National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: WHAT IS POVERTY?

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Suggested Citation:"WHAT IS POVERTY?." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Suggested Citation:"WHAT IS POVERTY?." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 20
Suggested Citation:"WHAT IS POVERTY?." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
×
Page 21
Suggested Citation:"WHAT IS POVERTY?." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
×
Page 22
Suggested Citation:"WHAT IS POVERTY?." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 23

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INTRODUCTION AND OVERVIEW 19 itself (i.e., the standard of need), how it is updated over time, and the definition of families' resources that are available to meet this poverty standard. We considered the relevance of our proposed poverty measure—and other factors— for setting standards for government assistance programs. Although we offer few recommendations in this latter area, we try to illuminate and clarify the issues. This overview presents the panel's findings, conclusions, and recommendations in a nontechnical way, for the general reader. The other chapters of this report discuss the issues involved in poverty measurement in detail: alternative concepts for developing and updating poverty thresholds (Chapter 2); alternative adjustments of the thresholds for different family circumstances, such as family size and geographic location (Chapter 3); alternative definitions of family resources (Chapter 4); data requirements for implementing the panel's proposed poverty measure and the effects on the distribution of poverty (Chapter 5); other issues in poverty measurement, such as the time period and unit of economic analysis covered (Chapter 6); and the potential relationship of the poverty measure to government assistance programs, both generally (Chapter 7) and, specifically, to the program for Aid to Families with Dependent Children (Chapter 8). Appendices provide additional information on specific topics. In this overview we first explain what we mean by economic poverty, in contrast to other types of deprivation. We then describe the current official U.S. poverty measure and assess its adequacy. We also review alternative poverty measures, summarizing their merits and limitations. We base our choice of a measure on scientific evidence to the extent possible; however, we stress that the decision to recommend a particular measure (and the specific features of a measure) ultimately cannot rest on science alone, but also involves judgement. We describe the criteria that we used to guide our judgements. We then present our recommendations for the poverty measure. Finally, we present our findings and views regarding the applicability of our revised poverty measure for eligibility standards and payment levels in assistance programs for low-income families. WHAT IS POVERTY? We define poverty as economic deprivation. A way of expressing this concept is that it pertains to people's lack of economic resources (e.g., money or near-money income) for consumption of economic goods and services (e.g., food, housing, clothing, transportation). Thus, a poverty standard is based on a level of family resources (or, alternatively, of families' actual consumption) deemed necessary to obtain a minimally adequate standard of living, defined appropriately for the United States today.4 4 We refer to ''family resources" throughout this report, as distinguished from the country's economic resources, more broadly defined. Properly, the term should be "family or unrelated individual resources" (or needs) to accord with the units for which poverty is currently measured.

INTRODUCTION AND OVERVIEW 20 There are many other forms of deprivation. One can be deprived of psychological or social well-being (e.g., one can have impaired self-esteem or heightened anxiety and stress or be socially isolated), and one can lack physical well-being (e.g., one can have a chronic disease or disabling condition or be subjected to a high risk of violence in one's neighborhood). There are also many conditions that can lead to deprivation on one or more of these dimensions. For example, people who live with a family member who abuses drugs or alcohol likely suffer deprivation in terms of their psychological health, and perhaps their physical health and economic standard of living as well. People who live in a crime-ridden neighborhood may be deprived in a number of ways—through the psychological fear they are likely to harbor, the actual physical harm or property loss that they may experience, and the adverse social and economic effects (e.g., declining property values) that may result because the broader society shuns their neighborhood. People who are illiterate may experience many deprivations to full participation in society: they may have great difficulty in finding and keeping a good job; they may have problems in traveling around their area or in negotiating a good price for the products they buy; they may avoid voting for public office; and they may experience social shame. People who are without health insurance may be at risk of psychological and economic, as well as physical, deprivation. People who lose their job or who have never been successful in finding one may suffer a deprivation of both income and psychic esteem. Finally, people who, for one or another reason, lack sufficient resources to provide for an adequate standard of living may suffer not only economic hardship, but psychological stress and physical problems as well. We encourage the development of indicators for monitoring trends over time and among population groups on all of these different dimensions of deprivation. Also, we encourage work on the relationships among them. For example, one element of economic or material deprivation may be inadequate housing, which, in turn, can imply exposure to risks that go well beyond income inadequacy (e.g., fire hazard, lead poisoning). For fuller understanding and to inform policy, a breadth of information and analysis is needed on the well-being of the population, including and going beyond the economic dimension. But the focus of our work is on economic deprivation, narrowly defined. We are concerned with the concept, definition, and measurement of economic poverty, or what many call material poverty. We contend that this relatively narrow conceptualization of poverty is appropriate for an official poverty measure for several reasons. First, it is a familiar concept that, in a broad sense, has formed the basis of official poverty measurement in the United States for the past several decades. It is a notion of poverty that accords with political rhetoric as least as far back as Franklin D. Roosevelt's concern for Americans who were ill-housed, ill-clad, and ill-nourished.

