Measuring Poverty

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Measuring Poverty: Theoretical and Empirical Considerations

John Iceland Available online: 17 Nov 2009
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Measuring Poverty: Theoretical and Empirical Considerations

John Iceland
Department of Sociology University of Maryland
This article discusses the theoretical underpinnings of different types of income poverty measuresabsolute, relative, and a National Academy of Sciences (NAS) quasi-relative oneand empirically assesses them by tracking their performance over time and across demographic groups. Part of the assessment involves comparing these measures to subjective notions of poverty and nonincome hardship indicators. Overall, each of the income poverty measures is informative and should be viewed as a complementary source of information about peoples economic well-being. The authors view, however, is that the quasi-relative poverty measure recommended by the NAS panel is the single most informative measure because of its theoretical attributes and its empirical performance thus far, although clearly more research on its empirical performance over time is necessary. Keywords: poverty, poverty measurement, income inequality, material hardship, material well-being, absolute poverty, relative poverty, National Academy of Sciences poverty measure
What does it mean to be poor? Although poverty, or economic deprivation, is a concrete phenomenon for those who live it, the answer to this question is that what people judge to be poor varies across time and place. A working-class laborer in a developing country would likely be considered poor in Western Europe. The World Bank uses a poverty standard of $1 to $2 per person per day, or $1,095 to
Correspondence should be addressed to John Iceland, Sociology Department, 2112 Art/Sociology Building, University of Maryland, College Park, MD 20742-1315. E-mail: jiceland@umd.edu
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$2,190 per year for a family of three in developing countries in Africa or Latin America. In contrast, the official United States poverty threshold was $14,680 for a three-person family in 2003, and many in the United States consider that standard to be too low (Iceland, 2003a; National Research Council [NRC], 1995). There are a number of poverty measures one could use to estimate levels of economic well-being in society. Income poverty measures are perhaps the most common. They usually involve comparing a family or households income to a poverty threshold to determine whether that family or household is poor. Two basic types of income poverty measures are absolute and relative measures. Absolute measures, such as the current U.S. official measure, are ones that typically attempt to define a truly basicabsoluteneeds standard that remains constant over time and is updated only for inflation, as in the case of the U.S. official poverty measure. Relative measures, which are more commonly used by researchers in Europe, and less so in the United States, explicitly define poverty as a condition of comparative disadvantage to be assessed against some evolving standard of living. The key distinction between the measures is not necessarily in the specific monetary value of the respective poverty thresholds, but rather how these thresholds are updated over time. Absolute poverty lines remain constant (perhaps updated for inflation), whereas relative ones rise in real dollars as standards of living rise (Foster, 1998; Iceland, 2003a). In the 1990s the U.S. National Academy of Sciences (NAS) convened a panel of researchers to review the U.S. official poverty measure and make recommendations for a new poverty measure. The panel produced a report, Measuring Poverty, which proposed a quasi-relative poverty measure (NRC, 1995). The thresholds of such a measure would change as real spending on basic goods (e.g., food, clothing, and shelter) changed. Because the poverty lines change over time in real dollars, the measure is, at least in part, relative. However, since it is not based on mean or median incomes, as most relative poverty measures are, it is not considered wholly relative, either. The goal of this article is to discuss the theoretical underpinnings of each type of income poverty measure and empirically assess them by tracking their performance over time and across demographic groups. Part of the assessment involves comparing these income poverty measures to subjective notions of poverty and other nonincome hardship indicators, such as peoples reports about difficulty meeting basic needs in household surveys. Overall, each of the income poverty measures is informative and should be viewed as a complementary source of information about peoples economic well-being. My own view, however, is that the quasi-relative poverty measure recommended by the NAS panel is the single most informative income poverty measure because of its theoretical attributes and its empirical performance thus far, although clearly more research on its empirical performance over time is necessary to more definitively reach this conclusion.
