National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Standard Setting in the 1980s

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Suggested Citation:"Standard Setting in the 1980s." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 357
Suggested Citation:"Standard Setting in the 1980s." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 358

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THE POVERTY MEASURE AND AFDC 357 has been the most popular basis for AFDC need standards" (Urban Systems Research & Engineering, 1980:8); 21 states reported using this approach. However, only three states had standards that were based on pricing studies conducted in the last 10 years (i.e., in 1969-1979), and only one state had updated its standard regularly on the basis of repeated pricing studies to account for cost-of-living increases. USR&E criticized (perhaps too harshly) the practice in the more recent market basket studies of using expenditure surveys to determine the shelter component of the need standard rather than developing a normative standard for shelter and then pricing it out. Expenditure Surveys Six states reported basing their standard on expenditure surveys that were limited to AFDC recipients. USR&E properly criticized this approach as tautological, in that the population for determining the "standard" was based on current program participants. Lower Level Budget Five states reported adapting the lower level family budget of the Bureau of Labor Statistics (BLS) as the basis for their need standards, and all of these states had done so as of 1969 or later. USR&E noted correctly that the BLS budgets represented a combination of normative standards and actual expenditure patterns. The states using the BLS lower level budget generally deleted categories they deemed "inappropriate," either on judgemental grounds (e.g., alcoholic beverages) or on grounds that other programs covered the expenditure (e.g., medical care). However, only two of the five states had regularly updated their need standard. Other One state used a multiplier approach similar to the Orshansky method for deriving the poverty line; six states used a combination of methods; and twelve states used completely arbitrary methods or methods that could not be ascertained in the USR&E survey. Standard Setting in the 1980s The Congressional Research Service regularly tracks changes in the level of the states' need standards and benefit levels (see, e.g., Solomon, 1991; Solomon and Neisner, 1993), but little information was obtained about standard setting practices in the 1980s until recently. In 1992, the Center on Budget and Policy Priorities completed a study for the Administration on Children and Families of AFDC standard setting practices in the late 1980s. This report (Larin and Porter, 1992) was prepared to fulfill the requirement in the 1988 Family Support Act that the states evaluate their AFDC need standard at least once every 3 years and report the results to the Secretary of the Department of Health and Human Services (HHS). In early 1991 HHS sent the states a questionnaire asking for information on how each state's need standard in effect as of October 1, 1990, was developed, the relationship between the state's need standard and benefit

THE POVERTY MEASURE AND AFDC 358 levels, and any changes in the need standard over the preceding 3 years. The Center on Budget and Policy Priorities analyzed the questionnaire responses (California, Minnesota, and Texas did not respond). Larin and Porter (1992:5) conclude, as did USR&E in its earlier study, that "the majority of states cannot demonstrate that their need standards represent an amount of money necessary to purchase basic necessities." Larin and Porter document and evaluate six types of methods for setting AFDC need standards by the states in effect as of 1990 (see Table 8-2): Federal Poverty Guidelines Fourteen states reported relating their need standard in some way to the HHS poverty guidelines.15 Of these, four states reported using the HHS poverty guidelines as is. Ten states modified the guidelines in such ways as subtracting the cost of the Thrifty Food Plan, subtracting average food stamp and Medicaid benefits, subtracting the cost of "nonessential commodities," setting their need standard as a percentage of the guidelines, or allowing their need standard to decline as a percentage of the guidelines because of not adjusting for inflation. BLS Lower Level Budget or Living Standard Six states reported using the BLS lower level budget or living standard—last published in 1982 and developed with expenditure data from the early 1960s—as the basis for their need standards. (Another state was considering the use of a modified lower level budget for its need standard, and the welfare department in another state develops a modified lower level budget as guidance for the state legislature.) Two of the six states modified the BLS standard (e.g., by omitting men's haircuts, household supplies, and occupational costs, as well as making changes to other components of the lower level budget). These states have priced the various budget components by using BLS data or conducting local price surveys; however, none of them has adjusted the standard to keep pace with inflation. Local Market Basket Surveys Fourteen states reported basing their need standard on local market basket surveys, but many of these states have not conducted such a survey recently. Expenditure Ratio (or Multiplier Method) One state reported using Consumer Expenditure Survey (CEX) data to determine a ratio of all expenditures, other than housing, to apply to the cost of the Thrifty Food Plan. Housing standards were calculated separately on the basis of the actual housing costs of AFDC recipients, with three different standards used for different regions of the state. Another state reported a similar type of method, but developed its multiplier on the basis of CEX data for the lowest quintile of the household income distribution. 15 The HHS poverty guidelines represent a smoothed version of the official poverty thresholds.

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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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