Measuring Poverty: A New Approach (1995)

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EFFECTS OF THE PROPOSED POVERTY MEASURE 264 also an interaction effect, calculated as the total effect minus the sum of the marginal effects of all the components, which can increase or decrease the rate. An example of a positive interaction effect is that of a working family that is not poor when its taxes, child care expenses, and other work-related expenses are considered in isolation, but that becomes poor when its expenses on all of these items are considered together. This interaction effect accounts for 1.5 percentage points of the increase for alternative 1 and 1.7 percentage points of the increase for alternative 2. Groups Implementing the proposed measure with a higher threshold increases the poverty rate for most population groups. The pattern of effects is similar to that seen in the previous analysis that held the overall poverty rate constant; see Table 5-8. In standardized terms, alternative 1 increases the poverty rate by 5.0 or more percentage points (compared with the overall increase of 3.6 percentage points) for several groups: people in two-person families, 5.2; Northeasterners, 5.7; Hispanics, 5.7; Westerners, 5.7; people in families lacking health insurance, 5.9; people in families of three or four persons, 6.3; and—the largest increase— people in working families, 7.3. It increases the poverty rate by less than 2.2 percentage points for a few groups: Southerners, 2.1; elderly people, 1.9; blacks, 1.1. It actually decreases the rate by more than 1 percentage point for two groups: people in welfare families, -1.5; and one-person families, -1.8. (The increases in the poverty rate for other groups are within 1 percentage point of the overall increase.) Perhaps the most striking effect of the proposed measure is on the distribution of the poor population between working and welfare families. People in working families make up 51 percent of the poor under the current measure; under alternative 1, they make up 61 percent of the poor. This increase represents a net shift of 9.4 million working family members who are not classified as poor under the current measure who are so classified under the proposed measure. People in welfare families make up 40 percent of the poor under the current measure; under alternative 1, they make up 29 percent of the poor. This decrease represents a net shift of 1.5 million welfare family members who are no longer classified as poor under the proposed measure. Despite these shifts, however, the poverty rate for welfare families remains considerably higher than the rate for working families. In comparing the effects of the two equivalence scales in the proposed measure, the use of a 0.65 scale economy factor (alternative 2) increases the poverty rate for most groups by 0.5-1.0 percentage point more than the use of a 0.75 scale economy factor (alternative 1). There are a few striking exceptions to this general pattern, shown in Table 5-8. For the elderly, alternative 2 increases their poverty rate by an additional 3.9 percentage points over 

EFFECTS OF THE PROPOSED POVERTY MEASURE 265 TABLE 5-8 Poverty Rates by Population Group Under the Current and Proposed Measures, 1992 Poverty Rate (%) Percentage Point Change— Standardizeda with Proposed Measure Proposed Measure Population Current Alternative Alternative Alternative Alternative Group Measure 1 2 1 2 Total 14.52 18.12 19.02 +3.60 +4.50 population Age Children 21.87 26.44 26.35 3.03 2.97 under 18 Adults 65 12.90 14.56 18.00 1.89 5.74 and over Race and Ethnicity White 11.60 15.26 16.14 4.58 5.68 Black 33.15 35.62 36.76 1.08 1.58 Hispanic b 29.43 40.98 40.88 5.70 5.65 Family Size One person 21.75 19.09 23.83 -1.78 1.39 Two 9.91 13.45 15.10 5.18 7.60 persons Three or 11.50 16.52 16.81 6.34 6.70 four persons Five or 20.98 26.19 24.74 3.61 2.60 more persons Welfare or Work Status Receiving 59.39 53.40 55.12 -1.46 -1.04 AFDC or SSI One or 9.09 13.66 14.11 7.30 8.02 more workers Without 31.95 44.87 46.03 5.87 6.40 Health Insurance Region of Residence Northeast 12.29 17.09 18.19 5.67 6.97 Midwest 13.10 15.43 16.27 2.58 3.51 South 16.89 19.37 20.29 2.13 2.92 West 14.39 20.06 20.83 5.72 6.50 NOTE: Both alternatives use a two-adult/two-child poverty threshold of $14,800; for alternative 1 the scale economy factor is 0.75; for alternative 2 it is 0.65. 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 See text for derivation of standardized percentage point changes. b Hispanics may be of any race. alternative 1. In other words, the equivalence scale has more of an effect on the elderly than on other groups. This finding also holds for one-person families and members of two-person families, for which, in comparison with other groups, alternative 2 makes more of a difference in their poverty rates than does alternative 1. Indeed, the results for these groups are not unrelated, as a very high proportion of the elderly are in one- and two-person families.11