National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: THRESHOLD CONCEPTS

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Suggested Citation:"THRESHOLD CONCEPTS." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 98
Suggested Citation:"THRESHOLD CONCEPTS." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 99

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POVERTY THRESHOLDS 98 allow for all other expenses; however, as implemented, the concept is simply the threshold value that was set for 1963 updated for price changes. Hence, whether the concept is still relevant today, given the increase in the U.S. standard of living over the past 30 years, is very much a question. THRESHOLD CONCEPTS The measurement of economic poverty involves two primary components: a budget or threshold below which people are considered poor and an estimate of resources available to people to compare with that threshold. Although the two components work in conjunction with one another—indeed, they need to be defined in a consistent manner in order to have a defensible measure of poverty— for reasons of analysis and presentation we discuss each component in turn. In this chapter we consider concepts for a poverty threshold for a reference family type, including the implications for how that threshold is updated over time. (Chapter 3 discusses adjustments to the reference family threshold for other family types.) We also consider levels for the reference family threshold with which to initiate a new series of poverty statistics under the proposed measure. Analysts often use the terms "absolute" and "relative" poverty thresholds. Absolute thresholds are fixed at a point in time and updated solely for price changes, as is the case for the current U.S. poverty measure. Relative thresholds, in contrast, are updated regularly (usually, annually) for changes in real consumption. Absolute thresholds also generally carry the connotation that they are developed by "experts" with reference to basic physiological needs (e.g., nutritional needs) for one or more budget elements. Relative thresholds, as commonly defined, are developed by reference to the actual expenditures (or income) of the population. For example, a relative measure might set the poverty threshold for a four-person family at one-half the median income or expenditure of families, adjusted for the composition of the population by family type. Relative thresholds are often criticized on the grounds that the choice of the expenditure or income cutoff is arbitrary or subjective rather than reflecting an objective standard of economic deprivation. It is also argued that relative poverty thresholds do not provide a stable target against which to measure the effects of government programs because they change each year in response to real increases or decreases in consumption levels. In practice, however, relative poverty thresholds are not so different from thresholds developed according to expert standards of need: the latter also embody a great deal of relativity and subjectivity. Moreover, it is rare for expert (or other) standards to be maintained in absolute terms (i.e., to be updated solely for

POVERTY THRESHOLDS 99 price changes) over long periods of time. The more common experience is that an old standard is replaced after some period of time by a new standard that is higher in real terms. Our review below of poverty threshold concepts begins with an overview of our recommended concept, which leads us also to propose that the current level of the reference family threshold be reassessed (although we do not make a recommendation on the level). We then discuss in detail both expert-based poverty budgets and relative concepts developed both here and abroad. Because expert budgets are typically updated on a sporadic rather than a regular basis, with price adjustments made between realignments, we discuss types of price updating. We also review "subjective" poverty concepts, which derive poverty thresholds from survey questions. Finally, we return to the proposed concept, which is a hybrid of the budget and relative approaches and for which there is support provided by a time series of subjective thresholds developed for the United States. Our conclusions about the threshold concept and the need to reevaluate the level of the current reference family threshold involve considerable elements of judgement. Although judgement enters into nearly all aspects of the poverty measure—from how to value in-kind benefits to how to specify the particular form of an equivalence scale—questions of the threshold concept and level are more inherently matters of judgement than other aspects of a poverty measure. In our deliberations on the threshold concept, we used the criteria we developed in Chapter 1 for a poverty measure—namely, that it be understandable, statistically defensible, and operationally feasible. Also, to the greatest extent possible, we used historical and statistical evidence about the implications of alternative concepts for official poverty statistics in the United States. In this regard, we note that our review was largely limited to poverty measures that, like the current measure, relate to economic or material needs and resources and to threshold concepts that, correspondingly, express the poverty threshold in monetary terms. In other words, we reviewed measures of economic deprivation, in which poverty is defined as insufficient economic resources (e.g., money or near-money income) for minimally adequate levels of consumption of economic goods and services (e.g., food, housing, clothing, transportation). Such measures have been criticized as too narrow in focus, even considered as measures of economic poverty. Townsend (1992:5, 10), for example, comments that people are "social beings expected to perform socially demanding roles as workers, citizens, parents, partners, neighbors, and friends." He argues that economic poverty should be defined as the lack of sufficient income for people to "play the roles, participate in the relationships, and follow the customary behavior which is expected of them by virtue of their membership of society." Toward this end, Townsend (1979, 1992) has

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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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