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BACKGROUND As described previously, two basic types of poverty measures are absolute and relative measures. The official U.S. poverty measure is an excellent example of an absolute measure that at one point achieved a wide degree of public acceptance. This measure was constructed in the tradition of the basic budget approach, in which experts attempt to determine how much income it takes to support a family at a basic level of subsistence by pricing out a basket of commodities. In the mid-1960s, Mollie Orshansky of the U.S. Social Security Administration constructed what eventually become the official poverty thresholds (Orshansky, 1963, 1965). She originally devised two sets of thresholds: one based on the economy food plan (the lowest-cost food plan) prepared and priced by the U.S. Department of Agriculture for families of different sizes and composition, and the other based on the less stringent low-cost food plan. To get from the food plan costs to overall poverty threshold figures, Orshansky used information from the 1955 Household Food Consumption Survey (Agricultural Research Service, 1957), which indicated that families of three or more people spent about one third of their after-tax income on food in that year. She therefore multiplied the costs of the food plan for different family sizes by three to come up with thresholds for those family sizes. The food planand thus the thresholds developed from itreflected the differing food needs of children and adults.1 The Office of Economic Opportunity within the Johnson administration adopted the lower of Orshanskys two sets of poverty thresholds as a definition of poverty in May 1965, just a few months after the initiation of the War on Poverty. This measure was used as a working definition of poverty for statistical, planning, and budget purposes. In 1969, the Bureau of the Budget (now the U.S. Office of Management and Budget) designated the thresholds as the federal governments official statistical definition of poverty. Thresholds have been updated yearly only for inflation using the Consumer Price Index (CPI). A family is considered poor under this measure if its gross cash income is below the threshold corresponding to that familys size and composition. It is interesting to note that Orshansky never intended for her poverty thresholds to become part of an official U.S. measure and that she also expressed concern about adopting poverty lines that did not change as standards of living changed (Fisher, 1997). Many researchers have since noted the technical deficiencies of the official poverty measure (Iceland, 2003a; NRC, 1995; Ruggles, 1990). For example, the poverty lines, originally devised by multiplying the cost of food needs by three to account for other needs (such as clothing and shelter), no longer capture families basic needs because people today spend close to one sixth of their income on food
1The food plan also reflected the differing food needs of adults under and over 65, and of units with only one or two people.
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rather than one third, in part due to the relative rise of the cost of housing. The definition of money income used in the official measure (gross cash income) also inadequately captures the amount of money people have at their disposal to meet basic needs. It has been argued that taxes should be subtracted from income, as this money cannot be spent to meet basic needs, and that in-kind or near-money government benefits, such as food stamps and housing subsidies, should be added. Aside from the technical aspects of this measure, there are more general theoretical advantages and disadvantages of absolute measures. The main advantage of absolute measures is that they are conceptually easy to understand and intuitively appealing. There is, after all, an absolutist core in the idea of poverty (Sen, 1983, p. 159). For example, if there is starvation and hunger, then there is clearly povertyregardless of how high or low the overall standards of living. The main theoretical criticism of absolute measures is that what people judge to be poor varies across both time and place. Standards of living in the developed and developing world clearly differ. Even within the United States, as standards of living change, so have peoples perceptions of what poverty means. Fisher (1995) describes how poverty lines and minimum subsistence budgets devised by researchers and social workers in the early 1900s were, in inflation-adjusted dollars, generally between 43% and 54% of the subsequent U.S. official poverty thresholds devised in 1963. Economists describe this phenomenon as the income elasticity of the poverty linethe tendency of successive poverty lines to rise in real terms as the real income of the general population rises. Some people therefore argue that poverty is by its nature relative; people are poor when others think of them as poor (Townsend, 1993). Relative poverty measures address this weakness of absolute measures. Relative measures are explicitly based on the notion that poverty is relative to a societys existing level of economic, social, and cultural development. Implicit is that people are social beings who operate within relationships. People whose resources are significantly below the resources of others, even if they are physically able to survive, may not be able to participate adequately in social organizations and relationships (Sen, 1992; Townsend, 1993). Adam Smith (as cited in Fisher, 1995) argued that to be poor was to lack what was needed to be a creditable (p. 38) member of society. He noted that in his day (the 18th century), a man needed a linen shirt if he was to appear in public without shame. The most common method of measuring relative poverty is setting a threshold at a percentage of the national median household income. For example, analysts comparing poverty across countries in the European Community and the United Kingdom have often specified a poverty threshold at half the median income (Burtless & Smeeding, 2001; Johnson & Webb, 1992; OHiggins & Jenkins, 1990; Rainwater & Smeeding, 2003). Other relative thresholds, such as 40% of the median or 60% of the median household income (the latter is the official European Union poverty threshold), also have been used by researchers.
