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Measuring Poverty: A New Approach (1995)

Chapter: Further Evaluation

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Suggested Citation:"Further Evaluation." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 157
Suggested Citation:"Further Evaluation." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 158

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POVERTY THRESHOLDS 157 small sample sizes for two-adult/two-child consumer units in single years of the CEX. Also, it appears that the thresholds are not as responsive to economic ups and downs as are relative and subjective thresholds reviewed above (see Tables 2-3 and 2-4). A reason may be that people at or below the median alter their consumption of other items in response to economic ups and downs before they alter their consumption of the basic bundle of food, clothing, and shelter. Our last calculation was to smooth the thresholds for 1980-1991 by constructing 3-year moving averages for 1983-1992 (see Table 2-7). The smoothed series behaves quite reasonably, increasing slowly but steadily over the period by about 5 percent in real terms. Further Evaluation We strongly believe that the principles underlying the proposed threshold concept and updating procedure are an improvement over both the original concept (food times a large, changing multiplier) and that concept as actually implemented (adjusting the thresholds only for price changes). The proposed concept, in contrast, updates the thresholds for real changes in consumption of a bundle of necessities rather than of all goods and services. The concept also retains a normative cast, with its emphasis on food, clothing, and shelter (plus a little more). We are reasonably confident that the CEX data for implementing the proposed concept and updating procedure will produce thresholds that behave in the intended manner. However, we would obviously have preferred to have a longer time series with which to evaluate the likely behavior of the thresholds. We also would have liked to assess the effects of some methodological improvements that we believe should be made in using the CEX data (e.g., construct annual estimates for each consumer unit, use imputed rent for homeowner shelter expenditures). Finally, we believe that it is very important to improve the underlying data—for example, expanding the sample size of the CEX and reducing the extent of underreporting would make more robust the estimates needed to update the poverty thresholds. More generally, the United States would benefit from improvements in data on consumer expenditures, savings, and wealth, which are needed for many important purposes, including the measurement of poverty (see Chapter 5). One concern with using a continuing survey to update the poverty thresholds is the effects that changes in data quality or other aspects of the survey may have on estimates of the required parameters over time. This concern applies to the proposed concept, which relies on 3 years' worth of CEX data to update each year's reference family poverty threshold. (It also applies to relative concepts that peg the thresholds at, say, one-half median adjusted family income or expenditures, and to subjective concepts that make use of

POVERTY THRESHOLDS 158 survey responses about the poverty line or minimum income.)52 In the case of the proposed concept, a change in the quality of reporting of expenditures, whether an improvement or a deterioration in reporting, could alter the time series of poverty thresholds even though the underlying phenomena (i.e., real expenditures on food, clothing, and shelter) had not changed. The possibility of changes in the thresholds occurring as artifacts of fluctuations in reporting or other changes to the underlying CEX data will necessitate careful monitoring of the year-to-year consistency in the survey, A second concern with the proposed concept is how the poverty thresholds behave as the economy moves through the business cycle. To facilitate evaluating the thresholds that are developed by the proposed procedure and their implications for poverty rates, it will be important to generate another, unofficial set of thresholds and rates based on them for some time. This other set should represent an initial set of thresholds (developed as we have outlined for the reference family and adjusted appropriately for different types of families and areas of the country) that are updated for price changes rather than for real changes in basic consumption. We believe that tying the thresholds to changes in consumption of the basic necessities of food, clothing, and shelter, together with the use of 3 years' worth of data to develop each year's reference family threshold, will moderate the sensitivity of the thresholds to changes in the business cycle. However, another unofficial set of thresholds that are updated simply for price changes will ensure that important information is available with which to assess the behavior of the official thresholds at the next regularly scheduled review of the poverty measure. 52 Although not as obvious, the same concern applies to the current concept, which maintains the thresholds unchanged in real terms through an inflation adjustment that is based on a continuing survey of consumer prices. However, the survey that is used to estimate the year-to-year change in the CPI is more robust than the CEX. There is a similar concern with the estimation of family resources for comparison with the thresholds, however they are updated: thus, changes in the quality of income reporting or other aspects of the March CPS could affect the time series of poverty rates under the current measure.

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Measuring Poverty: A New Approach Get This Book
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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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