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Measuring Poverty: A New Approach (1995)

Chapter: The Original U.S. Poverty Thresholds

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Suggested Citation:"The Original U.S. Poverty Thresholds." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 108
Suggested Citation:"The Original U.S. Poverty Thresholds." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
×
Page 109

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POVERTY THRESHOLDS 108 lead to consideration of the distribution of actual expenditures on those categories. The process will again introduce elements of relativity to time and place and judgement in that a choice must ultimately be made of a specific dollar level to serve as the poverty standard. The use of a multiplier introduces other elements of judgement and relativity. The advantage of a multiplier is that it is another way to reduce the number of budget categories for which explicit decisions must be made. But there is no method for scientifically or objectively determining a multiplier. Hence, experts are again inevitably driven to look at actual expenditures. It is not a criticism of the poverty thresholds that result from expert-based approaches to say that they embody judgements that almost always reflect the conditions of the society for which those judgements are made. This statement is true of other poverty thresholds as well. Indeed, Adam Smith's definition of "necessaries" captured the essence of the matter: they include "not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without" (1776: Book V, Chap. II, Pt. II, Article 4th). The definitions of ''custom of the country," "indecent," "the lowest order," and even "indispensably necessary" all clearly involve judgement. The problem with expert approaches is that people may not recognize the elements of judgement involved and may prefer the experts' budgets because they appear more objective. Multiplier Approaches The official U.S. poverty thresholds were originally developed by setting expert standards for one commodity, food, and applying a large multiplier to allow for other needed expenditures. In this section, we review the methods underlying those original thresholds (see Fisher, 1992a, 1992b, for more detail on their history and derivation), along with a few other examples of the multiplier approach. The Original U.S. Poverty Thresholds The original U.S. poverty thresholds were those developed by Mollie Orshansky in the 1960s on the basis of the Economy Food Plan, the least expensive of four food plans designed by the U.S. Department of Agriculture (USDA).4 This plan was developed in 1961 with data from the USDA 1955 4 Orshansky actually developed two sets of thresholds—one derived from the Economy Food Plan and another derived from the somewhat more generous Low-Cost Food Plan. The lower set of thresholds was designated for official government use.

POVERTY THRESHOLDS 109 Household Food Consumption Survey (as a plan for temporary or emergency use) by examining the food-buying patterns of lower income households, modifying these preferences to develop a nutritionally balanced food plan, and costing out the items in the plan. Orshansky calculated the cost of the Economy Food Plan for families of various sizes and compositions. Specifically, her budgets varied by total family size, number of family members who were children, sex of the family head, and whether the head of a one-person or two- person family was over or under age 65. She developed thresholds for families residing on farms as a percentage of the corresponding nonfarm thresholds. Later, the distinctions by sex of head and farm or nonfarm residence were dropped. To get from minimum food costs to estimates of minimum total living costs for families of three or more persons, she multiplied the food budgets by three. This multiplier was based on evidence from the 1955 Household Food Consumption Survey that the average family of three or more persons spent one- third of its total after-tax income on food. (Orshansky used somewhat different procedures to develop thresholds for families of one and two persons; see Chapter 3.) In focusing on the two-adult/two-child threshold developed by Orshansky, which was about $3,100 for 1963, one can see the elements of relativity and judgement in its derivation. First, although nutritional experts at the USDA made use of their knowledge in developing the Economy Food Plan, the basis of the plan was the food-buying patterns of households deemed to be "lower income" from the 1955 survey. The USDA experts could readily have developed an "economy" plan at a lower cost that was still nutritionally adequate if they had been willing to ignore the preferences of Americans, even at lower income levels, for some variety and taste in their diet. Alternatively, they could have readily developed an "economy" plan at a somewhat higher cost with more variety than that provided in the plan they actually developed. The USDA experts also made other judgements in developing the Economy Food Plan: that low-income households had adequate time and knowledge to minimize waste by very careful management of their food storage and preparation and that all meals would be prepared at home. Second, the multiplier was based on the share of total after-tax money income spent on food by the average family of three or more persons. This approach assumed that all kinds of expenditures should be included in the multiplier. It has also been criticized for using the expenditure patterns of the average family as the basis for deriving a budget for poor families. Thus, Friedman (1965) argued that poor families spend a higher proportion of their income on food than do average families. Again, our point is not that the judgements that underlay the original poverty thresholds were necessarily more or less preferable than other judgements that could have been made, but rather, that Orshansky's approach

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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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