National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Differences in Need Standards and Benefits

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Suggested Citation:"Differences in Need Standards and Benefits." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 359
Suggested Citation:"Differences in Need Standards and Benefits." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 360
Suggested Citation:"Differences in Need Standards and Benefits." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 361
Suggested Citation:"Differences in Need Standards and Benefits." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 362
Suggested Citation:"Differences in Need Standards and Benefits." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 363
Suggested Citation:"Differences in Need Standards and Benefits." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 364

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THE POVERTY MEASURE AND AFDC 359 Legislative Determination Three states reported that need standards are set by their legislatures on the basis of budgetary considerations. Average Payment Three states reported that they developed need standards in the early 1970s that represented average AFDC payment levels by family size. (AFDC benefits at that time were determined on a discretionary basis by caseworkers according to the particular circumstances of each recipient family.) Unknown Methods Six states "are unable to document how their need standards were originally constructed, either because records are incomplete or lost or because their standards seem to have been set arbitrarily with no reference to living costs" (Larin and Porter, 1992:17). Comparing Larin and Porter (1992) with USR&E (1980), one finds that many states reported using a different method in 1990 than in 1980; see Table 8-2. Only 10 states appear to have used the same method in both decades: Maine, New York, and Wisconsin consistently reported using a variation of the BLS lower level budget, and Colorado, Idaho, Massachusetts, Nebraska, Oklahoma, Oregon, and Washington consistently reported using the market basket pricing method.16 Perhaps the most important change is that 14 states now relate their need standard explicitly to the HHS poverty guidelines. Differences Among States Differences in Need Standards and Benefits As noted above, AFDC need standards vary widely among the states (see Table 8-1). In January 1994, the need standards for the 50 states and the District of Columbia varied from $1,648 per month in New Hampshire to $320 in Indiana, with a median value of $574, a mean value of $655, and a coefficient of variation of 41 percent. The maximum AFDC benefit exhibited almost as much dispersion, although the addition of food stamps reduced the dispersion somewhat. In a historical analysis of AFDC benefits, Peterson and Rom (1990: Table 1-1) found that a high degree of variation in benefit levels has always characterized the states. They determined that the coefficient of variation ranged 16 Inferences about standard setting methods across decades cannot be made with certainty. USR&E and Larin and Porter provide conflicting accounts for some states: for example, Arizona is reported as "unknown method" in USR&E, but in Larin and Porter, Arizona is reported as having previously used a variant of the BLS lower level budget and as currently using the HHS poverty guidelines. Similarly, Missouri is reported as "unknown method" in USR&E, but in Larin and Porter, Missouri is reported as having conducted market basket pricing studies in 1969 and 1975. Also, the "average payment" method that Larin and Porter say that several states adopted in the early 1970s is not one of the methods identified in the USR&E study.

THE POVERTY MEASURE AND AFDC 360 between 32 and 35 percent for the average monthly AFDC payment for 1940-1990 and between 34 and 37 percent for the maximum benefit for a four- person family for 1960-1990. The coefficient of variation was smaller for the maximum combined AFDC and food stamp benefit, ranging between 16 and 21 percent for a four-person family for 1970-1990. In looking at the relationship of the maximum AFDC benefit to the need standard in January 1994 (see Table 8-1), 11 states paid a maximum benefit that represented 100 percent of their need standard; 23 states paid between 50 and 99 percent of their need standard (the median state paid 66 percent of its need standard); and the remaining 17 states paid less than 50 percent of their need standard, including 6 states that paid less than 33 percent of their need standard. In looking at the adequacy of AFDC need standards and benefits against the official poverty threshold, 8 states had need standards in January 1994 that were at or above the 1993 official average weighted poverty threshold for a family of three, and 12 states had need standards that were between 70 and 99 percent of the poverty level; see Table 8-3. The remainder had need standards that were below 70 percent of the poverty level. In no state did the maximum AFDC benefit exceed the poverty level, and in only two states did the maximum benefit exceed 70 percent of the poverty level. With the addition of food stamps, the maximum combined benefit exceeded the poverty level in 2 states and was between 70 and 99 percent of the poverty level in 22 states. In looking at the disparities in AFDC need standards and benefit levels, one obvious question is whether they are related to differences in needs and costs of living across states. We constructed an index of the adjustments by state to a national poverty threshold that would result from taking account of differences in the cost of housing. We analyzed 1990 census data to determine cost-of-housing index values by state (relative to a national value of 1.00) and then adjusted each index value downwards by a factor reflecting the proportion that shelter costs (including utilities) represent of the proposed poverty thresholds. (The methodology was the same that we used to determine adjusted cost-of-housing index values by region and size of metropolitan area for the statistical poverty measure; see Chapter 3). We also constructed an index of state median family income from 1990 census tabulations (Bureau of the Census, no date(b)) relative to 1.00 for the average median family income across the states. Not surprisingly, the index of state-adjusted poverty thresholds shows less variation than does the index of median family income; see Table 8-4. The state-adjusted poverty threshold index values range from 24 percent above to 15 percent below the national average, with a coefficient of variation of 10 percent.17 The median family income index values range from 17 The coefficient of variation of 10 percent for the state-adjusted poverty threshold index is similar to that of 8 percent for a state cost-of-living index developed by Peterson and Rom

