National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: The Basic Bundle

« Previous: Analysis of 1989-1991 CEX Data
Suggested Citation:"The Basic Bundle." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 147
Suggested Citation:"The Basic Bundle." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 148
Suggested Citation:"The Basic Bundle." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 149
Suggested Citation:"The Basic Bundle." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 150

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POVERTY THRESHOLDS 147 include different samples, it is only possible to use the Interview Survey for the kind of microlevel analysis that we required.42 BLS prepared a large number of tabulations for us from the 1991 Interview Survey and the 1989-1991 surveys combined. For processing convenience and to meet our timetable, these tabulations treated each quarterly interview falling within a calendar year as a separate observation, inflating the amounts by four to obtain annual figures. This procedure increases sample size because it uses all of the available data and not just the data for consumer units who responded to all interviews within a year.43 For actual use in updating the reference family poverty threshold, however, we believe it would be preferable to aggregate quarterly amounts for those units with complete data, making an appropriate adjustment to the weights to account for other units. The Basic Bundle We began our analysis by looking at the distribution of expenditures on the basic bundle of food, clothing, and shelter (including utilities). BLS arrayed consumer units by their expenditures on these four categories, separately and combined, and, in each instance, determined the dollar values corresponding to the spending level for every 5 percent of units, from the lowest 5 percent to the highest 5 percent. In examining spending patterns on food, clothing, and shelter, we found it convenient to look at the distribution in terms of the dollar values that demarcated every 5th percentile of the distribution. However, for purposes of calculating the reference family poverty threshold, whatever percentile value is chosen must be reexpressed as a percentage of median expenditures on food, clothing, and shelter for the same reason that relative thresholds are expressed as a percentage of median income or expenditures rather than as a percentile value. That is, if the thresholds are expressed as, say, the 25th or 30th percentile of income or expenditures, then, by definition, 25 or 30 percent of families are always poor; however, if the thresholds are expressed as, say, 40, 50, or 60 percent of median income or expenditures, then changes that affect the distribution of income or expenditures below the median can increase or decrease the poverty rate. As an example, a recession could move some families in the lower half of the income distribution from above to below 50 percent of the median, so that the poverty rate increased whether median income itself stayed the same or fell. Conversely, an income assistance program could move families from below to above 50 percent of median income, so that the poverty rate decreased whether median income stayed the same or 42 The Interview Survey is adequate to use by itself for the categories in the basic bundle. BLS estimates that the Interview Survey obtains about the same aggregate amount of expenditures on food as the Diary Survey, and the Interview Survey is used exclusively by BLS for estimates of expenditures on clothing, shelter, and utilities. 43 The effective sample size is not as large as the number of quarterly observations, however, because many of these observations are from the same consumer units and hence are correlated.

POVERTY THRESHOLDS 148 rose. Similarly, the food, clothing, and shelter component of the reference family poverty threshold under the proposed concept must be expressed as a percentage of median expenditures on these categories. In the BLS tabulations, "food" included expenditures on food purchased for home use and away from home, excluding nonfood items purchased at grocery stores and alcohol. "Clothing" included expenditures on all kinds of apparel as well as sewing materials. "Shelter'' included rent and, for owners, payments on mortgage interest (but not principal), taxes, and maintenance and repair. (The shelter variable for home owners was defined in this way for processing convenience; a preferable definition would include actual outlays for mortgage payments, taxes, insurance, and maintenance and repairs, together with an imputed amount for the estimated rental value of the home net of such outlays. Such a definition would treat homeowners with low or no mortgage payments in a comparable manner with other homeowners and renters.) "Utilities" included such fuels as natural gas and electricity, telephone, and such public services as water and sewer. Values for every 5th percentile were determined for two-adult/two-child consumer units and selected other family types. Values were also determined by arraying the data for all types of units and converting each unit's expenditures into the equivalent of a two-adult/two-child unit by means of an equivalence scale. For this exercise, two variations of the proposed equivalence scale were used, one with a scale economy factor of 0.65 and the other with a scale economy factor of 0.75, each applied to the number of equivalent adults (the proposed scale treats children under 18 as 0.70 of an adult; see Chapter 3). On the basis of these tabulations, we concluded that it is preferable to work with the expenditure values that result from arraying the sum of each consumer unit's expenditures on food, clothing, shelter, and utilities, constructed from 3 years' worth of data. We had originally liked the idea of building up a budget by taking values from the separate arrays for each of these expenditures. The budget-building approach, however, encounters the problem of zero expenditures on more detailed items, especially using quarterly observations, so we recommend using the sum of these items, which is more robust. We also concluded that it is preferable to use the array for a single reference family type—two-adult/two-child families—even though this procedure considerably reduces the sample size in comparison with the procedure of converting each consumer unit's expenditures to an amount equivalent to a two-adult/two-child family. (The sample size reduction for the 1989-1991 CEX is from 61,385 quarterly observations for all consumer units to 5,485 observations for two-adult/two-child families.) The use of different equivalence scales produces somewhat different percentile values: for example, median expenditures on the sum of food, clothing, and shelter differed by $800 between the two scales that we applied.

