National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)


Suggested Citation:"IMPLEMENTING THE PROPOSED APPROACH." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 145

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POVERTY THRESHOLDS 145 in after-tax terms for comparison with the thresholds).40 However, there are only a few examples of efforts to develop poverty thresholds that consider the different needs of working parents and workers generally in comparison with nonworkers or the variations in people's health care needs (Renwick and Bergmann, 1993, is an exception). Yet if these different needs (e.g., of working parents for child care in order to earn income) are not recognized, the poverty measure will not appropriately describe the differences in poverty among important population groups. We propose to deal with these kinds of circumstances by subtracting such expenses as child care from family resources (see Chapter 4). The implication for the discussion here is that the proposed threshold concept is not quite the same as the concepts reviewed above. The proposed budget includes such categories as food that apply to all family types, as do all budgets, but most other budgets explicitly or implicitly include an average for such expenses as child care for which the need varies across otherwise similar types of families. This difference in the proposed concept must be considered, along with the real increase in consumption that has occurred since the early 1960s, when evaluating the level of the current threshold and whether it is appropriate for the United States today. IMPLEMENTING THE PROPOSED APPROACH To implement the proposed concept and updating procedure for the reference family poverty threshold is straightforward once the values of two parameters have been specified: (1) a percentage of median expenditures by two-adult/two-child families on the sum of food, clothing, and shelter (including utilities); and (2) a multiplier to apply to the amount for food, clothing, and shelter so as to add a small fraction for other needed spending. As a hypothetical example, suppose that median expenditures on food, clothing, and shelter by two-adult/two-child families are $15,500 in year T and $15,650 in year T + 1 (in constant dollars), for a real increase of 1 percent. Also suppose that, for deriving the reference family poverty threshold, the percentage of the median is specified as 80 percent and the multiplier as 1.20. Then, the initial threshold in year T is [0.80(15,500) × 1.20], or $14,880 and the threshold in year T + 1 is [0.80(15,650) × 1.20], or $15,024—also a real increase of 1 percent. By assuming, as has occurred historically, that total spending increased by more than 1 percent between year T and T + 1, then the reference family poverty threshold would have been updated in real terms in a quasi-relative rather than in a completely relative manner. The recommended procedure is somewhat more complicated than the 40 The appropriateness of using after-tax income data was recognized when the official thresholds were originally developed, but such data were not available at the time.

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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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