Measuring Poverty: A New Approach (1995)

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EFFECTS OF THE PROPOSED POVERTY MEASURE 256 although it does report the employment status and weeks worked of each adult. We imputed work expenses to each worker aged 18 and over. For each week worked, we assigned a work expense value of $14.42, representing an annual amount of $750 for a 52-week work-year (or $720 for a 50-week work-year— see Chapter 4). The amount assigned was not allowed to exceed the worker's annual earnings. Also, for any parent for whom child care expenses were imputed (the parent in each family with the lower annual earnings), the combined child care and other work expense deduction was not allowed to exceed the parent's annual earnings. The value of the work expense deduction was derived on the basis of analyzing work expense data from Wave 3 of the 1987 SIPP. We computed median weekly work expenses for the first job reported for all workers aged 18 and over (including those reporting zero values). The estimated median weekly value in 1992 dollars was $17 (see Chapter 4 for details of the calculation). The amount that we deducted from earnings for each week worked ($14.42) is 85 percent of the median value. Distribution of Imputed Values On average, we imputed $2,872 in deductions for out-of-pocket medical care expenses, child care expenses, and other work-related expenses, or 8.5 percent of gross money income for the average unit (families and unrelated individuals). As would be expected, the dollar amount imputed increased linearly with gross money income and decreased on a percentage basis. As shown in Table 5-4, the imputed deduction for the sum of these three expense categories is $669 for the family at the 10th percentile of the distribution (10.7% of gross money income); $3,007 for the family at the 50th percentile (median) (11.1% of gross money income); and $4,898 for the family at the 95th percentile (5.2% of gross money income). Higher amounts, both in dollars and as a percentage of gross money income, were imputed for these expenses for the reference family of two adults and two children (see Table 5-4); this results from the high proportion of workers among this family type. RESULTS Effects with a Constant Poverty Rate In our first analysis, we implemented the current measure with the official 1992 threshold of $14,228 for a two-adult/two-child family and the proposed measure with a threshold of $13,175 for this family type and a scale economy factor of 0.75. By design, the proposed measure under this scenario produces about the same 1992 poverty rate (14.54%) and number of poor people (36.9 million) as the current measure (14.52% and 36.9 million). However, they are not all the same people. 

EFFECTS OF THE PROPOSED POVERTY MEASURE 257 TABLE 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 All Familiesa Two-Adult/Two-Child Families Percentile Gross Deductionsb Gross Deductionsb of Gross Money Money Money Income Income Income Dollar Percent Dollar Percent Amount Amount 10th 6,282 669 10.7 15,798 2,648 16.8 20th 10,768 1,429 13.3 24,364 4,142 17.0 30th 15,544 2,042 13.1 31,005 4,629 14.9 40th 20,971 2,518 12.0 37,275 5,656 15.2 50th 27,088 3,007 11.1 43,387 5,894 13.6 (median) 60th 34,210 3,516 10.3 49,816 5,669 11.4 70th 42,916 3,956 9.2 56,993 6,108 10.7 80th 54,538 4,416 8.1 66,633 6,926 10.4 90th 74,240 4,651 6.3 86,667 6,641 7.7 95th 93,818 4,898 5.2 99,451 6,946 7.0 Average 33,857 2,872 8.5 46,583 5,243 11.3 aIncludes unrelated individuals. b Average of imputed out-of-pocket medical care expenses (including health insurance premiums), child care expenses, and work-related expenses for families with gross money income 2.5 percentiles below to 2.5 percentiles above each percentile value (e.g., deductions for families at the 10th percentile are averaged over families with gross money income between the 7.5 and 12.5 percentiles). The proposed measure moves 7.4 million people out of poverty, and it moves about 7.4 million people into poverty. (A total of 29.5 million people, 80% of the poverty population, are poor under both measures.) Most of the movement occurs near the poverty line. Thus, 87 percent of the 7.4 million people who are no longer categorized as poor move from the category of income between 50 and 100 percent of the poverty line to the category of income between 100 and 150 percent of the poverty line. Similarly, 79 percent of the 7.4 million people who are newly categorized as poor move from the category of income between 100 and 150 percent of the poverty line to the category of income between 50 and 100 percent of the poverty line; see Table 5-5. Table 5-6 shows the effect of the proposed poverty measure on the composition of the poor population. By age, somewhat more poor people are adults aged 18-64 and somewhat fewer poor people are adults aged 65 and older under the proposed measure in comparison with the current measure, while the proportion of children under age 18 among the poverty population is about the same under both measures. By race, somewhat more poor people 

