National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)


Suggested Citation:"DEFINING FAMILY RESOURCES." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 9
Suggested Citation:"DEFINING FAMILY RESOURCES." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 10

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SUMMARY AND RECOMMENDATIONS 9 RECOMMENDATION 3.3. Appropriate agencies should conduct research to determine methods that could be used to update the geographic housing cost component of the poverty thresholds between the decennial censuses. RECOMMENDATION 3.4. Appropriate agencies should conduct research to improve the estimation of geographic cost-of-living differences in housing as well as other components of the poverty budget. Agencies should consider improvements to data series, such as the BLS area price indexes, that have the potential to support improved estimates of cost-of-living differences. DEFINING FAMILY RESOURCES It is important that family resources are defined consistently with the threshold concept in any poverty measure. The current measure violates this principle, as has some recent work to investigate alternatives. Examples are measures that add the value of public and private health insurance benefits to families' resources without adjusting the thresholds to account for medical care needs. Such measures should be discontinued. For consistency, we recommend that family resources be defined as money and near-money disposable income. More precisely, the definition should include money income from all sources, as well as the value of such in-kind benefits as food stamps and public housing. It should exclude out-of-pocket medical care expenditures, including health insurance premiums; income and payroll taxes; child care and other work-related expenses; and child support payments to another household. The child care deduction should be capped and apply only to families in which there is no adult at home to provide the care; the deduction for other work expenses should be a flat amount per week worked. We believe there is widespread agreement among researchers about the appropriateness of such adjustments to income as deducting taxes and work expenses, which are a cost of earning income and cannot be used for consumption, and about adding the value of in-kind benefits that support consumption. The only important area of disagreement concerns medical care benefits. Trying to account for private and public medical insurance benefits— important as they clearly are—in the same way as in-kind benefits for such items as food and housing would greatly complicate the poverty measure and cloud its interpretation. A chief reason is the wide variation in health care needs among the population: Some people have high medical costs; some have none. Hence, the proposed poverty measure does not include an allowance for medical expenses, either those that might be covered by insurance or

SUMMARY AND RECOMMENDATIONS 10 paid for out of pocket; for consistency, the proposed resource definition does not add the value of health insurance. Also for consistency, the proposed definition subtracts out-of-pocket medical care expenses from income: even with insurance, many people must pay out of pocket to obtain that insurance or to receive care, and such expenses reduce disposable income. Although the proposed poverty measure excludes medical care from both the thresholds and resources, it will reflect changes in health care policy that affect disposable income. For example, if changes in health care financing reduce out-of-pocket medical expenditures and thereby free up resources for food, housing, and other consumption, the proposed measure will show a lower poverty rate; the current measure would not show this effect. We also recommend that appropriate agencies develop direct indicators of the extent to which families lack or have inadequate health insurance that puts them at risk of not being able to afford needed treatment. These "medical care risk" measures should be cross-tabulated with but kept separate from the economic poverty measure. RECOMMENDATION 4.1. In developing poverty statistics, any significant change in the definition of family resources should be accompanied by a consistent adjustment of the poverty thresholds. RECOMMENDATION 4.2. The definition of family resources for comparison with the appropriate poverty threshold should be disposable money and near-money income. Specifically, resources should be calculated as follows: • estimate gross money income from all public and private sources for a family or unrelated individual (which is income as defined in the current measure); • add the value of near-money nonmedical in-kind benefits, such as food stamps, subsidized housing, school lunches, and home energy assistance; • deduct out-of-pocket medical care expenditures, including health insurance premiums; • deduct income taxes and Social Security payroll taxes; • for families in which there is no nonworking parent, deduct actual child care costs, per week worked, not to exceed the earnings of the parent with the lower earnings or a cap that is adjusted annually for inflation; • for each working adult, deduct a flat amount per week worked (adjusted annually for inflation and not to exceed earnings) to account for work-related transportation and miscellaneous expenses; and • deduct child support payments from the income of the payer.

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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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