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Measuring Poverty: A New Approach (1995)

Chapter: Programmatic Equivalence Scales

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Suggested Citation:"Programmatic Equivalence Scales." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 166
Suggested Citation:"Programmatic Equivalence Scales." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 167
Suggested Citation:"Programmatic Equivalence Scales." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 168

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ADJUSTING POVERTY THRESHOLDS 166 adult under age 65. These irregularities come in part from the assumptions that Orshansky had to make about the ages of children in families when using the food plans. We believe that these sorts of difficulties are always likely to be present in any method that is based on the construction of "ideal" or "expert" budgets for different family types, whether the budgets derive from food, as in Orshansky's procedure, or from a wider basket of goods as, for example, proposed by Ruggles (1990) and implemented by Renwick (1993a, 1993b).2 Expert poverty budgets are inevitably the result of families' actual spending patterns and a series of adjustments that reflect judgements about what a low-income family ''ought" to purchase. Because these budgets are always at least somewhat arbitrary, they impart no legitimacy to the equivalence scales that are implicit within them. We prefer a more direct approach that recognizes the arbitrariness by setting an equivalence scale formula directly and transparently and then using it to scale the threshold for a reference family type to derive poverty thresholds for other family types. Alternative Equivalence Scales Although there is wide agreement that different family types should have different poverty thresholds, that children have different needs from adults, and that larger households can benefit from economies of scale by sharing some items of consumption, there is little agreement about how the differences should be measured, and there is a wide range of scales in the literature. This section discusses some of these scales, as well as their conceptual and empirical basis. Programmatic Equivalence Scales In addition to the scale implicit in the official poverty thresholds, there are a number of other scales embodied in government programs or official pronouncements; see Table 3-2. The Bureau of Labor Statistics (BLS) estimated its own scale for the Family Budgets Program.3 For this program, BLS estimated higher, intermediate, and lower budgets for two types of reference families: (1) a four-person family living in an urban area and comprising a husband aged 38 and employed full-time, a homemaker wife (no age specified), 2 Renwick (1993b: Table 6) presents budgets for single-parent families of size two to size seven, consisting of separately developed estimates (including assumptions about scale economies) for food, housing, household operations, health care, transportation, clothing, and personal care. One key assumption that shapes her implicit equivalence scale is that a parent needs her or his own bedroom and that only two children can share a bedroom. 3 BLS last respecified the family budgets for 1966-1967 and last published them, updated for price changes, for 1981.

ADJUSTING POVERTY THRESHOLDS 167 TABLE 3-2 Selected Alternative Equivalence Scales: Increment in the Scale Value for a Spouse and Each Added Child (Relative to a Scale Value of 1.00 for a Single-Adult Family) Source or Type of Scale Family Size 2 3 4 5 6 Per capita 1.00 1.00 1.00 1.00 1.00 Official U.S. poverty thresholdsa 0.29 0.26 0.40 0.35 0.27 Bureau of Labor Statistics Family Budgets 0.67 0.61 0.50 0.50 0.56 Programb U.S. Department of Agriculture (food only)c,d 0.83 0.80 0.70 0.63 0.80 Organization for Economic Cooperation and 0.70 0.50 0.50 0.50 0.50 Developmente Canadian low-income cut-offs (LICOs) (1986 0.36 0.37 0.26 0.18 N.A. base)f Lazear-Michael (1980a)g 0.06 0.24 0.18 0.22 N.A. Lazear-Michael (1988)h 1.00 0.40 0.40 0.40 0.40 Jorgenson-Slesni i 0.76 0.60 0.73 0.34 1.28 Van der Gaag and Smolenskyj 0.45 0.10 0.17 0.10 0.09 Income Survey Development Program (ISDP)k 0.47 0.18 0.16 0.13 0.11 Rainwater (1990)c,l 0.26 0.18 0.15 0.12 0.11 Statistics Canadac,m 0.17 0.27 0.23 0.00 N.A. NOTE: Add values across, plus 1.00 for the first adult, to obtain the scale value for a particular size family. a Calculated from the thresholds for a married-couple family of the specified family size compared to the threshold for an unrelated individual under age 65 (Bureau of the Census, 1993c: Table A). b Derived on the basis of Engel curves and food shares. The scale values shown are for a family in which the head is aged 35–54 (in Sherwood, 1977: Table 7). c Scale values do not distinguish between adults and children. d Derived by adding the costs of individual food plans and adjusting for household economies of scale in the use of food (Peterkin et al., 1983:15). e Derived on the basis that a second adult adds 70 percent to the single adult's budget and each child adds another 50 percent (Organization for Economic Cooperation and Development, 1982). f Derived using a method similar to the iso-prop method (in Wolfson and Evans, 1989:55); see text. g Derived using a variant of the Barten model. h Derived using a variant of the Rothbarth model; see text. i Derived using a variant of the Barten model, which also distinguishes by the age, race, and sex of the household head, geographic region, and farm-nonfarm residence. The scale values shown are for a family headed by a nonfarm white male between the ages of 25 and 34 and living in the Northeast (in Jorgenson and Slesnik, 1987: Table 2). j A subjective scale applying to households in which the head is under age 65 (in Danziger et al., 1984: Table 2).

ADJUSTING POVERTY THRESHOLDS 168 k A subjective scale applying to households in which the head is under age 65, derived from the 1979 ISDP Research Panel by estimating the log of the answer to a survey question regressed on the log of income, the log of family size, and the age and sex of the family head (in Danziger et al., 1984: Table 2). l A subjective scale derived from Gallup Poll data on the amount needed to get-along by estimating the log of the annualized get-along income amount regressed on the log of income, the log of family size, and the respondent's age (Rainwater, 1990:19). m A subjective scale based on 1986 data (in Wolfson and Evans, 1989:55). a girl of 8, and a boy of 13; and (2) a retired couple aged 65 or older, in reasonably good health and living independently. BLS developed an equivalence scale to adjust these budgets for other family types, by applying the Engel methodology (discussed below) to data from the 1960-1961 Consumer Expenditure Survey (CEX). The key assumption of this methodology is that families spending an equal proportion of income on food have attained an equivalent level of living. The USDA also developed its own equivalence scale to determine adjustments to its food plans for the economies of scale of larger families. (The food plans themselves were constructed for adults and children of different sexes and ages.) The resulting scale values, applied to the cost of the Thrifty Food Plan for a reference family of four persons (husband and wife aged 20-54 and two children aged 6-8 and 9-11) are used in setting benefit levels in the Food Stamp Program. (The Thrifty Food Plan is the successor to the Economy Food Plan that formed the basis of the original poverty thresholds.) The USDA scale was originally developed in 1962 and revised in 1975 on the basis of data from a 1965 survey of food consumption of nonfarm households (Kerr and Peterkin, 1975). The scale has not been changed since 1975 because, according to an evaluation study (Greger, 1985:26), "the superiority of alternate adjustment factors was not clear." The USDA scale, which applies to food consumption only, is more generous for larger families than the BLS scale, which, in turn, is more generous than the scale implicit in the official poverty thresholds (see Table 3-2). Other organizations have dealt with the equivalence scale issue by proposing simple formulas, in the same general spirit as our own recommendation. Most notably, the Organization for Economic Cooperation and Development (OECD) (1982) has used an administratively convenient scale in which the first adult counts as 1.0, an additional adult counts as 0.7, and children count as 0.5 of an adult (see O'Higgins and Jenkins, 1990, for an application of the OECD poverty measure). Although there is no explicit recognition of economies of scale in these numbers, they are built into the scale, most obviously in the "discount" for the second adult.

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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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