National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Results

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Suggested Citation:"Results." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 275
Suggested Citation:"Results." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 276
Suggested Citation:"Results." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 277

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EFFECTS OF THE PROPOSED POVERTY MEASURE 275 Expenditure Survey (CEX) expenditure data were used to calculate the thresholds for the proposed measure (see Chapter 2, especially Table 2-7). In the calculation of disposable income, we used the values for taxes and in-kind benefits that were developed by the Census Bureau and supplied with the extract file for each year. For child care and other work-related expenses, we adjusted the amounts that we used for our imputations for income year 1992 backwards to the earlier years by the change in the overall CPI. These adjustments do not seem unreasonable, although they do not capture price changes specific to these particular expenses, nor do they reflect other relevant changes that may have occurred over the period (e.g., in the proportion of working families that pay for child care). In the case of out-of-pocket medical care expenditures, we concluded that a simple price adjustment, even using the medical care component of the CPI, could be very problematic, particularly given the large effect of this component. With regard to cost-of-housing differences, the March CPS files for earlier years provide less geographic identification so that it would be difficult to implement a sufficiently detailed index. Hence, we computed poverty rates for 1979, 1983, 1989, and also 1992 that made all of the proposed changes with the exception of the subtraction of out-of-pocket medical care expenditures from income and the adjustment of the thresholds for housing cost differences. Child support payments are also not accounted for because of the absence of data in the March CPS with which to make a reasonable imputation. Results With either a 0.75 or a 0.65 scale economy factor (alternative 1 or 2), the proposed measure produces poverty rates that differ somewhat from the rates under the current measure for 1992 and preceding years; see Table 5-11.17 The differences are more pronounced when one compares percentage point changes in the poverty rate for different periods:18 Percentage Point Increase Time Period Current Measure Proposed Measure Alternative 1 Alternative 2 1979–1983 +3.5 +3.9 +3.8 1983–1989 -2.4 -2.0 -1.9 1989–1992 +1.7 +1.3 +1.5 1979–1992 (overall) +2.8 +3.3 +3.4 17 Because we do not subtract out-of-pocket medical care costs, the differences for 1992 are smaller than shown above; presumably, the differences for earlier years are also smaller than would be the case if out-of-pocket medical expenses were deducted from income. 18 The percentage point changes under the proposed measure are standardized to the official rate in the first year of each time period.

EFFECTS OF THE PROPOSED POVERTY MEASURE 276 TABLE 5-11 Poverty Rates Under the Current and Proposed Measures: 1992, 1989, 1983, 1979 Measure 1992 1989 1983 1979 Poverty Rate (%) Current measure 14.52 12.82 15.24 11.70 Proposed measurea 0.75 scale economy factor 14.59 13.21 15.16 11.36 0.65 scale economy factor 15.25 13.69 15.64 11.80 Percentage Point Change under Proposed Measureb (standardized to 1992) 0.75 scale economy factor +0.07 +0.44 -0.08 -0.42 0.65 scale economy factor +0.73 +0.99 +0.38 +0.12 Marginal Change Due to 0.75 scale economy factor -0.73 -0.69 -0.55 -0.62 0.65 scale economy factor -0.02 -0.16 -0.10 0.06 Addition of in-kind benefits -1.65 -1.76 -1.38 -2.21 Subtraction of taxes 0.47 0.76 1.03 0.60 Subtraction of child care costs 0.28 0.33 0.24 0.24 Subtraction of other work expenses 0.81 0.82 0.68 0.74 NOTES: The reference (two-adult/two-child) family thresholds are as follows: 1992 1989 1983 1979 Current measure $14,228 $12,575 $10,097 $7,355 Proposed measure 14,800 12,986 10,038 7,565 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 Excludes adjustments for out-of-pocket medical care costs and geographic area differences in the cost of housing. b Standardized percentage point changes represent the percentage point changes for a time period times the ratio of the official poverty rate in 1992 to the official rate for the period. Marginal percentage point changes are also standardized to 1992. Over the entire period from 1979 to 1992, the proposed measure shows a somewhat higher increase in the poverty rate than the current measure. One reason for the difference is that such in-kind benefits as food stamps were more widely available in the 1970s than in the 1980s. The proposed measure reflects this change; the current measure does not.19 Both the proposed and the current measures show an increase in the poverty rate from the economic recession in the early 1980s, a decline in the poverty rate from the economic 19 As shown in Table 5-11, adding the value of in-kind benefits to income reduces the poverty rate by a larger amount in 1979 than in later years.

EFFECTS OF THE PROPOSED POVERTY MEASURE 277 recovery of the mid- and late 1980s, and another increase in the rate from the recession in the early 1990s. However, the proposed measure shows a larger increase in the poverty rate from 1979 to 1983 because of such factors as the curtailment of in-kind benefits in the early 1980s and somewhat higher taxes on the working poor, which are captured in the proposed measure but not the current measure. The recent expansion of the Earned Income Tax Credit (EITC) is also captured in the proposed measure, which shows a smaller increase in the poverty rate from 1989 to 1992 than the current measure. Our analysis of time trends is limited by our inability to develop reasonable imputations for many components of disposable income. We believe that it would be possible, with further work, to produce a more definitive analysis of changes in the poverty rate over time under the current measure and the proposed measure. For example, data from the predecessors to NMES in 1977 and 1980 could be used to develop imputations for out-of-pocket medical care expenses; data from the 1984 SIPP panel could be used to develop imputation regressions for child care expenses for earlier years; and data from the 1980 census could be used to develop geographic cost-of-housing indexes for earlier years. We support such work in order to develop a time series for comparison and to facilitate the transition to a new measure. Historically, it is likely that the major differences between the current measure and the proposed measure would be most evident, not in the 1980s, but in the 1970s, when the Food Stamp Program and other antipoverty programs exhibited their largest growth. Because of data limitations, it does not seem feasible to construct estimates with the proposed measure for years before 1979. In the future, the proposed measure should provide a more accurate picture of the effects of important government policy initiatives that affect disposable income. For example, changes in the health care financing system that affect out-of- pocket medical care costs or changes in tax provisions that affect disposable income would be reflected in the proposed measure; they cannot affect the poverty rate under the current measure. To provide some illustrations of this point, we simulated the effects on the poverty rate of policy changes that are scheduled to occur in a future year or that could conceivably be implemented in the future—making the assumption that the changes were actually implemented in 1992. For one simulation, we estimated families' net taxes as if the legislated expansion of the EITC, which is scheduled to take full effect in 1996, were in effect in 1992. The result is to reduce the 1992 poverty rate under the proposed measure from 18.1 to 17.2 percent (using a $14,800 reference family threshold and 0.75 scale economy factor). For another simulation, we estimated families' disposable income as if changes in health care financing (whether instituted publicly or privately) had placed a cap on families' out-of-pocket costs for medical care. Under one

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Measuring Poverty: A New Approach Get This Book
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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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