INTRODUCTION AND OVERVIEW 21 Second, while it is surely not easy to arrive at a specific concept or measurement of economic deprivation (see below), the same problem applies to other kinds of deprivation, and the notion of economic deprivation has the advantage that policy makers and the public have experience with its measurement and intuition about its interpretation and movement over time. Third, since many public programs and debates pertain to the economic sphere of life, it is important to have a time-series measure of economic deprivation. If a broader concept for the official "poverty" measure were adopted, there would still be a need for a measure to track the effects of programs and policies on the economic domain. The nation's understanding about and commitment to the alleviation of poverty has been informed for many years by the official measure of economic deprivation. We think the function of that measure should be retained much as it is now. If the current measure were internally consistent and not flawed, in ways we describe below, we would be inclined to recommend its continuation. But we do find it unacceptably flawed for its important uses with respect to government policies and programs, academic research, and public understanding; thus, we recommend a new measure, but one that retains the concept of economic deprivation as the core notion of poverty. This concept of poverty must be distinguished from "welfare" and "well- being." Poverty is a circumstance, defined by a set of specific conditions that are considered to reflect economic deprivation. One is said to be ''in poverty" if those conditions are met (i.e., if one's resources are below a threshold level for needed economic consumption) and "not in poverty" if those conditions are not met. Welfare is a term for certain government assistance programs or the resources that are transferred by those programs, such as Aid to Families with Dependent Children. More generally, the term welfare is sometimes used to mean well-being, which is a much broader term capturing the overall condition of a person. In contrast, "economic poverty" refers to a circumstance defined by a low level of material goods and services or a low level of resources to obtain those goods and services. This distinction is maintained by the concept of poverty that we use here. While we use economic deprivation as the underlying concept of poverty and devote most of this report to its definition and measurement, we acknowledge that it is not easy to specify in a precise manner what it means to be economically deprived, even in a narrow sense. The general idea certainly seems intuitive and transparent. For instance, Adam Smith as far back as 1776 linked economic poverty to the want of "necessaries," which he defined as "not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without." Commonly, such a concept is translated into a dollar level that is deemed adequate to obtain necessary goods and services. The official U.S. poverty measure

