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Measuring Poverty: A New Approach (1995)

Chapter: Front Matter

Suggested Citation:"Front Matter." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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i Measuring Poverty A New Approach Constance F. Citro and Robert T. Michael, Editors Panel on Poverty and Family Assistance: Concepts, Information Needs, and Measurement Methods Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1995

ii NATIONAL ACADEMY PRESS 2101 Constitution Ave., NW Washington, DC 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sci- ences, the National Academy of Engineering, and the Institute of Medicine. The project that is the subject of this report was administered under a contract with the Bureau of the Census of the U.S. Department of Commerce, with funding from the Administration for Chil- dren and Families of the U.S. Department of Health and Human Services and the Bureau of Labor Statistics of the U.S. Department of Labor. The Food and Nutrition Service of the U.S. Department of Agriculture also provided funding to the Committee on National Statistics for the project. Library of Congress Cataloging-in-Publication Data Measuring poverty : a new approach / Panel on Poverty and Family Assistance . . . [et al.]. p. cm. Includes bibliographical references and index. ISBN 0-309-05128-2 1. Poverty—United States—Statistical methods. I. Panel on Poverty and Family Assis- tance (United States) HC110.P6M36 1995 362.5'2'015195—dc20 95-3901 Copyright 1995 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

iii PANEL ON POVERTY AND FAMILY ASSISTANCE: CONCEPTS, INFORMATION NEEDS, AND MEASUREMENT METHODS ROBERT T. MICHAEL (Chair), Harris Graduate School of Public Policy Studies, University of Chicago ANTHONY B. ATKINSON, Nuffield College, Oxford University DAVID M. BETSON, Department of Economics, University of Notre Dame REBECCA M. BLANK, Department of Economics, Northwestern University LAWRENCE D. BOBO, Department of Sociology, University of California, Los Angeles JEANNE BROOKS-GUNN, Center for Young Children and Families, Teachers College, Columbia University JOHN F. COGAN, The Hoover Institution, Stanford University SHELDON H. DANZIGER, Institute of Public Policy Studies and School of Social Work, University of Michigan ANGUS S. DEATON, Woodrow Wilson School of Public and International Affairs, Princeton University *DAVID T. ELLWOOD, Kennedy School of Government, Harvard University JUDITH M. GUERON, Manpower Demonstration Research Corporation, New York, N.Y. ROBERT M. HAUSER, Department of Sociology and Institute for Research on Poverty, University of Wisconsin FRANKLIN D. WILSON, Department of Sociology, University of Wisconsin CONSTANCE F. CITRO, Study Director NANCY MARITATO, Research Associate ELAINE REARDON, Research Associate AGNES E. GASKIN, Senior Project Assistant * Served until February 1993

iv COMMITTEE ON NATIONAL STATISTICS 1993–1994 NORMAN M. BRADBURN (Chair), National Opinion Research Center, University of Chicago JOHN E. ROLPH (Vice Chair), Department of Information and Operations Management, School of Business Administration, University of Southern California MARTIN H. DAVID, Department of Economics, University of Wisconsin, Madison JOHN F. GEWEKE, Department of Economics, University of Minnesota, Minneapolis NOREEN GOLDMAN, Office of Population Research, Princeton University JOEL B. GREENHOUSE, Department of Statistics, Carnegie Mellon University ERIC A. HANUSHEK, W. Allen Wallis Institute of Political Economy, Department of Economics, University of Rochester ROBERT M. HAUSER, Department of Sociology and Institute for Research on Poverty, University of Wisconsin, Madison NICHOLAS P. JEWELL, Program in Biostatistics, School of Public Health, University of California, Berkeley WILLIAM D. NORDHAUS, Department of Economics, Yale University JANET L. NORWOOD, The Urban Institute, Washington, D.C. DOROTHY P. RICE, Department of Social and Behavioral Sciences, School of Nursing, University of California, San Francisco KEITH RUST, Westat, Inc., Rockville, Maryland DANIEL L. SOLOMON, College of Physical and Mathematical Sciences, North Carolina State University MIRON L. STRAF, Director

