National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Short-Term Measures

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Suggested Citation:"Short-Term Measures." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 295
Suggested Citation:"Short-Term Measures." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 296
Suggested Citation:"Short-Term Measures." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 297

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OTHER ISSUES IN MEASURING POVERTY 295 Although the evaluation of assistance programs is important, we view this use of the official poverty measure as secondary to its use as a key social indicator. Although there are arguments for shorter and longer accounting periods for indicator purposes, we believe that it makes most sense to continue to calculate the official poverty statistics on an annual basis. To supplement the annual statistics, we support initiatives to develop and publish shorter term measures of poverty that can facilitate evaluation of such programs as AFDC and food stamps. Because of the eligibility rules of these programs— specifically, their requirement that families use up most assets before applying for benefits—it will probably be necessary to include asset values in the family resource definition for poverty measures that use an accounting period of less than a year. Such shorter term measures may also serve as more timely indicators of trends in poverty (although other readily available measures, such as monthly unemployment rates and program caseloads, may serve the same purpose). We also support work on developing longer term measures of poverty. This is an area that calls for more research and evaluation, given the lack of consensus about desirable measures. We note that by using the Survey of Income and Program Participation (SIPP) as the basis for poverty measurement in place of the March CPS, it becomes possible to develop both annual and subannual poverty measures on a consistent basis, as well as measures that use an accounting period of somewhat longer than a year. For measures with still longer time horizons, it is necessary to turn to a data source like the Panel Study of Income Dynamics (PSID).2 RECOMMENDATION 6.1. The official poverty measure should continue to be derived on an annual basis. Appropriate agencies should develop poverty measures for periods that are shorter and longer than a year with data from SIPP and the Panel Study of Income Dynamics for such purposes as program evaluation. Such measures may require the inclusion of asset values in the family resource definition. Short-Term Measures Short-term poverty, as Ruggles (1990) argues, is a meaningful concept. While it is probably impossible to be poor for only one day, no matter how limited one's resources, and quite possible to get by for a week in the face of limited resources, it is more difficult to delay expenses such as rent over periods as short as 1 or 2 months. Indeed, programs designed to provide short-term economic assistance, such as AFDC and food stamps, typically use a 1-month 2 The PSID, which began in 1968, is a long-running panel survey in which about 9,000 families are interviewed on an annual basis; see Appendix B.

OTHER ISSUES IN MEASURING POVERTY 296 accounting period. The objection to short-term measures is that they may overstate poverty by counting as poor people who can defer expenditures or draw on resources acquired in an earlier period to tide them over a temporary shortfall. Although the differences are not great, the evidence from analyses of recently available SIPP data shows that the shorter the accounting period, the higher the poverty rate. Thus, rates estimated on a 4-month accounting period are typically between 1 and 2 percentage points higher than rates estimated on an annual accounting period (see, e.g., David and Fitzgerald, 1987; Engel, 1989; Lerman and Yitzhaki, 1989). In analysis of poverty spells that began during the first 15 months of the 1984 SIPP panel, Ruggles (1988a) similarly concluded that annual measures of poverty miss a considerable number of short spells of poverty.3 Unfortunately, no evidence is available about the extent to which short- term poverty measures might produce not only different levels but also different trends over time in comparison with an annual measure. There is limited evidence on the differences that might result in poverty rates for several population groups. Williams (1986) reported virtually no difference by family type between annual and average monthly poverty measures calculated from the 1984 SIPP panel. Ruggles' analysis (1988a), however, suggests that under a shorter rather than under a longer accounting period, a smaller proportion of the poor would be people in single-parent female-headed families. In an analysis of program participation in the 1984 SIPP panel, Williams (1986) found evidence for the idea that a short-term poverty measure would be more suitable than an annual measure for evaluating assistance programs that use a short accounting period. Thus, 90 percent of recipients of AFDC and food stamps were in poverty at least 1 month, even though only 64-70 percent of recipients were in poverty on an annual basis. If one wanted to develop a short-term poverty measure to supplement the annual measure to use for such purposes as program evaluation, a major issue would be to determine how short a period would be appropriate. The main argument against a monthly accounting period is that it overstates true hardship, 3 Annual data from the PSID produce longer estimated spell durations than do monthly data from SIPP. For example, using the PSID, Duncan, Smeeding, and Rodgers (1992) find that 37 percent of poverty spells in the United States are still in progress after 3 years; in contrast, using SIPP, Ruggles (1988a) finds that only 12 to 24 percent (depending on the definition used) are still in progress after just 1 year. Presumably, SIPP is picking up short intrayear poverty spells that are missed in the PSID. Consider the case of someone who is poor for 2 consecutive years on the basis of comparing annual income to an annual poverty threshold, but who, using monthly income and monthly thresholds, is poor for the first 8 months, not poor for the next 4 months, and poor again for the last 12 months. With this pattern of income receipt, Duncan, Smeeding, and Rodgers, using PSID, will identify one spell of poverty lasting 2 years, and Ruggles, using SIPP, will observe two shorter spells.

OTHER ISSUES IN MEASURING POVERTY 297 given that people can shift expenditures through time to at least a limited extent. However, it is not clear how to evaluate the merits of, say, a 2-month, 4-month, or 6-month period. A related issue concerns the treatment of resources. Assistance programs that use a monthly accounting period also typically include an asset test (with a ceiling on countable assets generally in the range of $1,000-$3,000). Researchers have argued that accounting for asset values in some way would enable the development of a more realistic short-term poverty measure. However, accurate estimation of assets poses greater difficulties than accurate estimation of income, and there are also issues of how to value assets for purposes of poverty measurement (see Chapter 4). Several researchers have constructed and assessed the effects of measures of poverty that take account of assets. For example, David and Fitzgerald (1987) analyzed the 1984 SIPP, adding the capitalized value of reported interest income from the prior wave (assuming a fixed 6% rate of interest) to the family's current income to estimate a ''crisis" measure. They found that this measure of poverty was always lower than the official measure derived on the basis of money income alone, and the difference was somewhat greater the shorter the accounting period:4 Crisis Measure (%) Official Measure (%) On a monthly basis 11.0 14.0 On a 4-month basis 11.3 13.2 On an annual basis 10.4 11.3 David and Fitzgerald (1987) found that, on average, 21 percent of people who were counted as income-poor on a monthly basis did not experience a crisis when their interest-generating assets were taken into account; the corresponding figure for people who were income-poor on a 4-month basis was 14 percent. In general, the gross money income resource definition overstated short-term transitions: of those entering or exiting poverty from 1 month to 4 months later, 40 percent never experienced a crisis. Also, David and Fitzgerald (1987) found that such assistance programs as AFDC and SSI are targeted to those in crisis and not to income-poor people with financial assets. SIPP makes possible the regular derivation and publication of short-term poverty measures, including measures that take account of families' asset holdings 4 Monthly poverty rates are averages over 12 months; 4-month rates are averages over three 4-month periods. David and Fitzgerald (1987) subtracted reported interest income from families' resources to avoid double counting. Note that the "official" annual rate of 11.3 percent they obtained from the 1984 SIPP is several percentage points lower than the official rate from the March CPS. David and Fitzgerald obtained similar results for a measure that also added the capitalized value of stocks and rental property to families' resources. The reason is that 94 percent of those in crisis poverty on the basis of their income and interest-generating assets did not have stocks or rental property.

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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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