National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Conclusions

« Previous: Trends in Need Standards and Benefits
Suggested Citation:"Conclusions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 369
Suggested Citation:"Conclusions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 370
Suggested Citation:"Conclusions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 371
Suggested Citation:"Conclusions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 372
Suggested Citation:"Conclusions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 373
Suggested Citation:"Conclusions." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 374

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THE POVERTY MEASURE AND AFDC 369 states had requirements to update both their need standard and their benefit levels; only one state apparently had a requirement to periodically reevaluate the need standard itself (Center on Social Welfare Policy and Law, 1988). In the 1970s, inflation rose significantly—by 111 percent (as measured by the CPI-U). Yet only four states increased the value of their need standard in real dollar terms during this period, and the median state saw its need standard decline by 38 percent (in real terms); see Table 8-7. The decline in real terms in the value of the maximum benefit in the median state was somewhat less—26 percent; see Table 8-8. As a result, the number of states paying ''full need" doubled over the period (from 14 to 29 states), and the number paying 70 percent or more of need increased from 33 to 44 states. In the 1980s, inflation moderated—increasing by 63 percent—and 26 states increased the value of their need standard to keep up with or exceed the rate of inflation. In the median state the need standard remained constant in real dollar terms. Many states updated their need standard after the passage of the 1981 Omnibus Budget Reconciliation Act, which included a provision that families could not be eligible for AFDC benefits if their gross income exceeded 150 percent (later raised to 185 percent) of the state need standard. In this way, states were able to avoid denying eligibility to families with earnings who would otherwise have been above the gross income cutoff although below the net income cutoff after allowable deductions. However, states did not necessarily update their benefit level to match: for example, Alabama doubled its need standard between 1980 and 1985 but did not raise its maximum benefit (see U.S. House of Representatives, 1991:601-605). Indeed, in the median state the maximum benefit declined by 22 percent. From 1980 to 1991 the number of states paying full need dropped from 29 to 16, and the number paying 70 percent or more of need dropped from 44 to 27 states. In looking at the whole time span, the need standard declined in real terms in the median state by 33 percent from 1970 to 1991, and the maximum benefit declined in real terms by 38 percent.22 One consequence of declining AFDC benefits over the period was that food stamps (which are indexed yearly for inflation) accounted for an increasing proportion of the combined AFDC and food stamps benefit. This change reduced the financial burden on the states, since the federal government pays the full cost of food stamps. Conclusions Clearly, a persistent characteristic of the AFDC program has been the great variation in need standards (and benefit levels) among the states—variation 22 The median state's need standard remained approximately constant in real terms from January 1991 to January 1994, while the median state's maximum AFDC benefit continued to decline (see U.S. House of Representatives, 1994: Tables 10-13, 10-14).

THE POVERTY MEASURE AND AFDC 370 TABLE 8-7 AFDC Need Standards for a Family of Three, July 1970, July 1980, and January 1991, in Constant (January 1991) Dollars AFDC Need Standard (in Percentage Change January 1991 dollars) State July July Jan. 1970– 1980– 1970– 1970 1980 1991 1980 1991 1991 Alabama 635 313 603 -51 93 -5 Alaska 1,208 745 891 -38 20 -26 Arizona 731 380 621 -48 63 -15 Arkansas 514 381 705 -26 85 37 California 1,211 782 694 -35 -11 -43 Colorado 666 473 421 -29 -11 -37 Connecticut 976 774 680 -21 -12 -30 Delaware 845 434 338 -49 -22 -60 District of 790 642 712 -19 11 -10 Columbia Florida 652 318 880 -51 177 35 Georgia 611 315 424 -48 35 -31 Hawaii 780 763 1,012 -2 33 30 Idaho 821 605 554 -26 -8 -33 Illinois 800 469 811 -41 73 1 Indiana 938 500 320 -47 -36 -66 Iowa 852 587 497 -31 -15 -42 Kansas 838 562 409 -33 -27 -51 Kentucky 718 306 526 -57 72 -27 Louisiana 593 655 658 10 0 11 Maine 956 676 652 -29 -4 -32 Maryland 859 440 562 -49 28 -35 Massachusetts 925 618 539 -33 -13 -42 Michigana 756 693 586 -8 -15 -22 Minnesota 883 680 532 -23 -22 -40 Mississippi 697 359 368 -48 3 -47 Missouri 983 509 312 -48 -39 -68 Montana 762 422 453 -45 7 -41 Nebraska 969 505 364 -48 -28 -62 Nevada 928 465 550 -50 18 -41 New Hampshire 904 564 516 -38 -9 -43 New Jersey 1,042 587 424 -44 -28 -59 New Mexico 576 359 310 -38 -14 -46 New Yorkb 963 642 577 -33 -10 -40 North Carolina 580 313 544 -46 74 -6 North Dakota 800 544 401 -32 -26 -50 Ohio 714 564 776 -21 38 9 Oklahoma 618 460 471 -26 2 -24 Oregon 790 460 444 -42 -3 -44 Pennsylvania 914 541 614 -41 13 -33 Rhode Island 790 554 554 -30 0 -30 South Carolina 559 305 440 -45 44 -21 South Dakota 911 523 385 -43 -26 -58 Tennessee 618 292 412 -53 41 -33