ACKNOWLEDGMENTS v Acknowledgments The Panel on Poverty and Family Assistance wishes to thank the many people who helped make possible the preparation of this report. An important part of the panel's work was the analysis of implementing the recommended poverty concept and alternative measures on the numbers and characteristics of people in poverty. Panel member David Betson assumed the responsibility for this work and gave unstintingly of his time, energy, and analytical skills in constructing the necessary data files and conducting an extensive series of analyses for the panel's consideration. The panel is greatly in his debt. The data that Professor Betson analyzed were obtained from many sources, with the gracious help of the following people: Charles Nelson, Bureau of the Census, who provided several March Current Population Survey (CPS) files with the Bureau's estimates of income and payroll taxes and the value of in-kind benefits (he also briefed the panel on the Bureau's tax simulations); Pat Doyle, Agency for Health Care Policy and Research, who provided detailed tabulations of out-of-pocket medical care expenses from the 1987 National Medical Expenditure Survey; and Larry Radbill, Mathematica Policy Research, Inc., who provided analyses of data on child care and other work-related expenses from the Survey of Income and Program Participation (SIPP). The panel conducted extensive analyses of data from the Consumer Expenditure Survey (CEX) on spending for food, clothing, shelter, and other consumption. This analysis was made possible by the hard work and expertise of staff of the Bureau of Labor Statistics, including Geoffrey Paulin, who, with input from David Johnson, prepared a large of volume of tabulations; and Stephanie Shipp, who saw that the work received priority attention (she also

ACKNOWLEDGMENTS vi briefed the panel on the CEX). Lynda Carlson and Ivy Harrison of the Energy Information Administration provided useful information on transportation costs from the 1991 Residential Transportation Energy Consumption Survey. An analysis of 1990 census data on geographic variations in housing costs was carried out by Nancy Maritato, research associate for the panel, with a data file provided by Marie Peis of the Census Bureau. The panel's consideration of using survey responses to derive poverty thresholds benefited from the availability of new data. We thank Donald Clifton, chairman, Gallup Organization, who graciously made space available in the August 1992 Gallup Poll for questions on the poverty line. We also thank Tom Smith of the National Opinion Research Center, who oversaw the addition of questions on the poverty line to the 1993 General Social Survey, and we thank the Wisconsin Letters and Survey Center, which included questions on the poverty line in its ongoing telephone survey. During the first year of its work, the panel held meetings at which panel members and others presented papers and led discussions on various aspects of poverty measurement. These seminars were always informative and fruitful; they added greatly to the panel's understanding of the issues. We acknowledge particularly the contributions of Marilyn Moon, Urban Institute, who prepared a paper on alternative approaches to the treatment of medical care benefits and costs in a poverty measure; and Harold Watts, Columbia University, who prepared a paper on budget-based concepts of poverty. We also acknowledge John Coder, Bureau of the Census, who reviewed data quality issues in the March CPS; Greg Duncan, Northwestern University, and Patricia Ruggles, Joint Economic Committee staff, who discussed time periods for measuring poverty; Christopher Jencks, Northwestern University, who discussed consumption and income definitions of family resources; Graham Kalton, Westat, Inc., who reviewed for us the recommendations of the National Research Council Panel to Evaluate SIPP; Brent Moulton, Bureau of Labor Statistics, who reviewed the Bureau's work to develop interarea price indexes; Kathryn Nelson, U.S. Department of Housing and Urban Development, who briefed the panel on fair market rents and income limits for housing assistance programs; Deborah Phillips, Board on Children and Families, National Research Council, who described research on poverty, child care, and families; Howard Rolston, Administration for Children and Families, U.S. Department of Health and Human Services, who briefed the panel on issues of minimum benefit standards for family assistance programs; Denton Vaughan, Social Security Administration, who described work on estimating poverty levels from Gallup Poll survey data; Daniel Weinberg, Bureau of the Census, who provided an overview of issues in poverty measurement in the United States; and Michael Wolfson, Statistics Canada, who described efforts to revise the Canadian low-income measures. Also, Vee Burke of the Congressional Research Service provided helpful comments on

