National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Distributional Effects

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Suggested Citation:"Distributional Effects." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 74
Suggested Citation:"Distributional Effects." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
×
Page 75
Suggested Citation:"Distributional Effects." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 76

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INTRODUCTION AND OVERVIEW 74 benefits raises the family's income above the adjusted poverty threshold (which is lower than the official threshold because of the housing cost adjustment). The family with a working parent in a big New England city, Case 3, is not poor under the current measure but is poor under the proposed measure: subtracting such expenses as child care reduces the family's income below both the official threshold and the adjusted threshold. In contrast, the family in the rural upper Midwest, with a parent who works at a lower pay rate, Case 4, is poor under both the current measure and the proposed measure. We also conducted an extensive analysis with the March 1993 Current Population Survey data files of poverty rates under the current measure and the proposed measure (see Chapter 5). To implement the proposed family resource definition with the March 1993 CPS, we performed imputations for such components as child care and out-of-pocket medical care expenses by using data from SIPP and the National Medical Expenditure Survey. We were able to take advantage of the Census Bureau's research and development program for other components, such as income and payroll taxes and nonmedical in-kind benefits.20 Although our data adjustments and imputations are not without problems, we believe the comparisons we obtained between gross money income and disposable money and near-money income for 1992 are reasonably accurate.21 Distributional Effects We carried out one set of comparisons to illustrate the effects of the current and proposed measures on the characteristics of people who are poor, holding constant the poverty rate for the total population. For this exercise, we determined the two-adult/two-child family threshold that, together with the proposed threshold adjustments (including the use of a 0.75 scale economy factor) and the proposed family resource definition, gave the same 1992 poverty rate as the official rate, 14.5 percent. The total number of poor people was about the same as the official number of 36.9 million. (The official reference family threshold for 1992 was $14,228; the threshold that gave the same result with the proposed measure turned out to be $13,175, a number that is purely an artifact of the analysis.) In this exercise, the proposed measure produces about the same number 20 The only income component that we did not implement was an adjustment for child support payments. The March CPS lacks any information with which to determine who would most likely make such payments; this lack could be easily remedied by adding a question to the survey. 21 We are grateful for the help we received from many agencies in obtaining the data with which to implement our proposed family resource definition with the March CPS (see Acknowledgments).

INTRODUCTION AND OVERVIEW 75 of poor people as the current measure, but they are not all the same people. Under the proposed measure, 7.4 million people are moved out of poverty, and 7.4 million are moved into poverty. That is, the proposed measure has significant effects on the composition of the poor population, changing about 20 percent of that population. Table 1-6 shows these changes for groups categorized by age, race, ethnicity, receipt of cash welfare, work status, health insurance status, and region of residence. This table also shows the poverty rates for each group under the current and proposed measures. The greatest effect of the proposed measure is to decrease the percentage TABLE 1-6 Poverty Statistics, 1992: Current Measure and Proposed Measure, Keeping the Overall Poverty Rate Constant Population Percent of Percent of Poor Poverty Rate for Group Total Population Population Group (%) Population Current Proposed Current Proposed Measure Measure Measure Measure Age Children 26.3 39.6 39.2 21.9 21.7 under 18 Adults 18– 61.5 49.6 51.8 11.7 12.2 64 Adults 65 12.2 10.8 9.0 12.9 10.8 and older Race White 83.6 66.8 69.3 11.6 12.0 Black 12.5 28.6 25.7 33.2 29.8 Other 3.9 4.6 5.1 17.4 19.1 Ethnicity Hispanic 8.9 18.1 20.9 29.4 34.0 Non- 91.1 81.9 79.1 13.1 12.6 Hispanic Welfare Status of Family Receiving 9.9 40.4 29.9 59.4 44.0 cash welfare Not 90.1 59.6 70.1 9.6 11.3 receiving welfare Work Status of Family One or 81.1 50.8 58.9 9.1 10.6 more workers No workers 18.9 49.2 41.1 37.9 31.7 Health Insurance Status of Family No health 13.7 30.1 35.7 32.0 37.9 insurance Some health 86.3 69.9 64.3 11.8 10.8 insurance Region of Residence Northeast 20.0 16.9 18.9 12.3 13.8 Midwest 24.0 21.7 20.2 13.1 12.2 South 34.4 40.0 36.4 16.9 15.4 West 21.6 21.4 24.5 14.4 16.5 NOTE: In the first, second, and third columns, the percentages for the categories within each characteristic (age, race, etc.) add to 100; in the last two columns, the percentages (rates) apply to each category individually. See text for thresholds used.

INTRODUCTION AND OVERVIEW 76 FIGURE 1-4 Effects of the proposed measure on the percentage of poor people in working families and families receiving cash welfare. of poor people who are in families receiving cash welfare, AFDC and Supplemental Security Income (SSI), and to increase the percentage who are in working families; Figure 1-4.22 Largely because of the additions to income of the value of in-kind benefits, people in families receiving cash welfare account for just 30 percent of poor people under the proposed measure, compared with 40 percent under the current measure. In contrast, largely because of deductions from income of taxes, work expenses, and out-of-pocket medical care expenses, people in families with one or more earners account for 59 percent of poor people under the proposed measure, compared with 51 percent under the current measure. People in families receiving cash welfare still have a much higher poverty rate than the people in working families, but the difference is not as large under the proposed measure: the poverty rate for people in welfare families is 44 percent under the proposed measure and 59 percent under the current measure; the rate for people in working families is 11 percent under the proposed measure and 9 percent under the current measure. Another effect of the proposed measure is to increase the poverty rate for people in families lacking health insurance coverage. They make up 36 percent of the poor under the proposed measure, compared with 30 percent under the current measure. By age, children make up about the same percentage of poor people (39-40%) and have about the same, higher-than-average poverty rate (22%) under both the current and the proposed measures—because poor children live both in families receiving cash welfare and in families with one or more earners. 22 Families receiving cash welfare and those with one or more earners overlap to some extent; people not in either group include some retirees, students, and others.

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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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