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Relative measures also have advantages and disadvantages. On the positive side, advocates argue that the relative notion underlying these measures fits with both the historical record and changing views of poverty, as described previously. Second, sometimes real needs do indeed arise in richer countries (Sen, 1999). For example, although a car may be a luxury in some countries, in a society in which most families own cars, and where public transportation services are also poor, a car may often be needed to find a job and commute to work (Kanbur & Squire, 1999). Moreover, car owners in some places may further be required to purchase car insurance, thus leaving families with less disposable income to meet other needs. On the other hand, some have asserted that these measures are conceptually unappealing, believing that poverty is indeed an objective, scientific phenomenon. The argument is that value judgments should play a minimal role in changing notions of who is poor (Cogan, 1995), although it is, of course, debatable whether relative poverty measures are indeed less objective and scientific than absolute ones. Relative measures can, however, behave in deceptive ways, especially over the short run, particularly during periods of economic growth and recession. In particular, relative thresholds often decline in bad times as median incomes fall. This could result in a decline in measured poverty rates, even though low-income people are faring (and feel themselves faring) worse than before (NRC, 1995; Sen, 1983). Nevertheless, it is no accident that relative measures have become more common in rich industrialized countries and in analyses that involve cross-national comparisons in the developed world (Bradbury & Jantti, 2001; Brady, 2003; Rainwater & Smeeding, 2003). The Organization for Economic Cooperation and Development (2001) argues, for example, that absolute poverty lines have little meaning in advanced industrialized societies and that poverty should be thought of more in terms of exclusion from standards of living generally available to others in the same society. Measuring poverty in terms of absolute need, such as malnutrition or starvation, has simply become less meaningful because of how infrequently it occurs in these contexts. Figure 1 compares, for example, the proportion of people who have incomes of less than $1 a day in various continents, plus the United States. Although the $1 a day threshold may be a meaningful measure of poverty in developing countries, it is much less informative about the struggles of the low-income population in the United States and many other countries.
OTHER CONSIDERATIONS AND OTHER POVERTY MEASURES Researchers have devised numerous other poverty measures, some of which are variations of either absolute or relative measures, depending on how they are implemented. The goal in this section is not to provide an exhaustive list and descrip-
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FIGURE 1 Percentage of people living on less than $1 a day, by region: 1998. Note. From Poverty in America (p. 60), by J. Iceland, 2003, Berkeley: University of California Press. Copyright 2003 by the Regents of the University of California. Reprinted with permission.
tion but merely to mention that many other measures of poverty are possible and can be informative. Closely related to income-based poverty measures are consumption measures, such as the measure the World Bank uses to determine the extent of poverty in developing countries. Consumption poverty measures compare not a familys income to a poverty threshold but rather a familys consumption of goods to a threshold. If the family consumes little, this is an indication of actual material deprivationof insufficient consumption of basic items such as food and shelter. Many consider this to be a conceptually appealing measure because it takes into account actual consumption patterns, which are influenced by the whole set of resources to which people have access, rather than just ones measured income in a particular period of time. Consumption measures can be either absolute or relative, depending on how the threshold is designed and implemented. That is, one can use an unchanging (absolute) threshold or adopt one that changes as standards of living change. The main problem with consumption measures is that few large-scale surveys ask the relevant detailed questions on family consumption or expenditure patterns needed to construct such a poverty measure. In addition, it could be argued that some people consume little by choice, so it is possible to classify relatively wealthy or high-income individuals as poor if they simply choose to consume little.
