National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Analysis Over Time

« Previous: Comparison with Other Thresholds
Suggested Citation:"Analysis Over Time." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 154
Suggested Citation:"Analysis Over Time." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 155
Suggested Citation:"Analysis Over Time." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 156

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POVERTY THRESHOLDS 154 The ratio of this average to median after-tax income for two-adult/two-child families was 0.84. We then applied this ratio to other thresholds to convert them, approximately, to the proposed budget concept (see Table 1-4 in Chapter 1). For the thresholds developed by Renwick (1993a) and Schwarz and Volgy (1992), we made the conversion by inspecting their budgets. We note that the ratios of the "as converted" to the "as developed" amounts in Table 1-4 for the Renwick and Schwarz and Volgy budgets are 0.74 and 0.82, respectively. These ratios are lower than the ratio we calculated because their budgets assume that every two-adult/two-child family spends the maximum allowance for such items as work expenses. The official 1992 threshold, before conversion to the proposed budget concept, is $14,228, and the range of other thresholds shown in Table 1-4 is $17,200 to $21,800 (rounded to the nearest $100). After conversion, the official threshold is $12,000, and the estimated range of other thresholds is $13,100 to $18,300, or 9 to 53 percent higher than the official threshold. The Renwick budget of $13,100 is an outlier at the low end of the range; four other thresholds (two subjective thresholds, a relative threshold expressed as one-half median after-tax income of four-person families, and the Schwarz and Volgy budget) are clustered between $14,400 and $15,600; two other thresholds (the relative threshold recommended by the Expert Committee on Family Budget Revisions and the lower of the two Weinberg and Lamas multiplier thresholds) are between $16,800 and $17,100; and three other thresholds (variations of the multiplier method that make use of expenditure data) are between $17,400 and $18,300. In comparison, the range that we conclude is reasonable, $13,700- $15,900, is 14 to 33 higher than the official threshold and falls within but toward the lower end of the estimated range of other thresholds.48 Thus, it represents a conservative updating in real terms of the current threshold, consistent with our recommendation. Analysis Over Time The most important aspect of the proposed threshold concept is not so much the threshold that it produces for a designated start-up year, but how it moves that initial threshold over time. Our intent was to recommend a concept and procedure that would update the initial reference family poverty threshold for changes in real consumption but in a conservative manner. Unfortunately, there is no good times series with which to evaluate the likely behavior of the proposed procedure. The National Income and Product 48 The range of 13,700–$15,900 is 37–42 percent of median before-tax income for two- adult/two-child families in 1992 and 45–53 percent of median after-tax income converted as described in the text to the proposed threshold concept. We do not have an exact estimate of the range as a percentage of disposable income defined with all of the adjustments that we recommend (see Chapter 4).