THE POVERTY MEASURE AND AFDC 371 AFDC Need Standard (in Percentage Change January 1991 dollars) State July July Jan. 1970– 1980– 1970– 1970 1980 1991 1980 1991 1991 Texas 683 253 574 -63 127 -16 Utah 769 782 537 2 -31 -30 Vermont 990 1,092 1,029 10 -6 4 Virginia 828 561 393 -32 -30 -53 Washington 890 747 983 -16 32 10 West Virginia 759 448 497 -41 11 -35 Wisconsin 738 851 647 15 -24 -12 Wyoming 849 513 674 -40 31 -21 Mean 807 536 566 -34 13 -28 Median 800 513 544 -38 0 -33 Range 514– 253– 310– (-63)– (-39)– (-68)– 1,211 1,092 1,029 15 177 37 Coefficient 18.9% 31.7% 31.3% 51.8% 337.3% 88.7% of variationc NOTES: Data calculated from U.S. House of Representatives (1991:602-605). The adjustment to constant January 1991 dollars was made using the values for the urban Consumer Price Index (CPI- U). a The values apply to Wayne County. b The values apply to New York City. c The standard deviation of a distribution as a percentage of the mean value. that considerably exceeds estimated differences in the cost of living across states. Another characteristic has been the absence in many states of systematic procedures for setting and periodically revising the AFDC need standard. A fundamental question is whether the concept of a separate need standard makes sense: most assistance programs do not distinguish between a need standard and the maximum benefit the program will pay to participants with no other source of support. Limits on gross as well as countable income in these programs (e.g., SSI) are set as a function of the benefit standard, and such a practice could be followed in AFDC as well. Urban Systems Research & Engineering (1980:22) argued that the AFDC need standard serves the useful function of a goal or benchmark and that need standards are not an exercise in futility: The systematic derivation and conscientious maintenance of normative standards of need can lead not only to higher need standards, but also to higher payment levels than would be achieved in the absence of any commitment to a realistic benchmark of adequacy [emphasis in original].

TABLE 8-8 AFDC Maximum Benefits for a Family of Three, July 1970, July 1980, and January 1991, in Constant (January 1991) Dollars July 1970 July 1980 January 1991 Percentage Change State Max. Percent of Max. Percent of Max. Percent of 1970– 1980– 1970– AFDC Ben. Need Std. AFDC Ben. Need Std. AFDC Ben. Need Std. 1980 1991 1991 Alabama 224 35 192 61 124 21 -14 -35 -45 Alaska 1,132 94 745 100 891 100 -34 -20 -21 Arizona 476 65 329 87 293 47 -31 -11 -38 Arkansas 307 60 262 69 204 29 -15 -22 -34 California 642 53 771 99 694 100 20 -10 8 Colorado 666 100 473 100 356 85 -29 -25 -47 Connecticut 976 100 774 100 680 100 -21 -12 -30 Delaware 552 65 434 100 338 100 -21 -22 -39 District of 673 85 466 73 428 60 -31 -8 -36 Columbia THE POVERTY MEASURE AND AFDC Florida 393 60 318 100 294 33 -19 -8 -25 Georgia 369 60 267 85 280 66 -28 5 -24 Hawaii 780 100 763 100 632 62 -2 -17 -19 Idaho 728 89 526 87 317 57 -28 -40 -56 Illinois 800 100 469 100 367 45 -41 -22 -54 Indiana 414 44 416 83 288 90 0 -31 -30 Iowa 693 81 587 100 426 86 -15 -27 -39 Kansas 766 91 562 100 409 100 -27 -27 -47 Kentucky 507 71 306 100 228 43 -40 -25 -55 Louisiana 304 51 248 38 190 29 -18 -23 -37 Maine 466 49 456 68 453 69 -2 -1 -3 Maryland 559 65 440 100 406 72 -21 -8 -27 Massachusetts 925 100 618 100 539 100 -33 -13 -42 Michigana 756 100 693 100 525 90 -8 -24 -31 Minnesota 883 100 680 100 532 100 -23 -22 -40 Mississippi 193 28 156 43 120 33 -19 -23 -38 Missouri 359 37 404 80 292 94 13 -28 -19 Montana 697 91 422 100 370 82 -39 -12 -47 372

