National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Adjusting the Thresholds - Geographic Variations

« Previous: Adjusting the Thresholds - Equivalence Scale
Suggested Citation:"Adjusting the Thresholds - Geographic Variations." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 60
Suggested Citation:"Adjusting the Thresholds - Geographic Variations." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 61
Suggested Citation:"Adjusting the Thresholds - Geographic Variations." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 62
Suggested Citation:"Adjusting the Thresholds - Geographic Variations." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 63
Suggested Citation:"Adjusting the Thresholds - Geographic Variations." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 64

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INTRODUCTION AND OVERVIEW 60 family is 60 percent (1.49/2.5) of the threshold for the two-adult/two-child family. We are confident that this equivalence scale has an appropriate form; however, the selection of the two key parameters—for the proportionate needs of children and the scale economy factor—involves judgement. In selecting the values for these parameters, it is important to recognize the interaction between them. For example, several studies and advisers to the panel have suggested the use of a scale economy factor of 0.50 (implying greater economies than our suggested range of 0.65-0.75), but coupled with the assumption that children cost the same as adults. Given a scale, such as we propose, in which children are assumed to need less than adults, it is appropriate to raise the scale economy factor closer to a value of 1, although how much closer is, to repeat, a matter of judgement. RECOMMENDATION 3.1. The four-person (two adult/two child) poverty threshold should be adjusted for other family types by means of an equivalence scale that reflects differences in consumption by adults and children under 18 and economies of scale for larger families. A scale that meets these criteria is the following: children under 18 are treated as consuming 70 percent as much as adults on average; economies of scale are computed by taking the number of adult equivalents in a family (i.e., the number of adults plus 0.70 times the number of children), and then by raising this number to a power of from 0.65 to 0.75. Figure 1-2 portrays the equivalence scale for selected family types under our proposal compared with the scale implicit in the current poverty thresholds. The graph indicates the percentage by which a single person's poverty threshold is increased when that person acquires a spouse and when the couple subsequently has a first, second, third, and fourth child. The figure makes clear the irregularities and anomalies in the current scale. For example, under the current scale, a spouse adds only 29 percent to family costs; the first child adds almost as much (26%), and the second child adds a yet greater amount (40%). These patterns are not consistent with the view that adults need more than children nor with economies of scale for larger families. In contrast, our proposed scale adds 57-68 percent for a spouse (depending on whether the scale economy factor is 0.65 or 0.75), 34-42 percent for the first child, and a decreasing percentage for each additional child. Adjusting the Thresholds—Geographic Variations A frequently voiced criticism of the current poverty thresholds is that they take no account of variations in the cost of living in different geographic areas of the country. Such variations—for example, large differences in housing

INTRODUCTION AND OVERVIEW 61 FIGURE 1-2 Alternative equivalence scales. NOTES: Alternatives 1 and 2 use scale economy factors of 0.75 and 0.65, respectively; both alternatives assume children need 70 percent as much as adults. The increments are relative to a scale value of 1.0 for a single adult. costs between coastal metropolitan areas and the heartland—seem obvious to the public, and, indeed, are often the subject of media attention. Poverty thresholds that recognize such differences seem clearly preferable to those that do not. Unfortunately, this is a topic for which limitations in data greatly constrain one's options. For example, although BLS publishes price indexes for a number of metropolitan areas, no indexes are published for nonmetropolitan areas. Moreover, the BLS price indexes are not designed to permit comparisons of cost-of-living differences across areas; rather, they compare rates of change in price inflation: one can determine whether prices are rising faster in Los Angeles than in New York City, for example, but not whether the cost of living is higher in one or the other area. Despite data limitations, we believe that some adjustment to the poverty thresholds should be made for geographic cost-of-living variations. Research conducted by BLS analysts suggests that variations are minor for some items, such as food (Kokoski, Cardiff, and Moulton, 1994), but that they are large for housing (including utilities), which is a large component of the proposed

INTRODUCTION AND OVERVIEW 62 poverty-level budget. Also, data are available from the 1990 census with which to estimate differences in rental housing costs across the entire country, making possible at least a partial adjustment of the poverty thresholds for geographic cost-of-living differences. We analyzed the census data to determine adjustments that, in light of other studies, seem reasonable to apply to the housing component of the proposed poverty thresholds. We believe that at this stage of knowledge the adjustments should be made for relatively large geographic areas. Our analysis examined census-based housing cost adjustments by region and state and by several population size categories of metropolitan areas.17 On balance, it appears that size of place is a more important correlate of housing costs than is state of residence; most states include urban and rural areas that vary widely in population density and housing costs. Hence, we recommend that adjustments for housing cost differences—calibrated to reflect the share of housing in the proposed poverty budget—be implemented for nine regions of the country and, within each region, by several population size categories of metropolitan areas. The adjustments that we developed from our analysis and used in estimating the effects of the proposed measure are provided in Table 1-5.18 RECOMMENDATION 3.2. The poverty thresholds should be adjusted for differences in the cost of housing across geographic areas of the country. Available data from the decennial census permit the development of a reasonable cost-of-housing index for nine regions and, within each region, for several population size categories of metropolitan areas. The index should be applied to the housing portion of the poverty thresholds. It would be desirable to update the adjustment factors that are applied to the housing component of the poverty thresholds more frequently than once every 10 years. We encourage research to determine reasonable updating methods. For example, it may be that HUD's methods for updating fair market rents could be adapted for this purpose. RECOMMENDATION 3.3. Appropriate agencies should conduct research to determine methods that could be used to update the geographic housing cost component of the poverty thresholds between the decennial censuses. 17 We adapted the HUD methodology for constructing fair market rents by locality. 18 We did not address the special circumstances of Alaska and Hawaii, for which a housing cost adjustment based on the Pacific states region as a whole may not be sufficient to reflect the high cost of living in these states. Also, although we do not recommend state-by-state adjustments for the statistical measure of poverty, such adjustments may make sense for the AFDC program (see Chapter 8).