ACKNOWLEDGMENTS vii the parts of our report that discuss government assistance programs; and Mary Kokoski of the Bureau of Labor Statistics did the same for our discussion of interarea price indexes. Regular attendees at our seminars included many of the people listed above, and they and the following people contributed useful insights and perspectives in our public discussions: Richard Bavier and Paul Bugg, U.S. Office of Management and Budget; William Butz, Bureau of the Census; Eva Jacobs, Bureau of Labor Statistics (retired); Bruce Klein, U.S. Department of Agriculture; William Prosser, U.S. Department of Health and Human Services; and Kathleen Scholl, U.S.General Accounting Office. Mollie Orshansky, the originator of the current U.S. poverty measure, gave the panel her unique perspective at our first meeting. Gordon Fisher, U.S. Department of Health and Human Services (formerly at the U.S. Office of Economic Opportunity), not only attended our seminars but provided the panel with invaluable materials on the history of poverty measurement in the United States. He deserves the thanks of all poverty analysts for assembling and preserving the detailed historical record. The list of references in our report makes clear the extensive literature on poverty and poverty measurement on which we were fortunate to draw. We acknowledge particularly the useful material for understanding the current U.S. poverty measure and alternative measures in the studies conducted by the 1976 Poverty Studies Task Force, chaired by Bette Mahoney (U.S. Department of Health, Education, and Welfare) and by the Expert Committee on Family Budget Revisions (1980), chaired by Harold Watts. Pat Ruggles' recent book, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (1990), is another invaluable review of issues and alternatives. We mention above Gordon Fisher's contributions, which are also cited in the reference list. Daniel Weinberg and Enrique Lamas, Bureau of the Census; John Holmes, Bureau of Labor Statistics; and Leonard Sternbach, Administration for Children and Families, U.S. Department of Health and Human Services, were the contract monitors and liaisons for the study. They assisted the panel in obtaining needed information and keeping the project on track and by their participation in our public meetings. An important debt of gratitude is owed to the panel's own staff. Nancy Maritato, who served as research associate, worked closely with the study director on all aspects of the project. She prepared background materials on a wide range of subjects: alternative poverty threshold concepts, subjective measures of poverty obtained from survey responses, geographic variations in living costs, alternative definitions of family resources, poverty indexes, and the incentive effects of government assistance programs. As noted above, she conducted analyses for the panel of interarea housing cost differences, and she worked closely with Bureau of Labor Statistics staff in developing the expenditure

ACKNOWLEDGMENTS viii information that formed the basis of the panel's recommended threshold concept. Elaine Reardon, who served as the panel's Chicago-based research associate, provided me with efficient and resourceful assistance. In addition, she prepared background material on alternative equivalence scales for adjusting poverty thresholds by family type and on the effects of poverty and government assistance on children. Agnes Gaskin served ably as the panel's project assistant. She dealt admirably with the logistics of the panel's numerous meetings and the voluminous materials that the panel generated over the course of the project, culminating in this report. Agnes was assisted at one time or another by virtually all the project assistants of the Committee on National Statistics. We are very grateful to Eugenia Grohman, Associate Director for Reports of the Commission on Behavioral and Social Sciences and Education, for invaluable assistance in helping the panel organize a large volume of technical material into a coherent and readable report and in shepherding the report through the review and production processes at the National Research Council. Of course, individual panel members made impressive contributions to the study. Several of them led seminars and prepared background materials and chapter drafts on particular topics; others participated in a working group to explore the relationship of a statistical poverty measure to eligibility standards for government assistance programs; and all contributed a high level of critical thinking and concern for the difficult issues we faced. Finally, I want to say on behalf of myself and the panel that it has been a joy to work closely with such a fine professional as our study director, Connie Citro. It is she who deserves a disproportionate share of any credit due this panel. ROBERT T. MICHAEL, Chair Panel on Poverty and Family Assistance

CONTENTS ix Contents 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 Threshold 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

CONTENTS x 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 317 ASSISTANCE PROGRAMS 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 DISSENT 385 John F. Cogan B DATA SOURCES FOR MEASURING POVERTY 391 C THE INTERDEPENDENCE OF TIME AND MONEY 421 D ASSISTANCE PROGRAMS FOR PEOPLE WITH LOW- 433 INCOMES REFERENCES AND BIBLIOGRAPHY 449 BIOGRAPHICAL SKETCHES OF PANEL MEMBERS AND 483 STAFF INDEX 489 FIGURES 1-1 Alternative poverty thresholds for four-person families, in 35 constant 1992 dollars 1-2 Alternative equivalence scales 61 1-3 Poverty status of hypothetical three-person (one-adult/two- 73 child) families under current and proposed poverty measures, 1992 1-4 Effects of the proposed measure on the percentage of 76 poorer people in working families and families receiv- ing cash welfare

