National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Equivalence Scale Effects

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Suggested Citation:"Equivalence Scale Effects." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 269
Suggested Citation:"Equivalence Scale Effects." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
×
Page 270

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EFFECTS OF THE PROPOSED POVERTY MEASURE 269 Marginal Percentage Point Change in the Poverty Ratea Out-of-Pocket Medical Costs Taxes Child Care Costs Other Work Expenses 2.09 0.47 0.28 0.81 1.62 0.25 0.40 0.74 3.52 0.11 0.00 0.08 2.54 0.55 0.29 0.93 1.04 0.24 0.27 0.45 1.94 0.41 0.22 0.71 1.56 0.93 0.00 0.69 3.15 0.29 0.31 0.82 2.37 0.10 0.49 1.07 1.58 0.65 0.25 0.59 0.47 0.02 0.16 0.24 3.00 0.78 0.56 1.58 2.91 0.70 0.33 1.14 2.09 0.45 0.22 0.64 2.39 0.54 0.40 1.01 2.07 0.47 0.25 0.79 1.81 0.38 0.26 0.76 a The effect of changing only the single component on the official 1992 poverty rate for the group (see Table 5-8). The effect is expressed in standardized percentage points; see text for derivation. b Hispanics may be of any race. care costs. Conversely, the poverty rate for blacks increases by less than 2 percentage points (on a standardized basis) because proportionately more blacks are in welfare families and proportionately fewer are in working families. Finally, the poverty rate for children increases by 3 percentage points—or close to the overall increase—because poor children are members of both welfare families and working families. Equivalence Scale Effects Use of the panel's proposed equivalence scale has significant implications for poverty rates for certain groups relative to the equivalence scale that underlies the current measure. Also, the choice of a scale economy factor—0.75 or

EFFECTS OF THE PROPOSED POVERTY MEASURE 270 TABLE 5-10 Effect of Alternative Scale Economy Factors in the Proposed Measure on Poverty Rates, by Family Size, 1992 Family Size Official Percentage Point Percent of Population in Poverty Change Due to Scale Each Category Rate (%) Economy Factora 0.75 0.65 Total Children One personb 21.75 -3.99 -1.58 14.5 0.2 Two 9.91 +0.40 +1.95 23.2 5.7 persons Three 12.03 +0.91 +1.63 19.5 19.7 persons Four 11.05 0.00 0.00 22.8 35.5 persons Five persons 16.56 -0.34 -0.55 11.9 22.2 Six persons 22.24 -0.24 -0.99 4.8 9.6 Seven or 35.07 -0.18 -1.26 3.3 7.1 more persons Total 14.52 -0.73 -0.02 100.0 100.0 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 The percentage point changes are standardized: they represent the percentage point changes for each family size category times the ratio of the overall poverty rate to the rate for that category. Both scale economy factors were applied to a threshold of $14,228 for the reference two-adult/two- child family. b Includes people living alone or with others not related to them. 0.65—makes a difference for some groups. To explore these effects more fully, we analyzed poverty rates for people in specific family sizes, from one- person families (i.e., unrelated individuals) to families of seven or more persons; see Table 5-10. Specifically, we compared the official rates to rates developed with the same threshold for a two-adult/two-child family ($14,228), but with different thresholds for other family types calculated from the proposed equivalence scale formula with a scale economy factor of 0.75 or 0.65.13 The only factor that we change in these comparisons is the equivalence scale: that is, we do not change the reference family threshold (up or down) or the resource definition or adjust the thresholds for differences in cost of housing. Because the threshold for the reference family does not change, the current poverty rate of 11 percent for people in four-person families should not change across the three measures, and, in fact, it does not. The rates for people in other family types do change, in varying ways. The scale economy factor of 0.75 affects the poverty rates for people in 13 The formula is as follows: scale value = (A + 0.70K)0.75 (or 0.65), where A is the number of adults in the family and K is the number of children under age 18. To develop the thresholds, the scale value for each family type is converted to a ratio to the scale value for the reference two-adult/two-child family and applied to the threshold for that reference family.

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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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