National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Adequacy of the Current Measure

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Suggested Citation:"Adequacy of the Current Measure." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 25
Suggested Citation:"Adequacy of the Current Measure." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 26

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INTRODUCTION AND OVERVIEW 25 3.4 derived from the 1965-1966 survey. In 1979-1980, an interagency committee was asked to consider possible small changes in the thresholds (not including the use of a higher multiplier) and recommended the following minor changes discussed by Fendler and Orshansky, which were adopted in 1981: the nonfarm thresholds were applied to all families; the thresholds for families headed by women and men were averaged; and the largest family size category for the thresholds was raised from families of seven or more to families of nine or more persons (Fisher, 1992b:64-68). Overall, except for the minor changes in the number of different thresholds and the change in the price index for updating them, the poverty line has not been altered since it was first adopted in 1965. In the language of poverty measurement, the United States has an "absolute" poverty threshold that is updated for price changes but not for real growth in consumption. Thus, the poverty line no longer represents the concept on which it was originally based— namely, food times a food share multiplier—because that share will change (and has changed) with rising living standards. Rather, the poverty threshold reflects in today's dollars the line that was set some 30 years ago. Each year, the official thresholds are compared with an estimate of resources for each family (or individual) in the March Current Population Survey (CPS), which includes about 60,000 households, to determine the number and proportion poor (the poverty rate). Resources are defined as before- tax money income from all sources—for example, earnings, pensions, interest, rental income, other income from assets, cash welfare. Although the multiplier of three used in constructing the poverty thresholds was based on after-tax income, there was no methodology for calculating taxes from the March CPS, so income is defined on a before-tax basis. No valuations for in-kind benefits, such as food stamps, are included in income, nor are asset holdings accounted for in any way. Since 1982 the Census Bureau has published poverty estimates that do exclude most taxes from income and do include the value of major in- kind benefits, but these estimates are labeled "experimental" and do not represent the official statistics (see, e.g., Bureau of the Census, 1993a, 1995). The official poverty statistics for the United States, based on the March CPS, are currently published each fall as a Current Population Report in the P-60 Series (for the latest such report, see Bureau of the Census, 1995). Adequacy of the Current Measure There are several different approaches to developing a measure of poverty, both for the thresholds and for the definition of family resources, each of which has some merit and none of which is without difficulties. So one might ask why the United States should consider replacing a measure that has served for many years. Moreover, it will undoubtedly be disruptive to an important statistical time series if a different measure is adopted.

INTRODUCTION AND OVERVIEW 26 Yet, historically, poverty measures have tended to reflect their time and place. When it was adopted by OEO for official use, the SSA measure was viewed as a distinct improvement over a widely cited measure developed by the Council of Economic Advisers (CEA) for 1962. The SSA thresholds were based on an explicit concept of need and were adjusted for family size and other characteristics; the CEA measure had just one threshold for families of all sizes with a second, lower threshold for single individuals. The SSA measure also had the advantage that its central threshold for a family of four in 1963 was about the same as the CEA family threshold of $3,000. In turn, the CEA family threshold had been based on considering such factors as the minimum wage and public assistance levels; see Fisher (1992b:30). Gallup Poll data from the early 1960s, as analyzed by Vaughan (1993), suggest that public opinion would also have agreed with a four-person family poverty threshold of about $3,000. Also, such a level represented about one-half median after-tax four-person family income, which is a standard often used in comparative analyses of poverty across nations. In other words, the SSA thresholds accorded well with other views about what it meant to be poor in America in the mid-1960s. Yet if the SSA approach of developing the thresholds as food costs times a food share multiplier were to be used today, it would produce a different result from the current thresholds—which represent the original 1963 thresholds adjusted for inflation—because changes in consumption patterns have increased the multiplier. Similarly, the use of the SSA approach for a period earlier than 1960 would have given a different result from the official thresholds extended back in time in real dollars because the multiplier would have been lower. Two questions in evaluating the current poverty measure are whether it makes sense to continue to use the real value of the original 1963 thresholds and, if not, whether the original SSA approach or some other procedure should be used to update them. From the perspective of providing accurate comparisons of poverty status across population groups and across time, there is also the important question of whether other aspects of the current measure— namely, the adjustments to the thresholds for family size and type and the definition of family resources—remain relevant at the end of the twentieth century. Given the important role that the poverty measure and poverty statistics play in contemporary U.S. society, it seems imperative to make the most careful assessment possible of the current measure to determine its adequacy. We find that the current official poverty measure has a number of weaknesses, involving both the thresholds and the definition of family resources. (Some of these problems were pointed out in the 1960s by Orshansky herself.) Although they were not necessarily important or obvious at the time the measure was adopted, these problems have become more evident and more consequential because of far-reaching social and economic changes, as well as

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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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