and proposed poverty measures, with total poverty rate held constant at 14.5 percent, 1992, 258

5-6   Composition of the total and poverty populations under the current and proposed measures, with total poverty rate held constant at 14.5 percent, 1992, 260

5-7   Poverty rates by population group under the current and proposed measures, with total poverty rate held constant at 14.5 percent, 1992, 261

5-8   Poverty rates by population group under the current and proposed measures, 1992, 265

5-9   Effect of individual components of the proposed measure on percentage point changes in the official poverty rates, 1992, 268

5-10   Effect of alternative scale economy factors in the proposed measure on poverty rates, by family size, 1992, 270

5-11   Poverty rates under the current and proposed measures: 1992, 1989, 1983, 1979, 276

5-12   Poverty rates calculated from the Consumer Expenditure Survey, Current Population Survey, and Survey of Income and Program Participation, 1980-1991, 279

7-1   Government assistance programs that link eligibility to income, fiscal 1992, 321

7-2  Government assistance programs that link eligibility or benefits to the current poverty measure, by program type and poverty cutoff for eligibility, fiscal 1992, 322

8-1   AFDC need standards, maximum AFDC benefits, and maximum combined AFDC and food stamp benefits for a family of three, January 1994, 337

8-2   State approaches to setting AFDC need standards in the 1970s and 1980s, 355

8-3 AFDC need standards, maximum AFDC benefits, and maximum combined AFDC and food stamp benefits for a family of three, as a percentage of the 1993 weighted average monthly poverty threshold, January 1994, 361

8-4   State median family income and state-adjusted poverty thresholds under the panel's proposed measure, 363

8-5   Mean and distribution of state AFDC need standards, maximum AFDC benefits, and maximum combined AFDC and food stamp benefits for a family of three, as reported by the states and as adjusted for differences in income and cost of housing, January 1994, in dollars, 365

8-6  Equivalence scale implicit in maximum AFDC benefits for two -person through six-person families, January 1994, 366

8-7   AFDC need standards for a family of three, July 1970, July 1980, and January 1991, in constant (January 1991) dollars, 370

8-8  AFDC maximum benefits for a family of three, July 1970, July 1980, and January 1991, in constant (January 1991) dollars, 372

B-1  Summary Comparisons of CEX, March CPS, PSID, and SIPP, 404

C-1  A Comparison of the Value of Time in Two Households, 423

D-1   Expenditures on government assistance programs for low-income people, by type of income test, fiscal 1992, 434

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