POVERTY THRESHOLDS 155 Accounts (NIPA) estimates of personal consumption expenditures (PCE) suggest, as we noted above, that the procedure would work as intended: we estimated the elasticity of the basic bundle with respect to total consumption minus medical care as 0.65. Indeed, we briefly considered the use of the PCE estimates (specifically, the change each year in real expenditures on the basic bundle) to update the initial reference family poverty threshold. The PCE estimates are not suitable for this purpose, however, for two major reasons: they include expenditures by nonprofit institutions as well as households, and while they can be adjusted for population growth, they cannot be adjusted for changes in family size over time. Thus, we turned back to the CEX. The current continuing CEX was initiated in 1980. Consumer expenditure surveys were also conducted in 1972-1973 and 1960-1961 (and at intervals of about 10-15 years back to the turn of the century). The design of the surveys was not the same over time; also, there is evidence of some deterioration in the reporting of expenditures in the CEX in comparison with the NIPA (see, e.g., Gieseman, 1987; Slesnick, 1991a). With so few data points and those of doubtful comparability, it is very difficult to construct a historical time series with which to evaluate the proposed updating procedure. To get a very rough estimate of what a poverty threshold developed with the proposed procedure would look like now in comparison with the one actually developed for 1963, we first adjusted median 1991 CEX expenditures on the bundle of food, clothing, and shelter to correct for the greater extent of underreporting (vis-à-vis the NIPA) in that year than was observed in the 1960-1961 CEX. We then calculated the ratio of median expenditures on the basic bundle by two-adult/two-child families in the 2 years (with data supplied by BLS) and applied this ratio to $14,228, the official poverty threshold as of 1963 in 1992 dollars.49 The result was a poverty threshold of $16,152 in 1992 dollars, representing an increase of 14 percent in the thresholds over the period. This increase compares to a 21 to 24 percent increase in Vaughan's subjective thresholds over about the same period (1963-1993 or 1963-1989; see Table 2-4).50 For the period 1980-1991, BLS provided us with a comparable time series from the CEX (although data for 1986 are missing because of tape storage 49 For want of an alternative, we picked the official threshold, which enjoyed widespread support as the right level for 1963, even though the proposed concept—unlike the original concept—treats some expenses as deductions from family resources. We did not believe it appropriate for this exercise to use the ratio of 0.84 to convert the official threshold to the proposed concept because the spending level on such expenses as child care and out-of-pocket medical care would have differed in 1963 from the level in 1992. 50 The increase over the period 1963-1992 was only 10 percent, but the 1992 subjective poverty line is from a Gallup Poll in which the same respondents were asked the get-along question followed by the poverty question. In contrast, the poverty questions in 1989 and 1993 were administered to respondents who were not also asked the get-along question.

POVERTY THRESHOLDS 156 TABLE 2-7 Poverty Thresholds Developed Under Panel's Proposed Procedure, in Constant 1992 Dollars Single-Year Thresholds 3-Year Moving Averages Year Dollar Amount Percent of Official Dollar Amount Percent of Official Threshold Threshold 1980 14,228 100.0 N.A. N.A. 1981 14,227 100.0 N.A. N.A. 1982 14,537 102.2 N.A. N.A. 1983 14,0739 103.6 14,331 100.7 1984 14,374 101.0 14,501 101.9 1985 15,246 107.2 14,550 102.3 1986 N.A. N.A. 14,786 103.9 1987 14,649 103.0 14,809 104.1 1988 15,134 106.4 14,946 105.0 1989 14,899 104.7 14,892 104.7 1990 15,026 105.6 14,894 104.7 1991 15,219 107.0 15,020 105.6 1992 N.A. N.A. 15,048 105.8 NOTES: Data are from tabulations of the CEX Interview Survey for years 1980-1985 and 1987– 1991 provided to the panel by the Bureau of Labor Statistics. Single-year thresholds were constructed by applying the year-to-year change in median expenditures on the sum of food, clothing, and shelter (including utilities) by two-adult/two-child families to the starting threshold of $14,228 (the official threshold in 1992 dollars). Because data are not available for 1986, the 3-year moving-average figure for 1987 is the average of 1985 and 1984; that for 1988 is the average of 1985 and 1987; and that for 1989 is the average of 1987 and 1988. Otherwise, moving-average thresholds are the average of the single-year thresholds for the 3 prior years. Data for 1982–1983 apply to urban families only. problems, and the CEX interviews in 1982-1983 included only urban families because of budget cuts). We needed a starting point for this series and, for want of a better choice, pegged it at the official poverty line. The thresholds produced under the proposed procedure, when using a single year's worth of data, move somewhat erratically, with a small overall increase of 7 percent in real terms between 1980 and 1991; see Table 2-7.51 By comparison, Vaughan's subjective poverty thresholds increased by 8-11 percent over the same period (1980-1993 or 1980-1989; see Table 2-4), and relative thresholds expressed as one-half median after-tax four-person family income increased by 8-14 percent over the same period (1980-1993 or 1980-1989; see Table 2-3). The variations in the thresholds we calculated are likely due in part to 51 Again, because we picked an arbitrary starting point, we updated the thresholds by applying the ratio of the medians for each pair of years, rather than using a percentage of the median times a multiplier.

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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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