National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Increase in the Standard of Living

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Suggested Citation:"Increase in the Standard of Living." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 30

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INTRODUCTION AND OVERVIEW 30 the official poverty measure uses a before-tax definition of family resources, it did not capture the adverse effects of these tax policy changes for low-income working families. Subsequently, expansion of the Earned Income Tax Credit reduced the tax burden on low-income working families, but the official measure similarly could not capture the ameliorative effects of this policy change. Provision of In-Kind Benefits When the U.S. poverty measure was first developed, there was relatively little provision of public or private benefits to the low-income population in the form of goods or services; since then, such benefits have expanded dramatically. As just one example, the Food Stamp Program did not operate nationwide in 1970; in 1993 it provided benefits to 10 percent of the population (U.S. House of Representatives, 1994: Table 18-9). There are difficult problems of assigning monetary values to many in-kind benefits: for example, valuing a benefit like public housing at the full cost to the government may overstate the value to recipients, who might accept less money than the cost of the housing. Particularly difficult is the treatment of medical care benefits, whether public benefits (such as Medicaid and Medicare), benefits from employer-provided insurance, or uncompensated services provided by emergency rooms. It is easy to make sick people look like rich people by assigning monetary values to their medical care benefits, even when they have little or no other income with which to obtain such essentials as food and housing. Nonetheless, if in-kind benefits that are largely equivalent to money and that support consumption are not counted as income, the extent of poverty among the recipients is overstated. Such an approach also understates the efficacy of government income support measures, which have increasingly favored in-kind benefit programs. Increase in the Standard of Living When the official poverty measure was first developed for 1963, the threshold of about $3,100 for a four-person family represented about one-half median after-tax four-person family income (see Vaughan, 1993). Between 1963 and 1992, median after-tax four-person family income increased by 28 percent in real terms, but the thresholds remained constant. Families' total expenditures also increased in real terms, and spending on nonfood items rose more rapidly than spending on food: expenditures on food accounted for one- third of the total in the 1950s but less than one-sixth of the total in the 1990s (see Bureau of the Census, 1993d: Table 708). Hence, if the original approach were used to develop the poverty thresholds today, their value would be significantly higher. One may question whether a poverty threshold should be updated for

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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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