National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Updating the Thresholds

« Previous: The Poverty Threshold
Suggested Citation:"Updating the Thresholds." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 46
Suggested Citation:"Updating the Thresholds." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 47

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INTRODUCTION AND OVERVIEW 46 Updating the Thresholds Although developed in a largely relative fashion with reference to actual spending patterns, the official U.S. poverty thresholds are absolute in that they are updated each year solely for price changes. If one believes it appropriate to continue to maintain the current official poverty standard in absolute terms, then there is little need to debate the underlying threshold concept. One would want to review other aspects of the measure, including adjustments to the threshold for different family circumstances and the family resource definition. One would also want to consider the appropriate price index for updating: some have argued, for example, that it is preferable to use an index based on a market basket that reflects the spending patterns of low-income people rather than the overall CPI. But it would not be necessary to reconsider the level or concept of the reference family threshold itself. (We note that whatever the merits of continuing with an absolute poverty standard, the argument that is sometimes made for it—namely, that only with an absolute standard is it possible to reduce poverty—is incorrect. In fact, the only way in which the poverty rate cannot go down is if the poverty level is defined each year as that income value not exceeded by, say, the lowest 20% of families— by definition, 20% of families are always below that level. In contrast, with such relative concepts as one-half median family income, changes in the distribution of income below the median can lower the poverty rate even when median income—and hence the dollar value of the poverty threshold—rises in real terms.) An alternative approach would be to conclude from the historical evidence— as we do—that poverty thresholds, when they are set, are inherently relative to time and place but argue that it is important to maintain a set of thresholds, once chosen, in absolute terms for reasonably long periods of time. This approach would reject the notion of maintaining a poverty level unchanged for longer than, say, a generation (or, perhaps, a decade), but, between realignments, would maintain a stable target in real terms for such purposes as evaluating the effects of economic growth and government assistance programs on the extent of poverty. The question then becomes whether now is the time for a realignment of the official thresholds and, if so, what is a reasonable level to adopt. (Other aspects of the poverty measure, such as the adjustments to the reference family threshold and the family resource definition, would also need to be considered, as would the appropriate price index for updating.) A pragmatic first step is to look at the reference family threshold level produced by several concepts (e.g., the original SSA concept, other budget approaches, one-half median income or expenditures, subjective survey responses) in comparison with the official threshold. To the extent that the various levels from other concepts both differ from the official threshold and

INTRODUCTION AND OVERVIEW 47 are reasonably congruent with each other, it may be possible to reach a consensus as to an appropriate realignment—just as the original SSA threshold for a family with two adults and two children commanded broad support in 1963. It turns out that recently calculated thresholds for a two-adult/two-child family (or, in some cases, a four-person family) range from $17,200 to $21,800 (in 1992 dollars); see Table 1-3. By comparison, the official 1992 two-adult/ two-child threshold is $14,228. (All the thresholds in Table 1-3 are after-taxes; however, they average the needs of families with and without other types of TABLE 1-3 Poverty Thresholds for Two-Adult/Two-Child (or Four-Person) Families Set by Various Methods for 1989-1993, in 1992 Dollars (Rounded) Type and Source of Threshold Amount Absolute Threshold Official Orshansky, 1963: Economy Food Plan times 3.0, updated by the 14,228 change in the CPI Expert Budget Thresholds Adaptation by the panel of Orshansky (1963, 1965a): food times a multiplier 20,700 of 4.4 Adaptation by the panel of Ruggles (1990): housing times a multiplier of 3.3 21,600 Weinberg and Lamas (1993), version A: food plus housing times a multiplier 20,300 of 2.0 Weinberg and Lamas (1993), version B: (food plus a higher housing standard 21,800 times a multiplier of 2.0 Adaptation by the panel of Renwick and Bergmann (1993): budget for food, 17,600 housing and household operations, transportation, health care, clothing, child care, and personal care Schwarz and Volgy (1992): detailed budget for single-earner family 19,000 Relative Thresholds One-half median after-tax four-person family income: extension of series 18,000 developed by Vaughan (1993) Adaptation by the panel of Expert Committee on Family Budget Revisions 20,000 (1980): one-half average expenditures of four-person consumer units Subjective Thresholds 1989 Gallup Poll "poverty" line: from Vaughn (1993) 17,700 1993 General Social Survey "poverty" line 17,200 SOURCE: See Chapter 2, especially Table 2-5. NOTE: All thresholds are after-taxes except that survey respondents to the Gallup Poll and General Social Survey may not have answered the question on the poverty line in after-tax terms.

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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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