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Measuring Poverty: A New Approach (1995)

Chapter: The Poverty Threshold

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Suggested Citation:"The Poverty Threshold." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 44
Suggested Citation:"The Poverty Threshold." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 45

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INTRODUCTION AND OVERVIEW 44 has not played an active role in the debate about the underlying concepts and does not have research or operational capabilities. Based on past practice, it seems likely that the Statistical Policy Office of OMB will convene an interagency group representing program and statistical agencies to review this report and determine the response to our recommendations. On the assumption that OMB will play this role, we believe the Statistical Policy Office is the appropriate office to oversee implementation of our recommendations if they are accepted and to manage the 10-year review process. Obviously, the Census Bureau will have a major role to play, not only in publishing statistics under the new measure, but also in implementing needed data improvements and conducting research on various aspects of the measure. The Bureau of Labor Statistics will also have an important role in light of our recommendations for deriving and updating the reference family poverty threshold from consumer expenditure data (see below). Other agencies can also make important contributions to the continued improvement of the measure, as can researchers at academic institutions. In this regard, we urge OMB to seek the involvement of all appropriate agencies in the implementation and continued improvement of the poverty measure. RECOMMENDATION 1.3. The U.S. Office of Management and Budget should adopt a revised poverty measure as the official measure for use by the federal government. Appropriate agencies, including the Bureau of the Census and the Bureau of Labor Statistics, should collaborate to produce the new thresholds each year and to implement the revised definition of family resources. RECOMMENDATION 1.4. The Statistical Policy Office of the U.S. Office of Management and Budget should institute a regular review, on a 10-year cycle, of all aspects of the poverty measure: reassessing the procedure for updating the thresholds, the family resource definition, etc. When changes to the measure are implemented on the basis of such a review, concurrent poverty statistics series should be run under both the old and the new measures to facilitate the transition. The Poverty Threshold To understand fully the concept we recommend for developing and updating the poverty threshold and why we recommend it, the reader should keep several things in mind. First, the proposed threshold concept applies to a reference family, which we recommend be a family of two adults and two children.11 It is possible with some concepts to develop thresholds independently 11 It is important for technical reasons relating to the equivalence scale for the reference family to fall in the middle of the size distribution. Of course, the four-person family is not the

INTRODUCTION AND OVERVIEW 45 for each family type (as the official thresholds were originally constructed). However, we believe that it makes more sense to develop a threshold for a reference family and then use a formal equivalence scale to adjust that threshold for different numbers of adults and children. We also recommend that the thresholds be further adjusted by an index of differences in the cost of housing across geographic areas as a feasible way of implementing a cost-of-living adjustment (see below). Second, we believe that in addition to accounting for different needs of families by number of adults and children and geographic area of residence, it is critical to account for different needs due to the fact that some families incur nondiscretionary expenses that are not available for consumption. For example, some families pay for child care in order to earn income, whereas other families (and individuals) make no such payments, yet the official thresholds are the same for both situations. One way to recognize these different circumstances is to develop additional thresholds, such as thresholds for nonworking families, working families with children who pay for child care, and other working families. We recommend instead that nondiscretionary expenses—which we define as taxes, child care and other work-related expenses, child support payments to another household, and out-of-pocket medical care expenditures (including health insurance premiums)—be deducted from the income of families with such expenses. This approach will more accurately capture the poverty status of families in different circumstances than would the approach of trying to develop a range of different thresholds. However, our approach has implications for comparing poverty thresholds across concepts: a reference family threshold developed as we propose will necessarily exclude some expenses that are typically averaged in for all such families. Third, we consider that the decision about whether (and to what extent) to update the official poverty line for real growth in consumption has important implications for the choice of a poverty threshold concept and, indeed, for how much attention one needs to give to the threshold concept as opposed to other aspects of the poverty measure. We briefly discuss the updating issue before turning to our recommended threshold concept. predominant living arrangement in American society. Of all households (including family households and those headed by unrelated individuals), the single largest type consists of adults living alone (25% in 1992), followed by married couples with no other family member (22%). Four-person families, comprising a married couple and two other family members, are the next largest group (13%). However, such four-person families are the modal type in terms of how many people they represent: in 1992, they accounted for 20 percent of all people, compared with 17 percent for married couples living alone, and 10 percent for single-adult households (Rawlings, 1993: Table 16).

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Measuring Poverty: A New Approach Get This Book
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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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