THE POVERTY MEASURE AND AFDC 361 TABLE 8-3 AFDC Need Standards, Maximum AFDC Benefits, and Maximum Combined AFDC and Food Stamp Benefits for a Family of Three, as a Percentage of the 1993 Weighted Average Monthly Poverty Threshold, January 1994 Percent of Poverty Threshold State AFDC Need Maximum AFDC Maximum Standard Benefit Combined AFDC/ Food Stamp Benefit Alabama 70 17 48 Alaska 81 77 101 Arizona 100 36 67 Arkansas 73 21 52 California 74 63 86 Colorado 44 37 67 Connecticut 71 71 91 Delaware 35 35 66 District of Columbia 74 44 72 Florida 103 32 62 Georgia 44 29 60 Hawaii 103 64 103 Idaho 103 33 64 Illinois 93 38 69 Indiana 33 30 61 Iowa 88 44 72 Kansas 45 45 74 Kentucky 55 24 54 Louisiana 69 20 51 Maine 58 44 72 Maryland 53 38 69 Massachusetts 60 60 83 Michigana 57 48 75 Minnesota 55 55 80 Mississippi 38 13 43 Missouri 88 30 61 Montana 53 42 71 Nebraska 38 38 68 Nevada 73 36 67 New Hampshire 172 57 81 New Jersey 103 44 73 New Mexico 37 37 67 New York b 60 60 85 North Carolina 57 28 59 North Dakota 43 43 71 Ohio 92 36 66 Oklahoma 49 34 64 Oregon 48 48 78 Pennsylvania 64 44 72 Rhode Island 58 58 86

THE POVERTY MEASURE AND AFDC 362 Percent of Poverty Threshold State AFDC Need Maximum AFDC Maximum Standard Benefit Combined AFDC/ Food Stamp Benefit South Carolina 46 21 52 South Dakota 51 43 72 Tennessee 44 19 50 Texas 60 19 50 Utah 58 43 71 Vermont 117 68 88 Virginia 41 37 67 Washington 121 57 84 West Virginia 52 26 57 Wisconsin 67 54 79 Wyoming 70 38 68 Mean 67 41 70 Median 60 38 69 Range 35–172 13–77 43–103 Coefficient of 39.9% 36.4% 18.6% variationc SOURCE: U.S. House of Representatives (1994:366-367). NOTE: The 1993 weighted average monthly poverty threshold for a family of three was $960 (the Census Bureau's annual figure of $11,521, divided by 12); this threshold was increased by 25 percent for Alaska and by 15 percent for Hawaii (as is done for the poverty guidelines but not the official thresholds). a The values apply to Wayne County. b The values apply to New York City. c The standard deviation of the distribution as a percentage of the mean value. 43 percent above to 29 percent below the national average with a coefficient of variation of 17 percent. We then divided each state's AFDC need standard, maximum benefit, and combined maximum AFDC and food stamp benefit as of January 1994 by the appropriate state-adjusted poverty threshold index value and the appropriate median family income index value.18 If differences in the cost of living (1990: Table 1-2). Their index averaged cost-of-living indicators for 1985 developed by the American Chamber of Commerce Researchers Association for all the cities in each state, weighted by city population size. 18 State median family income (or a state-adjusted poverty threshold) could have changed between the 1990 census and January 1994; however, the results of the same set of calculations using January 1991 values for AFDC need standards, maximum benefits, and combined maximum AFDC and food stamp benefits were very similar to those reported for the January 1994 values.

