National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Overview and Recommendation

« Previous: The Concept of an Equivalence Scale
Suggested Citation:"Overview and Recommendation." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 160
Suggested Citation:"Overview and Recommendation." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 161

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ADJUSTING POVERTY THRESHOLDS 160 equivalence scale is to scale up or down the threshold for the reference family to provide corresponding thresholds for other family types. The concept underlying such a scale appears straightforward and is similar in spirit to a standard cost-of-living index number. If it costs twice as much at one time to maintain a given standard of living as it did at an earlier date, then one needs twice as much money to reach the equivalent standard of living. The idea of an equivalence scale is the same, but instead of comparing two different sets of prices, one compares two different family types. In spite of this apparent simplicity, a precise characterization of equivalence scales is elusive, and the many scales proposed in the literature differ not only by the usual margin of empirical uncertainty, but also in their underlying conception: different authors are not always measuring the same thing. As a result, it is possible to find a wide range of scales, which have very different implications for the total number of people in poverty as well as for the distribution of poverty among families of different types. Depending on the scale used, the poverty rate can be substantially higher or lower, and the demographic composition of those considered poor can change dramatically. Overview and Recommendation One simple method of adjusting the reference family threshold by family type is to scale it in proportion to the number of people in a family. In the language of ''equivalence scales," a single person would need one-quarter as much as a family of four, a married couple without children one-half as much as a family of four, and a family of eight twice as much as a family of four. Most people, including the members of the panel, regard this as an extreme position, since it makes no allowance for the fact that children are different from adults, nor for the economies of scale possible for larger families by sharing kitchens, bathrooms, and bedrooms or by buying products in bulk. This straight proportion rule clearly understates the needs of small families relative to large ones, and, hence, it will overestimate the number of poor people in large families relative to those in small families. The opposite extreme is to make no adjustments for family type and to apply the basic poverty threshold to all families irrespective of size or composition. This "zero" adjustment for family size is as unpalatable as is the straight proportion adjustment of multiplying the threshold by family size. It assumes that one adult needs as much as a two-adult/two-child family and also that a four-adult family or a family of two adults and three or more children needs no more than the two-adult/two-child family. There is widespread agreement that the appropriate adjustment lies somewhere between the two extremes; however, there is much less agreement on exactly how much to adjust the threshold for children relative to adults or how to measure economies of scale for larger households.

ADJUSTING POVERTY THRESHOLDS 161 We have reviewed the adjustments for family type that are embodied in the official poverty thresholds, as well as those that are implicit in other government programs. We have also considered numerous other proposals in the literature, including those that use empirical analysis in an attempt to establish an objective adjustment on the basis of comparing the behavior of families of different types. Although the empirical evidence helps determine the limits of what makes sense, there is no objective procedure for measuring the different needs for different family types. As with the determination of the reference family poverty threshold itself, for which empirical evidence can inform but not prescribe what is fundamentally a social or political judgement, so with the adjustments for different family types. Thus, similarly, we have opted for a procedure that, while taking into account the empirical evidence and previous experience, recognizes that the decision is based on judgement and seeks to make the process as transparent as possible. Our recommended procedure follows from our conclusion that the equivalence scale implicit in the official poverty thresholds is problematic and should be replaced. We say "implicit" because the official thresholds were developed separately for each family type rather than by the application of a formal scale to a reference family threshold. The basis for the official thresholds was a set of estimates of different food requirements for adults and children of various ages in families of different sizes. The assumptions underlying the differences are questionable, as is the assumption that differences in food needs adequately capture differences in needs for housing and other goods. One particularly questionable assumption is that people aged 65 and older need less to eat and so should have lower poverty thresholds than younger people; this assumption underlies the official thresholds for unrelated individuals and members of two-person families. Also, the implicit scale (which can be calculated by comparing the differences among the official thresholds for various family types) exhibits a number of irregularities and anomalies: for example, the second child in a family adds more costs than the first child. We propose that poverty thresholds for different family types be developed by applying an explicit scale to the reference family poverty threshold. The scale should distinguish the needs of children under 18 and adults but not make other distinctions by age; the scale should also recognize economies of scale for larger families. A scale of this type is the following: where A is the number of adults in the family, K is the number of children, each of whom is treated as a proportion P of an adult, and F is the scale economy factor. The formula calculates the number of adult equivalents (A + PK) and raises the result to a power F that reflects economies of scale for larger families. We recommend values for both P and F near 0.70; to be specific, we recommend setting P at 0.70 (i.e., each child is treated as 70% of an adult) and

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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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