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Self-reliance measures take a different tack and emphasize the importance of earnings capacity. The assumption is that because tastes and preferences affect both actual consumption and income, a better indicator of poverty is one that reflects the capability of families to meet, by their own efforts, some minimum level of living (Haveman & Bershadker, 1998; Sen, 1992). This measure could potentially be useful for policy makers interested in gauging the effectiveness of social programs in promoting self-reliance. Self-reliance measures can be implemented in a variety of ways. The poverty thresholds themselves can be either relative or absolute. The key aspect is the measurement of family resources. Some have implemented a self-reliance measure by measuring families potential income, where potential income is modeled based on the typical earnings of people of different demographic groups (e.g., people of different age, educational, and racial groups). But these models inevitably have limited predictive power, and there is always considerable variation in actual family outcomes. One can also implement a self-reliance measure by more simply measuring families incomes without any of the public and/or private transfers they may receive. Here there could be questions about which transfers to subtract. For example, should only public meanstested transfers (e.g., welfare payments) be subtracted, or all transfers (e.g., income transfers from extended kin)? In addition, this resource measure could understate self-reliance if people decide to work less, and therefore have fewer earnings, because they know they can access a variety of transfers (public or private). Some have argued that traditional poverty measures have tended to focus too narrowly on income deprivation. That is, existing measures rely too much on information about peoples income (or consumption) rather than other dimensions of well-being. Sen, for example, has asserted that poverty should be seen as the deprivation of basic capabilities rather than merely as lowness of incomes (Sen, 1999). The capability approach focuses on deprivations that are considered intrinsically important, as opposed to income, which is thought to be only instrumentally important. In other words, income matters only in that it can help people attain basic capabilities, such as good health, a decent standard of living, and social and political participation in a communitys organizations and institutions. Sen further asserts that there are factors other than income that influence peoples capabilities. For example, a persons age, gender, race, and regional location can all affect his or her capabilities apart from his or her income. This conceptual approach to poverty is certainly a reasonable and theoretically impressive one. It is also much closer to relative poverty measures in spirit than to absolute ones because it emphasizes that both what constitutes basic capabilities and what people need to meet these basic capabilities varies considerably across time and place. What remains, however, is the considerable challenge of arriving at a widely agreed upon operational definition of poverty along these lines. Other poverty-related measures that do not rely on income data alone include hardship measures and social exclusion. Hardship measures are based on respon-
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dents reports concerning a lack of food, heat, access to health care, or adequate housing, to name a few possible dimensions (Bauman, 1999; Beverly, 2000; Iceland & Bauman, 2004; Mayer & Jencks, 1989). Hardship measures are closer to absolute measures in spirit, although they can be (and often are) defined in terms of hardships relative to a particular societys norms. The problem with hardship measures is that there is no consensus yet on what exactly they should measure. Some define them in terms of inadequate consumption of basic goods, whereas others define them in terms of poor physical living conditions (Beverly, 2000). There is a wide variety of possible indicators, including those related to housing, nutrition, medical well-being, and neighborhood quality. Within all these categories there are several possible measures. To combine them into an index is a challenging endeavor. Hardship measures also may reflect preferences and tastes, and not always involuntary deprivation (Beverly, 2001). Despite some of these unresolved conceptual and empirical issues, there is growing interest in material hardship measures, principally because these measures are thought to more directly ascertain the underlying economic deprivation people facedeprivation that income poverty indicators measure only indirectly. In Sens parlance, these are outcomes that many find to be intrinsically important. Another poverty-related concept that has been gaining increasing attention is social exclusion (Atkinson, 1998; Micklewright, 2002; Silver, 1994). This type of measure is certainly relative in spirit, although it can be operationalized in a variety of ways and, like hardship, can be challenging to measure. The United Kingdom government has defined social exclusion as: a short-hand term for what can happen when people or areas suffer from a combination of linked problems such as unemployment, poor skills, low income, poor housing, high crime environment, bad health and family breakdown (Micklewright, 2002, p. 3). These are people alienated from, and living on the fringes of, mainstream society. In the United States, the term underclass has been used to describe a segment of the population, mainly African Americans in highly segregated inner cities, who suffer social exclusion. Atkinson has identified three elements of social exclusion: (a) relativityindividuals are excluded from a particular reference community or society, (b) agency people are excluded by the acts of people or institutions, such as employers, schools, or government service agencies, and (c) dynamicsexclusion is not just a function of current circumstances but also of future prospects (Atkinson, 1998). Social exclusion, like hardship measures, attempts to tap into an intrinsically important dimension of well-being. Social exclusion is thought to beget other problems, such as alienation and social, economic, and political conflict. Efforts to measure these poverty-related phenomena are bound to continue. There is increasing interest in collecting more information on capabilities, hardship, and exclusion, as well as understanding their causes and consequences. These efforts will undoubtedly complement our current knowledge of income poverty.
