National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)


Suggested Citation:"SETTING AND UPDATING THE POVERTY THRESHOLD." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 5
Suggested Citation:"SETTING AND UPDATING THE POVERTY THRESHOLD." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 6

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SUMMARY AND RECOMMENDATIONS 5 • A threshold for a reference family type should be developed using actual consumer expenditure data and updated annually to reflect changes in expenditures on food, clothing, and shelter over the previous 3 years. • The reference family threshold should be adjusted to reflect the needs of different family types and to reflect geographic differences in housing costs. • Family resources should be defined—consistent with the threshold concept—as the sum of money income from all sources together with the value of near-money benefits (e.g., food stamps) that are available to buy goods and services in the budget, minus expenses that cannot be used to buy these goods and services. Such expenses include income and payroll taxes, child care and other work-related expenses, child support payments to another household, and out-of-pocket medical care costs, including health insurance premiums. 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. SETTING AND UPDATING THE POVERTY THRESHOLD We propose that the poverty-level budget for the reference family start with a dollar amount for the sum of three broad categories of basic goods and services—food, clothing, and shelter (including utilities). The amount should be determined from actual Consumer Expenditure Survey (CEX) data as a percentage of median expenditures on food, clothing, and shelter by two-adult/ two-child families. This sum should then be increased by a modest additional amount to allow for other necessities. The allowance for "other expenses" is intended to cover such goods and services as personal care, household supplies,

SUMMARY AND RECOMMENDATIONS 6 and non-work-related transportation. However, it does not include such nondiscretionary expenses as taxes and child care and other costs of working, which are treated as deductions from income (see below). Once a new reference family threshold is determined, it should be updated each year with more recent expenditure data. The recommended updating procedure will automatically, over time, reflect real changes in the consumption of basic goods and services without the need for a periodic and, inevitably, disruptive readjustment in the level. It represents a middle ground between the approach of simply updating the thresholds for price changes, which ignores changes in living standards over time, and the approach of updating the thresholds for changes in total consumption. As part of implementing the proposed poverty measure, the current official threshold should be reevaluated in light of the proposed threshold concept, which treats certain expenses as deductions from income rather than as elements of the poverty budget. That evaluation should also consider the real growth in the standard of living that has occurred since the current threshold was first set for 1963. We do not as a panel recommend a specific threshold with which to initiate the new poverty measure. Ultimately, that decision is a matter of judgement. We do, however, offer our conclusion about a range for that initial threshold. This conclusion represents our own judgement, informed by analysis of thresholds developed from other commonly used concepts, such as expert budgets, relative thresholds expressed as one-half median income or expenditures, and thresholds derived from responses to sample survey questions about the poverty line. We believe that a reasonable range for the initial threshold for the reference family of two adults and two children is $13,700 to $15,900 (in 1992 dollars). The lower number equals the expenditures for food, clothing, and shelter ($11,950) by families at the 30th percentile of all two-adult/two-children families, with a multiplier of 1.15 for other needed expenditures; the higher number equals the expenditures for food, clothing, and shelter ($12,720) by families at the 35th percentile of all two-adult/two-children families, with a multiplier of 1.25 for other needed expenditures. RECOMMENDATION 2.1. A poverty threshold with which to initiate a new series of official U.S. poverty statistics should be derived from Consumer Expenditure Survey data for a reference family of four persons (two adults and two children). The procedure should be to specify a percentage of median annual expenditures for such families on the sum of three basic goods and services—food, clothing, and shelter (including utilities)—and apply a specified multiplier to the corresponding dollar level so as to add a small amount for other needs.

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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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