POVERTY THRESHOLDS 149 More important, changes over time in family composition, such as a continued decline in family size, could change the poverty thresholds in different ways depending on the choice of scale. Yet there is no agreement in the research community on the best form of an equivalence scale. Hence, we believe it is preferable to develop the expenditure array for the same family type each year. In this regard, while the sample size for two-adult/two-child families is adequate for this purpose when 3 years' worth of CEX data are pooled, it would clearly be advantageous to have a larger size for the survey. The final set of percentile values (for each 5% of units) that we examined was derived from arraying the annualized expenditures of two-adult/two-child consumer units on the sum of food, clothing, shelter, and utilities for the period 1989-1991; see Table 2-6, which also shows each percentile value as a percentage of the median. In 1992 dollars, the median value is $15,344.44 The designation of a percentile value for food, clothing, and shelter— which, when expressed as a constant percentage of the median, will drive the poverty thresholds in future years—is obviously a matter of judgement. We do not recommend a specific value or even a range; we do, however, conclude that a reasonable range for the food, clothing, and shelter component of the reference family threshold would be from the 30th to the 35th percentile, or from 78 to 83 percent of the median. In 1992 dollars, this range is from $11,950 to $12,719. What would these amounts buy? Illustratively, a family at the 30th percentile might spend the following: $355 per month or $4,260 annually for food, which is the value of the Thrifty Food Plan for a four-person family; $545 per month or about $6,550 per year for rent and utilities (including telephone) for a two-bedroom apartment, which is the fair market rent in 1992 for such units that is the basis of federal housing assistance; and $95 per month ($24 per family member) or $1,140 per year for clothing. The total per year for a family at the 30th percentile is $11,950. A family at the 35th percentile would spend an extra $64 per month on food, clothing, and shelter, or an extra $770 per year, for a total of $12,720. For comparison, the following are the allotments in two recently developed expert budgets for a two-adult/two-child family (in 1992 dollars): • Renwick (1993a): $420 per month or $5,040 per year for food (the value of the Low-Cost Food Plan, which Renwick used used instead of the Thrifty Food Plan—the latter was designed for temporary or emergency use and has never been updated in real terms); $428 per month or $5,136 for housing 44 The 1989-1991 CEX data originally supplied to us were in nominal dollars. We converted the data to constant 1992 dollars by applying the weighted average of the price increases for 1989-1992, 1990-1992, and 1991-1992. A preferable procedure is to adjust the data for each year to the dollars of the year for which the threshold is being calculated before producing the expenditure array.

POVERTY THRESHOLDS 150 TABLE 2-6 Percentile Values of Expenditures on the Panel's Basic Bundle by Two-Adult/ Two-Child Families, 1989-1991 Consumer Expenditure Survey, in Constant 1992 Dollars, with Multiplier Basic Expenditures Multiplier of Larger Bundle to Basic Bundle Percentile Dollar Percent of Definition 1a Definition 2b Amount Median 5th 7,041 45.9 1.18 1.20 10th 8,374 54.6 1.22 1.25 15th 9,275 60.4 1.21 1.23 20th 10,188 66.4 1.18 1.19 25th 11,100 72.3 1.18 1.20 30th 11,950 77.9 1.19 1.23 35th 12,719 82.9 1.20 1.26 40th 13,575 88.5 1.15 1.18 45th 14,389 93.8 1.16 1.21 50th (median) 15,344 100.0 1.14 1.17 55th 16,282 106.1 1.17 1.19 60th 17,277 112.6 1.15 1.18 65th 18,369 119.7 1.13 1.16 70th 19,627 127.9 1.15 1.20 75th 20,989 136.8 1.15 1.18 80th 22,521 146.8 1.15 1.18 85th 24,594 160.3 1.13 1.16 90th 27,580 179.7 1.14 1.17 95th 34,094 222.2 1.12 1.16 100th 114,942 749.1 1.09 1.13 NOTES: Data are from tabulations prepared by the Bureau of Labor Statistics from the Interview Survey component of the 1989-1991 Consumer Expenditure Survey; all amounts were converted to 1992 dollars by the CPI-U. The multipliers were derived from the average of families with expenditures on the basic bundle within the range from 2.5 percentiles below to 2.5 percentiles above each 5th percentile level (e.g., the multiplier for the 15th percentile value was derived from the average of families spending between the 12.5 and 17.5 percentiles on the basic bundle). a Definition 1 for the multiplier defines the larger bundle of goods as the basic bundle (food, clothing, shelter, including utilities) plus personal care and one-half of total transportation costs. b Definition 2 defines the larger bundle as the basic bundle plus personal care, education, reading materials, and one-half of total transportation costs. • (rent, utilities, and telephone, developed as the 25th percentile of the distribution of rents for all two-bedroom apartments); and $105 per month or $1,260 per year for clothing (developed by adjusting the clothing component of the BLS lower level budget for inflation)—for a total of $11,436 per year on these categories. • Schwarz and Volgy (1992): $355 per month or $4,260 per year for food; $554 per month or $6,648 per year for rent, utilities, and telephone for

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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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