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Nevertheless, I believe there continues to be an important place for income-based measures of poverty in research and public discourse today. Income-based measures are the most conceptually and operationally advanced measures of poverty available, in large part because of how long they have been studied. They are broadly understood and accepted by researchers, policy makers, and the public. Their main weakness, as noted previously, is that they capture only one dimension of well-being, and they do not necessarily capture outcomes that are intrinsically important. The challenge, then, is to not only continue research on capabilities, exclusion, and hardship but also implement income-based poverty measures that are socially relevant and conceptually and empirically sound.
BACK TO THE BASICS? Before moving ahead into an empirical analysis of alternative income poverty measures to help assess which is the best one, it would perhaps be instructive to take a step back and briefly look at the history of poverty measurement efforts in order to further inform the theoretical debate. Although people have long been interested in poverty, it was not until the late 19th and early 20th centuries that more rigorous techniques to measure and examine poverty were developed. These efforts coincided with the development of many social science disciplines and relevant research and statistical methods (Fisher, 1997). Concerned over working-class unrest that fed the revolutions of 1848, European statisticians, around 1850, began to study the incomes and expenses of working-class families. As poverty historian Gordon Fisher (1997) has described in detail, this led to the development of standard budgets, which basically refer to the cost of goods and services that families need to achieve a certain standard of living. Influenced by these studies, early efforts to develop standard budgets in the United States began in the period between 1870 and 1895. Sometimes different budgets were constructed for people of different social classes or occupational groups. Although most were constructed to represent a minimum subsistence level, others were meant to represent minimum comfort levels (Fisher, 1997). Charles Booth came up with the term the line of poverty (as cited in Fisher, 1997, p. 3) in his well known study of poverty and society in London. He defined his concept of poverty in the following way:
By the word poor I meanthose who have a sufficiently regular though bare income, such as 18 [shillings] to 21s per week for a moderate familyThe poor are those whose meansare barely sufficient for decent independent life; the very poor those whose means are insufficient for this according to the usual standard of life in this country. (as cited in Fisher, 1997, p. 3)
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In fact, it was around the end of the 19th century when the word poverty became less associated with receiving public relief or private charity (i.e., pauperism) and more with just having insufficient income. This concept of poverty became widely accepted among the social workers, sociologists, and others in the first two decades of the 20th century who studied these issues more systematically (Fisher, 1997; Patterson, 2000). What relevance do these early efforts at poverty measurement have today? Most researchers would probably consider poverty measures based on basic budgets to be absolute because they assess basic needs and do not have explicit mechanisms for updating what constitutes basic needs over time. Conceptually, however, basic budgets are not far off from notions of capability deprivation because the budgets were constructed by assessing the basic consumption needs of people in a particular temporal and geographic context. Unlike purely relative measures, these measures are more focused on basic needs, and, more specifically, the potential capability to attain very basic consumption needs. They have the absolutist core of poverty in mind (Sen, 1983, p. 159). In order to have greater relevance in contemporary society, however, basic budgets need to evolve as standards of living change. The intuitive appeal of basic budgets is what propels ongoing efforts by some to develop and implement basic needs standards (e.g., Bernstein, Brocht, & Spade-Aguilar, 2000; Pearce, 2001). Constructing basic budgets for different locales, however, is a time-intensive effort. Such budgets devised in the U.S. context do not nearly cover all locales across the country, and updating these budgets is likewise difficult and time consuming. The NAS panelrecommended income poverty measure mentioned briefly previously, however, is an income-based approach to measuring poverty that is conceptually similar to the basic budget approach, and it is one that also has an updating mechanism that allows thresholds to rise as standards of living rise, although it does require some broader periodic revisiting to gauge whether it is sensibly capturing needs and expenses over time. This measure is described in more detail following.