CONTENTS xi 1-5 Effects of the proposed poverty measure on the geographic 77 distribution of poor people 1-6 Effects of selected components of the proposed measure on 78 the poverty rate 1-7 Poverty rates under the current and proposed measures, 1992 79 3-1 Equivalence scale implicit in the current poverty thresh- 165 olds: increment for each added family member (relative to a scale value of 1.00 for a single adult under age 65) 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 179 family member (relative to a scale value of 1.00 for a single adult) 3-5 Current and proposed equivalence scales expressed relative 182 to a value of 1.00 for a family of two adults and two children 8-1 AFDC eligibility and benefits of hypothetical families in 378 states with different eligibility and benefit determination methods C-1 Time and money tradeoffs in the poverty threshold for a 429 household 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) 47 families set by various methods for 1989-1993, in 1992 dollars (rounded) 1-4 Poverty thresholds for two-adult/two-child (or four-person) 54 families set by various methods for 1989-1993, as devel- oped and converted, in 1992 dollars (rounded) 1-5 Poverty thresholds adjusted for differences in cost of hous- 63 ing, expressed as percentages above or below a national poverty threshold 1-6 Poverty statistics, 1992: current measure and proposed mea- 75 sure, keeping the overall poverty rate constant 2-1 Comparison of updated poverty thresholds for a two-adult/ 112 two-child family using the Orshansky multiplier, the offi- cial threshold, and two relative thresholds, 1950-1992, in constant 1992 dollars 2-2 Comparison of poverty thresholds for a two-adult/two-child 115 family using two multiplier approaches, selected years, in constant 1992 dollars 2-3 Relative poverty thresholds for a four-person family derived 132 as one-half of median before-tax and after-tax four- person family income, 1947-1992, in constant 1992 dollars 2-4 Subjective poverty thresholds for a four-person family 138

CONTENTS xii derived from survey data, 1947-1993, in constant 1992 dollars 2-5 Examples of poverty thresholds for four-person families set 142 by various methods for years around 1980 and 1990, in constant 1992 dollars 2-6 Percentile values of expenditures on the panel's basic bundle 150 by two-adult/two-child families, 1989-1991 Consumer Expenditure Survey, in constant 1992 dollars, with multi- plier 2-7 Poverty thresholds developed under panel's proposed proce- 156 dure, in constant 1992 dollars 3-1 Equivalence scale implicit in official weighted average 164 poverty thresholds for 1992 3-2 Selected alternative equivalence scales: increment in the 167 scale value for a spouse and each added child (relative to a scale value of 1.00 for a single-adult family) 3-3 Estimates of the cost of children (using Rothbarth method) 178 3-4 Alternative equivalence scales, with scale values expressed 181 relative to a value of 1.00 for a family of two adults and two children 3-5 Hedonic model price indexes for rent and rental equiva- 192 lence, and combined multilateral index, selected areas, July 1988-June 1989 3-6 Cost-of-housing index values (relative to 1.00 for the United 196 States as a whole) by region (census division) and size of metropolitan area 4-1 Annual family out-of-pocket expenses for personal medical 227 care services as a percent of family income, percentage distribution, 1987 4-2 Poverty rates with and without insurance values for public 229 and private medical care benefits under different valua- tion approaches, selected age groups, 1986, in percent 5-1 Official poverty thresholds in 1992, by family size and type 250 5-2 Poverty thresholds in 1992 under proposed measure, by fam- 251 ily size and type 5-3 Housing cost adjustments for proposed poverty thresholds 252 5-4 Distribution of gross money income, with amounts deducted 257 for out-of-pocket medical care expenditures, child care expenses, and other work-related expenses, 1992, in dol- lars 5-5 Change in poverty status and income-to-poverty ratios under 258 the current and proposed poverty measures, with total poverty rate held constant at 14.5 percent, 1992 5-6 Composition of the total and poverty populations under the 260 current and proposed measures, with total poverty rate held constant at 14.5 percent, 1992 5-7 Poverty rates by population group under the current and pro- 261