INTRODUCTION AND OVERVIEW 63 TABLE 1-5 Poverty Thresholds Adjusted for Differences in Cost of Housing, Expressed as Percentages Above or Below a National Poverty Threshold Region and Area Percentage Difference North New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) Nonmetropolitan areas and metropolitan areas under 250,000 +12.8 population Metropolitan areas 250,000–500,000 pop. +12.8 Metropolitan areas 500,000–1,000,000 pop. +14.8 Metropolitan areas 1,000,000–2,500,000 pop. +14.1 Metropolitan areas 2,500,000 or more pop. +20.9 Middle Atlantic (New Jersey, New York, Pennsylvania) Nonmetropolitan areas and metropolitan areas under 250,000 -9.2 population Metropolitan areas 250,000–500,000 pop. -0.3 Metropolitan areas 500,000–1,000,000 pop. +2.0 Metropolitan areas 1,000,000–2,500,000 pop. -2.5 Metropolitan areas 2,500,000 or more pop. +18.7 Midwest East North Central (Illinois, Indiana, Michigan, Ohio, Wisconsin) Nonmetropolitan areas and metropolitan areas under 250,000 -10.4 population Metropolitan areas 250,000–500,000 pop. -4.1 Metropolitan areas 500,000–1,000,000 pop. -1.3 Metropolitan areas 1,000,000–2,500,000 pop. -0.5 Metropolitan areas 2,500,000 or more pop. +5.9 West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) Nonmetropolitan areas and metropolitan areas under 250,000 -13.9 population Metropolitan areas 250,000–500,000 pop. -3.8 Metropolitan areas 500,000–1,000,000 pop. -1.9 Metropolitan areas 1,000,000–2,500,000 pop. +2.8 Metropolitan areas 2,500,000 or more pop. N.A. South South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia) Nonmetropolitan areas and metropolitan areas under 250,000 -10.1 population Metropolitan areas 250,000–500,000 pop. -3.9

INTRODUCTION AND OVERVIEW 64 Region and Area Percentage Difference South Atlantic—continued Metropolitan areas 500,000–1,000,000 pop. +0.7 Metropolitan areas 1,000,000–2,500,000 pop. +4.3 Metropolitan areas 2,500,000 or more pop. +11.9 East South Central (Alabama, Kentucky, Mississippi, Tennessee) Nonmetropolitan areas and metropolitan areas under 250,000 -17.3 population Metropolitan areas 250,000–500,000 pop. -6.5 Metropolitan areas 500,000–1,000,000 pop. -5.3 Metropolitan areas 1,000,000–2,500,000 pop. N.A. Metropolitan areas 2,500,000 or more pop. N.A. West South Central (Arkansas, Louisiana, Oklahoma, Texas) Nonmetropolitan areas and metropolitan areas under 250,000 -14.2 population Metropolitan areas 250,000–500,000 pop. -8.9 Metropolitan areas 500,000–1,000,000 pop. -5.8 Metropolitan areas 1,000,000–2,500,000 pop. -3.8 Metropolitan areas 2,500,000 or more pop. +0.5 West Mountain (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming) Nonmetropolitan areas and metropolitan areas under 250,000 -11.2 population Metropolitan areas 250,000–500,000 pop. -2.4 Metropolitan areas 500,000–1,000,000 pop. +3.9 Metropolitan areas 1,000,000–2,500,000 pop. +0.3 Metropolitan areas 2,500,000 or more pop. N.A. Pacific (Alaska, California, Hawaii, Oregon, Washington) Nonmetropolitan areas and metropolitan areas under 250,000 -3.1 population Metropolitan areas 250,000–500,000 pop. +1.8 Metropolitan areas 500,000–1,000,000 pop. +2.8 Metropolitan areas 1,000,000–2,500,000 pop. +10.4 Metropolitan areas 2,500,000 or more pop. +21.7 NOTES: Housing cost indexes are calculated from 1990 census data on gross rent for apartments with specified characteristics, adjusted to reflect the share of housing in the proposed poverty budget (see Chapter 3). Nonmetropolitan areas are combined with metropolitan areas of less than 250,000 population because of restrictions on geographic area coding in the Current Population Survey and Survey of Income and Program Participation. N.A., not applicable.

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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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