INTRODUCTION AND OVERVIEW 22 was developed along these lines, although only one "necessity"—a minimum diet —was specified; other necessary consumption was subsumed in the multiplier of three applied to the costs of the minimum diet. More recently, Townsend (1979, 1992:5, 10) has given a social dimension to economic deprivation. Townsend observes that people are "social beings expected to perform socially demanding roles as workers, citizens, parents, partners, neighbors, and friends." He argues that economic poverty should be defined as the lack of sufficient income for people to "play the roles, participate in the relationships, and follow the customary behavior which is expected of them by virtue of their membership of society." As an example, one could argue that having a telephone is essential in a developed country for everything from job seeking to having relationships with family and friends. Given a concept such as Smith's or Townsend's or, indeed, virtually any concept of economic deprivation, the issue is how to define the key terms —"necessaries," "indecent…to be without," "customary behavior.'' Although there may be a general sense in a society of what are "necessities" or what is "customary behavior," the attempt to be specific inevitably raises questions and leads to debate about the very meaning of economic poverty. Throughout this report, our approach is pragmatic. We first assess how well the official U.S. poverty measure is serving as a barometer and benchmark for policy, research, and general public understanding about an important aspect of deprivation. We conclude that, given socioeconomic and public policy changes since the measure was developed, it is no longer satisfactory for those purposes. We then review the properties of some common alternative measures to determine which of them could represent an improvement. Our goal is not to develop the ideal poverty measure on which everyone would agree (which surely does not exist), but to propose a measure that is a marked improvement over the current one—just as the official measure, when first developed by Mollie Orshansky, was regarded as a marked improvement over competing measures at that time. Our measure includes a specific concept of economic poverty by which to develop a new poverty threshold for a reference family type: inadequate resources to obtain basic living needs. We define those basic needs as food, clothing, and shelter. There are other needs as well (e.g., personal care, transportation), but there is less agreement about them, and so our approach provides a small amount for other needed spending by means of a multiplier that is applied to the amounts for food, clothing, and shelter. This concept of poverty as insufficient resources for basic living needs accords with traditional public concerns for the needy, whether expressed in provisions for homeless shelters, soup kitchens, and clothing drives, or the provision of cash or in-kind benefits for basic consumption. It is also not inconsistent with and, in our view, improves on, the concept that was originally used to derive the current thresholds, namely, the application of a multiplier for other needed spending to a minimum allowance for food.

INTRODUCTION AND OVERVIEW 23 Yet general agreement about basic needs does not mean that everyone agrees about the level of consumption that distinguishes a state of poverty from a state of adequacy. Thus, there is a question about how much food, shelter, and clothing distinguish a person in poverty from one who is not in poverty. This question cannot be answered in the abstract. No concept of economic poverty, whether ours or another, will of itself determine a level for a poverty threshold. That determination necessarily involves judgement. Moreover, as we show below and in Chapter 2, no matter what the particular concept, the determination of a poverty threshold invariably considers people's actual spending patterns and hence, inevitably, has a relative aspect. Under our threshold concept, we propose that the values for food, shelter, and clothing—the basic bundle—and for a small amount of other needed spending—the multiplier—be developed by direct reference to spending patterns of American families below the median expenditure level. More important, we propose that real changes in spending on food, clothing, and shelter be used to update the poverty thresholds each year. By so doing, the thresholds will maintain a relationship to real changes in living standards, but only to the extent that these changes affect consumption of basic goods and services that pertain to a concept of poverty, not all goods and services. In this sense, our concept is quasi-relative in nature. Because the most judgemental aspects of any poverty measure concern the reference family threshold, there is a danger that the need to improve the official measure may founder on debates about the "right" concept and level of that threshold. (We do not recommend a particular value for that threshold; rather, we suggest a range within which we believe it could reasonably fall.) It is important that a threshold concept satisfy the criteria we outline below and that the level chosen for the threshold is credible, but other characteristics of a poverty measure are equally or more important. Significant improvements will result in the accuracy of official U.S. poverty statistics by implementing our recommendations for adjusting the threshold along the three dimensions of family composition, geographic location, and time period and by implementing our recommended definition of family resources. It is in these recommendations that we are confident that the new measure of poverty is a considerable improvement over the current official measure. Finally, by focusing on and recommending a specific measure of economic poverty, as we do, we do not advocate the idea that there is but a single measure of economic deprivation that should be featured as sacrosanct in policy evaluations. Rather, we urge the Census Bureau to develop reports on a range of poverty statistics, just as the Bureau of Labor Statistics (BLS) publishes a range of unemployment statistics in addition to the official unemployment rate. Examples of such useful poverty indicators, in addition to the poverty rate itself, would include measures of the intensity of poverty in terms of the average income and distribution of income of the poor.

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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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