EFFECTS OF THE PROPOSED POVERTY MEASURE 258 TABLE 5-5 Change in Poverty Status and Income-to-Poverty Ratio Under the Current and Proposed Poverty Measures, with Total Poverty Rate Held Constant at 14.5 Percent, 1992 Poverty Status and Number of People Percent Distribution Within Income-to-Poverty Ratio (millions) Category People Moved out of 7.35 100.0 Poverty Current measure: income <50% of threshold Proposed measure Income 100–150% of 0.45 6.1 threshold Income 150–200% of 0.00 0.0 threshold Income 200% or more of 0.00 0.0 threshold Current measure: income 50–100% of threshold Proposed measure Income 100–150% of 6.42 87.3 threshold Income 150–200% of 0.47 6.4 threshold Income 200% or more of 0.01 0.1 threshold People Moved into Poverty 7.37 100.0 Current measure: income 100–150% of threshold Proposed measure Income <50% of threshold 0.02 0.3 Income 50–100% of 5.81 78.8 threshold Current measure: income 150–200% of threshold Proposed measure Income <50% of threshold 0.00 0.0 Income 50–100% of 1.47 19.9 threshold Current measure: income 200% or more of threshold Proposed measure Income <50% of threshold 0.00 0.0 Income 50–100% of 0.07 0.9 threshold People Poor Under Both 29.54 100.0 Measures Current measure: income <50% of threshold Proposed measure Income <50% of threshold 8.47 28.7 Income 50–100% of 6.10 20.6 threshold Current measure: income 50–100% of threshold Proposed measure Income <50% of threshold 1.50 5.1 Income 50–100% of 13.47 45.6 threshold People Not Poor Under 209.71 100.0 Both Measures Current measure: income 100–150% of threshold Proposed measure Income 100–150% of 14.79 7.1 threshold Income 150–200% of 3.48 1.7 threshold Income 200% or more of 0.25 0.1 threshold 

EFFECTS OF THE PROPOSED POVERTY MEASURE 259 Poverty Status and Number of People Percent Distribution Within Income-to-Poverty Ratio (millions) Category People Not Poor Under Both Measures—continued Current measure: income 150–200% of threshold Proposed measure Income 100–150% of 11.75 5.6 threshold Income 150–200% of 9.41 4.5 threshold Income 200% or more of 2.37 1.1 threshold Current measure: income 200% or more of threshold Proposed measure Income 100–150% of 5.44 2.6 threshold Income 150–200% of 20.88 10.0 threshold Income 200% or more of 141.34 67.4 threshold NOTE: The reference family (two-adult/two-child) threshold for the current measure is $14,228; for the proposed measure keeping the overall poverty rate constant, it is $13,175. The total U.S. population is 253.97 million. are white and somewhat fewer poor people are black under the proposed measure. By ethnicity, somewhat more poor people are Hispanic under the proposed measure. The proposed measure also markedly reduces the proportion of poor people who are categorized as one-person families (either living alone or with others not related to them); this effect is largely due to the scale economy factor (see below). The most significant effect of the proposed measure is on the proportions of poor people in families that receive welfare and in families with one or more workers. For families that receive Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI), their share of the poverty population decreases from 40 to 30 percent. For families with workers, their share of the poverty population increases from 51 to 59 percent. The proposed measure also noticeably affects the proportion of poor people in families that lack health insurance; their share increases from 30 to 36 percent. Finally, the proposed measure alters the regional composition of the poverty population. The share of poor people who reside in the Northeast and West increases under the proposed measure, while the share of poor people who reside in the South and, to a lesser extent, the Midwest decreases.8 Another way to consider the differences in the current and proposed measures is to look at the poverty rates for various groups. While the overall poverty rate of 14.5 percent is the same under both the current and the proposed measures, the rates for some groups differ appreciably; see Table 5-7. Of 8 See Table 5-3 for the states in each region. 

