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Measuring Poverty: A New Approach (1995)

Chapter: 1 Introduction and Overview

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Suggested Citation:"1 Introduction and Overview." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 17
Suggested Citation:"1 Introduction and Overview." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 18

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INTRODUCTION AND OVERVIEW 17 1 Introduction and Overview he Social Security Administration (SSA) began publishing poverty statistics in the early 1960s, using a poverty measure developed by staff economist Mollie Orshansky (1963, 1965a). This measure had a set of poverty thresholds for different types of families that consisted of the cost of a minimum adequate diet multiplied by three to allow for other expenses. The threshold value for the base year 1963 for a family of two adults and two children was about $3,100. To determine a family's poverty status, its resources, defined as before-tax money income, were compared with the appropriate threshold. In 1965 the Office of Economic Opportunity (OEO) adopted the SSA thresholds for statistical and program planning purposes; in 1969 the U.S. Bureau of the Budget (now the U.S. Office of Management and Budget) issued a statistical policy directive that gave the thresholds official status throughout the federal government. The Census Bureau took over the job of publishing the official annual statistics on the number and proportion poor (the poverty rate) by comparing the SSA thresholds to estimates of families' before-tax money income from the March Current Population Survey (it first issued poverty statistics in August 1967).1 For these comparisons, the SSA thresholds are updated annually for price inflation and so are not changed in real dollar terms: in other words, the 1992 threshold value of $14,228 for a family of four (two adults and two children) represents the same purchasing power as the 1963 threshold value of about $3,100 for this type family.2 1 See Fisher (1992b, summarized in 1992a) for a detailed history of the origins and development of the official U.S. poverty measure. 2 We cite the 1992 threshold here and elsewhere because the latest data available to us were for that year.

INTRODUCTION AND OVERVIEW 18 The official poverty measure has important effects—direct and indirect— on government policies and programs. Some government assistance programs for low-income people determine eligibility for benefits or services by comparing families' resources to the poverty thresholds or a multiple of them.3 Also, some formulas for allocating federal funds include state or local poverty rates as a factor. The poverty measure influences policy making more broadly as an indicator of economic well-being to which policy makers, advocates, analysts, and the general public are sensitive. Trends in poverty rates over time and differences in poverty rates across population groups are often cited as reasons that a particular policy (or set of policies) is, or is not, needed. For example, the recent expansion of the Earned Income Tax Credit (EITC) was prompted by statistics on poverty among working families. The poverty measure also plays a role in evaluating government programs for low-income people and, more generally, the effects of government policies and economic growth on the distribution of income. In academia, there is a large literature on the characteristics of the poor, factors leading to poverty and other kinds of deprivation, and the effects of poverty on other behaviors and outcomes. Consequently, each year's poverty figures are sought by policy makers, researchers, and the media, who look to see if the rate has changed for the nation as a whole and for specific population groups and to understand the causes and consequences of changes in the rate and their implications for public policy. For all of these users, it is critical that the measure provide an accurate picture of trends over time and of differences among groups, such as children, the elderly, minorities, working people, people receiving government assistance, people in cities, and people in rural areas. Poverty statistics regularly make the headlines, but, increasingly over the past decade, so do stories that question the soundness of the concepts and methodology from which the official numbers derive. In response to a request of the U.S. Congress, the Committee on National Statistics of the National Research Council established a study panel to address the concerns about the poverty measure and also to consider related conceptual and methodological issues in establishing standards for welfare payments to needy families. Our panel—the Panel on Poverty and Family Assistance: Concepts, Information Needs, and Measurement Methods—has concluded that revisions to the current poverty measure are long overdue. We have developed a new measure, embracing both the concept of the poverty standard or threshold 3 Most of the programs that relate eligibility to the poverty measure actually use the poverty guidelines, which were originally developed by OEO and are issued annually by the U.S. Department of Health and Human Services. The poverty guidelines are constructed by smoothing the official thresholds for different size families (see Fisher, 1992c). For historical reasons, the guidelines are higher than the thresholds for Alaska (by 25%) and Hawaii (by 15%).

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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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