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Measuring Poverty: A New Approach (1995)

Chapter: Indexes with Alternative Resource Definitions

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Suggested Citation:"Indexes with Alternative Resource Definitions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 313

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OTHER ISSUES IN MEASURING POVERTY 313 policies). Also, the number of people who are very far below the poverty line may be overestimated because of underreporting of income or the reporting of business losses by self-employed people. Nonetheless, such indicators can enrich understanding of the nature and scope of economic poverty in the United States and how it changes over time. Indexes with Alternative Resource Definitions The Census Bureau currently publishes indexes for "experimental" measures of poverty that use alternative definitions of family resources. Thus, Bureau of the Census (1995) provides head counts and head-count ratios for estimates of poverty under 18 resource definitions, the official definition and 17 alternatives. For example, definition (2) subtracts government transfers from income; definition (3) subtracts government transfers and adds realized capital gains; definition (4) is the same as (3) with the addition of employer-provided health insurance benefits; and definition (5) is the same as (4) with the subtraction of Social Security payroll taxes. These and the other experimental measures are designed to illustrate the effects on the poverty rate of defining family resources in different ways—specifically, the effects of excluding various government taxes and including various transfers, as well as the effects of including some kinds of asset holdings (e.g., owned homes) in income. Measures of this type have a number of problems and must be carefully interpreted. We commented above (in Chapter 4) about the inappropriateness of resource definitions that are inconsistent with the poverty threshold concept (e.g., definitions that add the value of medical care benefits without appropriately adjusting the thresholds). Also, the Census Bureau's practice of specifying definitions in a cumulative fashion is problematic from the perspective of isolating the effect of particular components on the poverty rate. Thus, it is not possible to conclude that the difference between, say, definition (4) and definition (5) is the marginal effect of the added component of subtracting Social Security payroll taxes because of the possible interaction effects of the added component with other changes to the resource definition in the two definitions. (In contrast, in Chapter 5, we present estimates of the marginal effect on poverty rates of each of the proposed changes to the current poverty measure, considered separately, as well as an estimate of the interaction effect.) Most important, great care must be exercised in attempting to assess the policy implications of differences in poverty rates under alternative resource definitions. People's responses to such government policy changes as the elimination of taxes or benefit programs are likely to result in very different poverty rates than those seen in comparing the current measure with measures that use a different resource definition but in which the real world remains the same. For example, families who currently receive benefits from such government programs as food stamps or Social Security are not likely to have the

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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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