CONTENTS xiii posed measures, with total poverty rate held constant at 14.5 percent, 1992 5-8 Poverty rates by population group under the current and pro- 265 posed measures, 1992 5-9 Effect of individual components of the proposed measure on 268 percentage point changes in the official poverty rates, 1992 5-10 Effect of alternative scale economy factors in the proposed 270 measure on poverty rates, by family size, 1992 5-11 Poverty rates under the current and proposed measures: 276 1992, 1989, 1983, 1979 5-12 Poverty rates calculated from the Consumer Expenditure 279 Survey, Current Population Survey, and Survey of Income and Program Participation, 1980-1991 7-1 Government assistance programs that link eligibility to 321 income, fiscal 1992 7-2 Government assistance programs that link eligibility or bene- 322 fits to the current poverty measure, by program type and poverty cutoff for eligibility, fiscal 1992 8-1 AFDC need standards, maximum AFDC benefits, and max- 337 imum combined AFDC and food stamp benefits for a family of three, January 1994 8-2 State approaches to setting AFDC need standards in the 355 1970s and 1980s 8-3 AFDC need standards, maximum AFDC benefits, and max- 361 imum combined AFDC and food stamp benefits for a family of three, as a percentage of the 1993 weighted average monthly poverty threshold, January 1994 8-4 State median family income and state-adjusted poverty 363 thresholds under the panel's proposed measure 8-5 Mean and distribution of state AFDC need standards, maxi- 365 mum 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 8-6 Equivalence scale implicit in maximum AFDC benefits for 366 two-person through six-person families, January 1994 8-7 AFDC need standards for a family of three, July 1970, July 370 1980, and January 1991, in constant (January 1991) dollars 8-8 AFDC maximum benefits for a family of three, July 1970, 372 July 1980, and January 1991, in constant (January 1991) dollars 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- 434 income people, by type of income test, fiscal 1992

xiv The National Academy of Sciences is a private, nonprofit, self- perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council. www.national-academies.org

PREFACE xv Preface The concepts and data that underlie the current U.S. measure of poverty are more than 30 years old. Over the past two decades, more and more people have raised questions about the measure and whether it is still appropriate for the end of the twentieth century. Reflecting these concerns, the Joint Economic Committee of Congress initiated an independent, in-depth review of the U.S. poverty measure, working with the House Subcommittee on Census, Statistics, and Postal Personnel. Funds for a study by the National Research Council (NRC) of the official poverty measure and alternatives to it were appropriated to the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor. The study was to address concepts, measurement methods, and information needs for a poverty measure, but not necessarily to specify a new poverty ''line." Subsequently, the scope of the study was broadened to include consideration of similar conceptual and methodological issues for establishing standards for welfare payments to needy families with children. The Administration for Children and Families (ACF) of the U.S. Department of Health and Human Services provided funding for this second request, which originated from a provision in the 1988 Family Support Act. This provision asked for a study of a national minimum benefit standard for the Aid to Families with Dependent Children program. The NRC said it could not recommend a standard but could consider some of the issues involved. Both ACF and BLS transferred their funding to the Bureau of the Census, U.S. Department of Commerce, for a contract with the Committee on National Statistics at the NRC to establish our panel. The Food and Nutrition Service of the U.S. Department of Agriculture also provided funds to support the study.