Nebraska 590 61 505 100 364 100 -14 -28 -38 Nevada 417 45 427 92 330 60 2 -23 -21 New Hampshire 904 100 564 100 516 100 -38 -9 -43 New Jersey 1,042 100 587 100 424 100 -44 -28 -59 New Mexico 514 89 359 100 310 100 -30 -14 -40 New Yorkb 963 100 642 100 577 100 -33 -10 -40 North Carolina 500 86 313 100 272 50 -37 -13 -46 North Dakota 735 92 544 100 401 100 -26 -26 -45 Ohio 555 78 429 76 334 43 -22 -22 -40 Oklahoma 524 85 460 100 341 72 -12 -26 -35 Oregon 635 80 460 100 444 100 -28 -3 -30 Pennsylvania 914 100 541 100 421 69 -41 -22 -54 Rhode Island 790 100 554 100 554 100 -30 0 -30 South Carolina 293 52 210 69 210 48 -28 0 -28 South Dakota 911 100 523 100 385 100 -43 -26 -58 THE POVERTY MEASURE AND AFDC Tennessee 386 62 199 68 195 47 -48 -2 -49 Texas 511 75 189 75 184 32 -63 -3 -64 Utah 604 79 587 75 402 75 -3 -32 -33 Vermont 921 93 802 73 679 66 -13 -15 -26 Virginia 776 94 505 90 354 90 -35 -30 -54 Washington 890 100 747 100 531 54 -16 -29 -40 West Virginia 393 52 336 75 249 50 -15 -26 -37 Wisconsin 635 86 724 85 517 80 14 -29 -19 Wyoming 735 87 513 100 360 53 -30 -30 -51 Mean 635 78 480 89 393 72 -23 -18 -37 Median 635 85 469 100 367 72 -26 -22 -38 Range 193–1,132 28–100 157–807 38–100 120–891 21–100 (-63)–20 (-40)–20 (-64)–8 Coefficiant of variationc 35.5% 27.0% 35.6% 17.3% 39.5% 34.7% 71.4% 65.2% 37.1% NOTES: Data calculated from U.S. House of Representatives (1991:602-605). The adjustment to constant January 1991 dollars was made using the CPI-U. a The values apply to Wayne County. b The values apply to New York City. c The standard deviation of a distribution as a percentage of the mean value. 373

THE POVERTY MEASURE AND AFDC 374 USR&E based this argument on the behavior of the subset of states that either made a conscientious effort during the 1970s to set normative standards or, although not having recently established a systematically derived need standard, had committed themselves to maintaining the value of their need standard in real terms. These states as a group increased both their need standard and their benefit level more than other states in the 1969-1979 period. However, it seems to us as likely or more likely that a common set of factors (e.g., a more supportive attitude toward welfare programs) explains the propensity to raise both need and benefit standards in some states rather than that higher need standards in and of themselves cause states to raise their benefits. We do not offer a recommendation about the merits of having a separate need standard in the AFDC program, although we are among those who find the concept of questionable utility. Welfare policy is currently the subject of intense debate, and the AFDC program as it has operated historically may likely change in significant ways, perhaps rendering moot the issue of the soundness or adequacy of the need standard for the existing program. However, given that current law requires states to set need standards (and allows them to have lower benefit standards), our concern is whether it makes sense for states to adopt the proposed poverty measure in place of their own standard. A recent development in standard setting practices with relevance to this issue is that, in the past decade, 14 states have explicitly geared their need standard to the current poverty guidelines, which derive from the official thresholds. In many of these states, the link is more theoretical than actual, in that the need standard, either by law or regulation or because of failure to adjust for inflation, is a small fraction of the poverty guidelines. In other states, the definition of the poverty guidelines has been altered to exclude some types of consumption. Overall, however, a growing number of states are finding it convenient to link their AFDC need standard to the poverty guidelines in some fashion. We recommend that states that tie their AFDC need standard to the current poverty measure consider the use of the proposed measure instead, and we encourage all of the states to make a similar assessment. The Family Support Act requires states to review their need standard every 3 years and report to HHS. We note that HHS could request the states to complete an assessment that considers the possible use of the proposed poverty measure for inclusion in their next regular reports. An important element of such a review is an assessment of the implications of the proposed measure—both the thresholds and the definition of family resources—in relation to a state's current need standard (whether the poverty guidelines or its own standard) and the rules for determining gross and net income. Also important to consider is whether the proposed measure may need to be modified in one or more respects to be more suitable for program

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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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