THE POVERTY MEASURE AND AFDC 363 TABLE 8-4 State Median Family Income and State-Adjusted Poverty Thresholds under the Panel's Proposed Measure State Index for State Median Index for State-Adjusted Family Income Poverty Thresholds with the Proposed Measure Alabama 0.835 0.881 Alaska 1.355 1.102 Arizona 0.936 1.017 Arkansas 0.0739 0.873 California 1.180 1.178 Colorado 1.046 0.973 Connecticut 1.431 1.188 Delaware 1.172 1.066 District of Columbia 1.055 1.112 Florida 0.937 1.049 Georgia 0.976 0.993 Hawaii 1.256 1.243 Idaho 0.858 0.862 Illinois 1.126 1.020 Indiana 0.992 0.949 Iowa 0.921 0.903 Kansas 0.959 0.926 Kentucky 0.787 0.874 Louisiana 0.766 0.902 Maine 0.943 1.029 Maryland 1.310 1.106 Massachusetts 1.291 1.191 Michigan 1.066 0.998 Minnesota 1.074 1.023 Mississippi 0.712 0.853 Missouri 0.927 0.929 Montana 0.816 0.865 Nebraska 0.920 0.908 Nevada 1.043 1.078 New Hampshire 1.211 1.122 New Jersey 1.385 1.202 New Mexico 0.804 0.922 New York 1.156 1.078 North Carolina 0.918 0.940 North Dakota 0.836 0.872 Ohio 1.000 0.955 Oklahoma 0.831 0.883 Oregon 0.941 0.964 Pennsylvania 1.014 0.987 Rhode Island 1.140 1.099 South Carolina 0.897 0.936 South Dakota 0.804 0.872 Tennessee 0.860 0.920

THE POVERTY MEASURE AND AFDC 364 State Index for State Median Index for State-Adjusted Family Income Poverty Thresholds with the Proposed Measure Texas 0.919 0.963 Utah 0.967 0.900 Vermont 1.012 1.060 Virginia 1.112 1.023 Washington 1.071 1.011 West Virginia 0.745 0.846 Wisconsin 1.021 0.965 Wyoming 0.937 0.863 U.S. average 1.000 1.000 Range 0.712–1.431 0.846–1.243 Coefficient of variationa 17.3% 10.3% NOTE: See text and Chapter 3 for explanation of construction of the indexes. a The standard deviation of a distribution as a percentage of the mean value. across states (as proxied by cost-of-housing differences in the poverty threshold) are the only reason for the differences in need standards and benefit levels, then the calculation with state-adjusted poverty threshold index values should result in the same (or close to the same) dollar amounts of the need standard and maximum benefit in all states. In other words, the amounts in high- cost, high-benefit states would decrease to the mean and the amounts in low- cost, low-benefit states would increase to the mean. The same reasoning applies to the calculation with state median family income index values. These patterns do not occur. There is only a modest effect on the variation across states in AFDC need standards when differences in the cost of living or median family income are taken out of the dollar amounts: the coefficient of variation is reduced from 41 percent to 37 percent; see Table 8-5. For maximum AFDC benefits and maximum combined AFDC and food stamp benefits, there is a somewhat greater reduction in the variation across states: the coefficient of variation for maximum AFDC benefits is reduced from 40 percent to 29-33 percent, and the coefficient of variation for maximum combined AFDC and food stamp benefits is reduced from 22 percent to 15-16 percent. However, even in the case of maximum combined AFDC and food stamp benefits, significant variation remains that cannot be explained by differences in cost of living or income levels across the states.

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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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