PREFACE xvi Our panel first met in June 1992 and, over two-and-a-half years, worked to come to grips with the range of conceptual and statistical issues involved in defining and measuring poverty and in setting standards for assistance programs. We were very aware of the importance of the poverty measure, which serves as a key social indicator and also determines eligibility for benefits for many government assistance programs. We were also cognizant of the intense interest in the poverty measure among the policy and research communities. Hence, we took steps to educate ourselves as fully as possible about the issues and to ensure that we heard a broad range of views. We held numerous meetings to which we invited staff from many executive and congressional agencies, as well as researchers and analysts with expertise in particular areas. We sent letters to more than 150 researchers and analysts asking for their views on key issues. We reviewed the large body of literature on poverty measurement both in the United States and abroad. Finally, with help from federal agencies, we conducted extensive data analyses of our own. This report of our work is organized into three distinct parts of disparate lengths. First, a summary highlights key findings and lists all our recommendations. Second, Chapter 1, titled "Introduction and Overview," provides both background on the topic and the arguments for our recommendations; it is designed for a nontechnical audience. Third, Chapters 2-8 (and Appendices B-D) provide detailed reviews and technical analyses of many of the issues related to poverty measurement and the determination of program benefit standards. On the basis of our deliberations, we recommend a new official poverty measure for the United States. Our recommendation is to retain the basic notion of poverty as material deprivation, but to use a revised concept for setting a threshold and a revised definition of the resources to be compared with the threshold to determine if a family or individual is or is not in poverty. Equally importantly, we recommend procedures for devising an equivalent poverty threshold for families of different sizes and for families in different geographic locations and for updating the poverty threshold over time. The current poverty measure has weaknesses both in the implementation of the threshold concept and in the definition of family resources. Changing social and economic conditions over the last three decades have made these weaknesses more obvious and more consequential. As a result, the current measure does not accurately reflect differences in poverty across population groups and across time. We conclude that it would be inadvisable to retain the current measure for the future. In deciding on a new measure to recommend, we used scientific evidence to the extent possible. However, the determination of a particular type of poverty measure and, even more, the determination of a particular poverty threshold are ultimately subjective decisions. "Expertise" can only carry one so far. To help us choose among alternatives, we developed a set of criteria,

PREFACE xvii namely, that the poverty measure should be understandable and broadly acceptable to the public, statistically defensible (e.g., internally consistent), and operationally feasible. Finally, for the most judgemental aspect of a poverty measure, namely, setting the level of the threshold, we recommend a specific procedure to follow—but we do not recommend a precise number. We suggest a range that we believe provides reasonable limits for the initial poverty threshold, but we leave the ultimate choice of a specific value to the policy arena. We also considered the possible relationship of the proposed poverty measure to eligibility and benefit standards for government assistance programs. The issues in this area are complex. For many reasons, there is no necessary relationship between a statistical measure of need and the extent to which programs can or should be devised to alleviate need. We do not offer specific recommendations, but we hope that our discussion of the issues will provide some helpful insights for the ongoing policy debate. We note that our discussion, of necessity, refers to assistance programs as they operated in 1992-1994. One member of our panel, John F. Cogan, dissents from the panel's decision to recommend a new poverty measure for the United States. He believes that it is inappropriate for a panel of the National Research Council to make such a recommendation, and he questions some of the panel's analysis in his dissent (Appendix A). Although Professor Cogan raises some important issues, we are confident that careful readers of the report will find that we have dealt thoroughly with all of them. Professor Cogan also questions the scientific basis for our recommendations. There is, indeed, judgement as well as science informing many of the decisions that underlie the recommendations in this report. That is why the panel has taken great care to make clear at each step in the report the character and status of the scientific evidence and the role of judgement. Again, we are confident that careful readers of the report will see clearly how we have dealt with the interplay of science and judgement at every step. But the panel concluded that it would not serve the public interest for our report simply to lay out the many possible alternatives to the current poverty measure or simply to call for more research on the topics where that might advance our knowledge or reduce the range of possible alternatives. The current U.S. measure of poverty is demonstrably flawed judged by today's knowledge; it needs to be replaced. The panel believes that the measure recommended in our report is a significant improvement over that current measure, and we urge its adoption. Over time, we know that the nature of scientific evidence will change and the subjective judgements of what seems appropriate today will probably change as well. That was surely one important reason for convening this panel, since the current poverty measure was informed by early 1960s-vintage knowledge

PREFACE xviii and perceptions. It is also the reason we recommend that a process be established for periodic review of the poverty measure (as is done for other key social indicators, such as the Consumer Price Index). I know that I speak for all the members of this panel in expressing gratitude for the privilege of serving on it. Its purpose is an important one, and we have each learned much from our work over the past two-and-a-half years. ROBERT T. MICHAEL, Chair Panel on Poverty and Family Assistance

xix Measuring Poverty

xx

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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