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Measuring Poverty: A New Approach (1995)

Chapter: Comparison with Other Thresholds

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Suggested Citation:"Comparison with Other 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 153

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POVERTY THRESHOLDS 153 what these amounts would buy and in comparison with other thresholds (see below). However, it should be clear that building a poverty threshold on food, clothing, and shelter plus a little more does not imply that families must spend their income accordingly. Families may spend less on food, clothing, and shelter than implied in the poverty threshold and not necessarily be poor. They may, for example, grow some of their own food or make some of their own clothing in order to increase their available income for other spending. They are poor only if their total income (net of nondiscretionary expenses) is below the poverty line. Conversely, families may spend more on food, clothing, and shelter than implied in the poverty threshold and yet still be poor if their net income falls below the poverty line. The proposed threshold concept is not intended to mandate a spending pattern for low-income people but to lead to an initial threshold that is reasonable for purposes of deriving poverty statistics. More important, that concept is intended to provide a method for updating the initial threshold that takes account of real increases in consumption for basic necessities—food, clothing, and shelter—that pertain to an economic measure of poverty. Comparison with Other Thresholds The range of $13,700-$15,900 that we concluded is reasonable for the initial reference family threshold is 96-112 percent of the official 1992 two- adult/two-child threshold of $14,228. The range is lower than other recently developed thresholds (see column 2 of Table 2-5, above). It would appear that it does not represent much, if any, updating of the current threshold for real increases in living standards. However, the proposed threshold concept differs from most of the concepts we reviewed by treating some kinds of expenses as deductions from resources rather than including them in the threshold (not only taxes, but also other work expenses and out-of-pocket medical care expenses). To get a better sense of how the range of $13,700-$15,900 relates to other thresholds, we sought a way to convert the current threshold and recently developed thresholds to the proposed budget concept. Data limitations made it difficult to carry out such a conversion, but we developed a procedure that provides a rough approximation. For our analysis of the effects of the proposed measure compared with the current measure (see Chapter 5), we added estimates to the March 1993 CPS of each family's spending on child care and other work-related expenses and out- of-pocket medical care expenses (including health insurance premiums). We estimated the average combined deductions for two-adult/two-child families with after-tax income around the median (using families from 7.5 percentiles below to 7.5 percentiles above the median to increase the sample size).

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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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