EFFECTS OF THE PROPOSED POVERTY MEASURE 260 TABLE 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 Population Group Percent of Total Percent of Poor Population Population Current Measurea Proposed Measureb Age Children under 18 26.3 39.6 39.2 Adults 18–64 61.5 49.6 51.8 Adults 65 and older 12.2 10.8 9.0 Race White 83.6 66.8 69.3 Black 12.5 28.6 25.7 Other 3.9 4.6 5.1 Ethnicity Hispanic 8.9 18.1 20.9 Non-Hispanic 91.1 81.9 79.1 Family Size One person 14.5 21.7 15.7 Two persons 23.2 15.8 17.1 Three or four 42.3 33.5 37.4 persons Five or more persons 20.1 29.0 29.8 Welfare Status of Family Receiving AFDC or 9.9 40.4 29.9 SSI Not receiving 90.1 59.6 70.1 AFDC or SSI Work Status of Family One or more workers 81.1 50.8 58.9 No workers 18.9 49.2 41.1 Health Insurance Status of Family No health insurance 13.7 30.1 35.7 Some health 86.3 69.9 64.3 insurance Region of Residence Northeast 20.0 16.9 18.9 Midwest 24.0 21.7 20.2 South 34.4 40.0 36.4 West 21.6 21.4 24.5 a A threshold of $14,228 for two-adult/two-child families. b A threshold of $13,175 for two-adult/two-child families, with a 0.75 scale economy factor; see text for discussion. course, there are significant differences in poverty rates among groups under the current measure: for example, the rate for children (22%) is 50 percent higher than the overall rate of 14.5 percent; the rate for people in families receiving AFDC or SSI (59%) is 310 percent higher than the overall rate; and the rate for people in working families (9%) is 37 percent lower than the overall rate (see first column of Table 5-7). Hence, it is important to find an 

EFFECTS OF THE PROPOSED POVERTY MEASURE 261 TABLE 5-7 Poverty Rates by Population Group Under the Current and Proposed Measures, with Total Poverty Rate Held Constant at 14.5 Percent, 1992 Poverty Rate (%) Percentage Point Change Population Group Current Proposed Actual Standardizedc Measurea Measureb Age Children under 18 21.87 21.66 -0.21 -0.14 Adults 18–64 11.70 12.23 0.53 0.66 Adults 65 and 12.90 10.80 -2.10 -2.36 older Race White 11.60 12.04 0.44 0.55 Black 33.15 29.76 -3.39 -1.48 Other 17.39 19.06 1.67 1.39 Ethnicity Hispanic 29.43 34.03 4.60 2.27 Non-Hispanic 13.06 12.62 -0.44 -0.49 Family Size One person 21.75 15.77 -5.98 -3.99 Two persons 9.91 10.74 0.83 1.22 Three or four 11.50 12.84 1.34 1.69 persons Five or more 20.98 21.60 0.62 0.43 persons Welfare Status of Family Receiving AFDC 59.39 44.04 -15.35 -3.75 or SSI Not receiving 9.60 11.30 1.70 2.57 AFDC or SSI Work Status of Family One or more 9.09 10.55 1.46 2.33 workers No workers 37.91 31.70 -6.21 -2.38 Health Insurance Status of Family No health 31.95 37.87 5.92 2.69 insurance Some health 11.76 10.83 -0.93 -1.15 insurance Region of Residence Northeast 12.29 13.81 1.52 1.80 Midwest 13.10 12.21 -0.89 -0.99 South 16.89 15.36 -1.53 -1.32 West 14.39 16.48 2.09 2.11 NOTE: The poverty rates are for individuals: They are determined on the basis of comparing the income of their family (or one's own income if an unrelated individual) to the appropriate threshold. a A threshold of $14,228 for two-adult/two-child families. b A threshold of $13,175 for two-adult/two-child families, with a 0.75 scale economy factor; see text for discussion. c See text for derivation.