National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Other Multiplier Approaches

« Previous: The Orshansky Multiplier over Time
Suggested Citation:"Other Multiplier Approaches." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 114
Suggested Citation:"Other Multiplier Approaches." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 115

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POVERTY THRESHOLDS 114 the official threshold—by amounts that now bracket the Orshansky multiplier threshold. Because of problems of data comparability over time and measurement error, one should not make too much of the specific threshold values shown in Table 2-1 (or below). They are illustrative and broadly accurate, and we present them only to emphasize the overall patterns. In this set of comparisons, what is clear is that the relativity in the application of the Orshansky approach, which stems from the large multiplier that includes all other nonfood spending, produces thresholds that mirror changes in real consumption above and beyond price changes. Other Multiplier Approaches Ruggles (1990: Table A.5) derived poverty thresholds by using a multiplier approach but applying the multiplier to a poverty standard for housing rather than food. Her foundation for this measure was the fair market rents developed by the U.S. Department of Housing and Urban Development (HUD) for use in determining rent subsidies to eligible families under the Section 8 Housing Assistance Payments Program, established in 1975. HUD develops fair market rents by analyzing rent distributions in metropolitan areas and nonmetropolitan counties for two-bedroom apartments occupied by recent movers that meet specified quality standards. (The data sources for the rent distributions include the decennial census, the American Housing Survey [AHS], and local area random digit dialing telephone surveys; see Chapter 3.) The Section 8 program subsidizes tenants by making up the difference between a rental amount, which generally cannot exceed the applicable fair market rent, and a percentage of the family's income. Currently, fair market rents are set at the 45th percentile of the rent distribution in each area, and eligible families are expected to contribute 30 percent of their net countable income toward the rent. (Prior to 1983, fair market rents were set at the median or 50th percentile of the distribution, and prior to 1981, families were expected to contribute only 25% of their net countable income toward the rent.) To calculate poverty thresholds, Ruggles divided the annualized value of the fair market rent for the nation as a whole by the applicable percentage of income: 25 percent, corresponding to a multiplier of 4.00, or 30 percent, corresponding to a multiplier of 3.33; see Table 2-2. Thresholds developed in this manner are not available prior to the initiation of the Section 8 program; for the period 1977-1992, such thresholds have exceeded the official threshold by 45-55 percent. Weinberg and Lamas (1993) developed a set of poverty thresholds for 1989 by budgeting amounts for both food and housing and applying a multiplier. They took the annual cost of the Thrifty Food Plan, added the 25th percentile value of the distribution of all nonsubsidized rented units from the

POVERTY THRESHOLDS 115 TABLE 2-2 Comparison of Poverty Thresholds for a Two-Adult/Two-Child Family Using Two Multiplier Approaches, Selected Years, in Constant 1992 Dollars Year Official Housing Housing and Food Multiplier Thresholda Multiplier Thresholdc Threshold (45th or 50th percentile)b 25th percentile 35th percentile Dollar Amount 1977 14,228 20,781 N.A. N.A. 1980 14,228 21,331 N.A. N.A. 1982 14,228 21,205 N.A. N.A. 1985 14,228 20,758 N.A. N.A. 1988 14,228 22,154 N.A. N.A. 1989 14,228 21,815 20,267 21,790 1992 14,228 21,640 N.A. N.A. Percent of Official Threshold 1977 100.0 146.1 N.A. N.A. 1980 100.0 149.9 N.A. N.A. 1982 100.0 149.0 N.A. N.A. 1985 100.0 145.9 N.A. N.A. 1988 100.0 155.7 N.A. N.A. 1989 100.0 153.3 142.4 153.1 1992 100.0 152.1 N.A. N.A. a The official 1992 threshold for a two-adult/two-child family (which, in constant 1992 dollars, applies to all earlier years) from Bureau of the Census (1993c: Table A). b The housing multiplier is based on obtaining the nationwide HUD fair market rent value for two- bedroom rental units (calculated for such units occupied by recent movers and having other specified characteristics) and applying a multiplier (the inverse of the percent of net countable income that subsidized tenants are expected to contribute toward rent). For 1977-1982, fair market rents were set at the 50th percentile of the distribution of all two-bedroom units including subsidized units and new construction; for subsequent years, fair market rents were set at the 45th percentile of the distribution of two-bedroom units excluding subsidized units and new construction. For 1977-1980, the multiplier was 4.0 (inverse of 25%); for 1982, the multiplier was 3.85 (inverse of 26%, reflecting a phase-in to 30%); for 1985 and later, the multiplier was 3.33 (inverse of 30%). The estimated thresholds for years 1977-1988 are from Ruggles (1990: Tables A.3, A.5); for 1989 and 1992 derived by using Ruggles' method with fair market rent(s) provided by HUD; all values were converted to 1992 dollars using the CPI-U (from Bureau of the Census, 1993c: Table A-2). c The housing and food multiplier was originally developed by Weinberg and Lamas (1993:32-35) by calculating the value for the 25th or 35th percentile of the distribution of all nonsubsidized rental units by region and type of place (central city, suburb, nonmetropolitan) from the American Housing Survey, adding the value of the Thrifty Food Plan for a three-person family, and applying a multiplier of 2.0. The estimated thresholds for 1989 were calculated by taking the simple average of the Weinberg and Lamas region-place-specific thresholds times 1.282 (the ratio of the weighted average four-person official threshold to the weighted average three-person official threshold) to convert to four-person thresholds; all values were converted to 1992 dollars using the CPI-U.

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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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