National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Resources as Disposable Income

Suggested Citation:"Resources as Disposable Income." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 206

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DEFINING RESOURCES 206 We discuss these issues more fully in a later section of the chapter. Here we want to emphasize our principle of consistency between the definition of family resources and the threshold concept. RECOMMENDATION 4.1. In developing poverty statistics, any significant change in the definition of family resources should be accompanied by a consistent adjustment of the poverty thresholds. ALTERNATIVES FOR DEFINING RESOURCES We considered three main alternatives to the current definition of family resources as gross money income. One alternative—the one we recommend—is to define resources as disposable money and near-money income. A second alternative, which is strongly advocated by a number of researchers, is to look at actual consumption or expenditures rather than income. A third alternative is a hybrid definition that adds to disposable income some kind of valuation of a family's asset holdings that could be used to finance consumption over a short period. This alternative is sometimes called a ''crisis" definition of resources. Each alternative raises issues of determining the particular elements that comprise the definition—in a manner consistent with the threshold concept— and of determining appropriate and feasible methods and data sources for implementing each element. Resources as Disposable Income In comparing a definition of family resources as disposable money and near-money income with the current gross money income definition, it is clear that disposable income is preferable for measuring poverty in terms of satisfying the consistency principle. This conclusion holds whether the measurement uses the concept underlying the thresholds as originally defined or the concept that we propose. The problem with the gross money income definition of family resources in relation to the threshold concept is that it is both too inclusive and not inclusive enough. Gross money income excludes the value of such in-kind benefits as food stamps, school meals, and public housing, yet these benefits support the types of consumption that were implicitly included in the originally developed poverty budget of food times three (and are included in the proposed poverty budget of food, clothing, shelter, and a little more). At the same time, gross money income does not exclude income and payroll taxes, but families have no choice in paying these taxes, and the money so spent cannot be used for consumption. Gross money income also does not exclude some other kinds of expenses that are not really discretionary and hence are not available for consumption of food, housing, and similar items. These

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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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