THE NATIONAL ACADEMY OF SCIENCES PANEL ON POVERTYS QUASI-RELATIVE POVERTY MEASURE In response to the increasingly apparent weaknesses of the U.S. official poverty measure described previously, congressional funds were appropriated in the late 1980s for an independent scientific study of poverty measures. The NRC of the NAS established the Panel on Poverty and Family Assistance, which first met in June 1992. This panel reviewed several alternative approaches to measuring poverty, noting that the decision to accept or reject any particular one must involve judgment as well as scientific evidence. It did, however, recommend specific changes, sometimes within a range, to the official poverty measure in its 1995 report, Measuring Poverty: A New
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Approach. In subsequent research undertaken by researchers at the U.S. Census Bureau and the Bureau of Labor Statistics, a few experimental poverty measures based on small variations of the panels recommendations were implemented and published (Short, 2001; Short, Garner, Johnson, & Doyle, 1999). Specifically, the NAS panel recommended that a new poverty threshold be calculated by determining, for a reference family of two adults and two children, a dollar amount for food, clothing, shelter, and utilities, and then increasing that dollar amount by a modest percentage to allow for other needs (such as household supplies, personal care, and nonwork-related transportation). The dollar amount is scaled down from the median spending for those four basic items using data gathered in the U.S. Consumer Expenditure Survey. The reference family threshold is then adjusted, using an equivalence scale, to reflect the needs of different family sizes and types. Unlike in the official U.S. poverty measure, thresholds are further adjusted for geographic variations in housing costs by state and metropolitan area status. Family resources in the NAS panel measure are defined as the value of cash income from all sources plus the value of near-money benefits that are available to buy goods and services covered by the new thresholds, minus nondiscretionary expenses. Cash income sources include wages and salaries, interest income, and cash welfare assistance (these are elements of the income definition in the official U.S. poverty measure). Near-money income and benefits not included in the official poverty income definition include food stamps, housing subsidies, school breakfast and lunch subsidies, home energy assistance, assistance received under the Woman, Infants, and Children nutritional supplement program, capital gains/ losses, and the Earned Income Tax Credit (EITC). Nondiscretionary expenses subtracted include federal, state, and payroll taxes; child care and other work-related expenses among families in which parents work; medical out-of-pocket costs (MOOP); and child-support payments to another household. Taxes represent a nondiscretionary expense in that people cannot spend this money. Child care and other work-related expenses (such as commuting expenses) are also subtracted because, the panel argued, these costs are often incurred if parents are to work and earn labor market income. The panel recommended subtracting MOOP expenses because such expenses can affect peoples ability to meet other basic consumption needs.2 Details of how the NAS poverty measure used in the following analysis was calculated are contained in the Appendix. Advantages and Disadvantages The NAS measure addresses some of the weaknesses of both purely absolute and purely relative measures, but certainly not all of them. One remaining weakness is
2Interested readers should refer to NRC (1995) for a more detailed discussion of these various elements, as well as Short et al. (1999) and Short (2001).
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that, as currently implemented, many elements require complex statistical procedures that could still use further refinement. The U.S. Census Bureau has since issued reports containing several alternative experimental poverty measures (Short 2001; Short et al., 1999). The NAS convened another workshop in 2004 to review the elements in the measure, and workshop participants agreed that the measure on the whole represented a significant improvement over the current official poverty measure; participants also made additional recommendations on some of the elements (Iceland, 2005; NRC, 2005). Some of the relevant recommendations from the workshop are mentioned in the empirical analysis following and also are described in the Appendix. The NAS panel-recommended measure is clearly a more refined measure than the current official poverty measure in both the construction of the thresholds and the definition of income used. It is designed to gauge the impact of government programs on poverty, given that both cash and noncash government benefits are taken into account in the measure of family income. It also has the advantage of increasing, in real terms, as spending on basic items increases, reflecting changes in real standards of living. However, it is not responsive to changes in spending patterns on other, more discretionary items, such as luxury goods, that may occur as median incomes rise. I believe this is a desirable property of a poverty measure. Relative poverty thresholds, in contrast, are simply responsive to changes in median income; as such they less directly measure the ability to attain basic goods or capabilities. The quasi-relative measure is also probably less likely to respond as counterintuitively during recessions or economic booms as relative measures might because patterns of spending on basic goods are likely to change less radically than median incomes in a given year. Thus, while a relative poverty rate may at times decline during a recession, the quasi-relative poverty rate is probably less likely to do so.
EMPIRICAL ANALYSIS One way to assess the various income poverty measures is to observe their performance over time. In the following analysis, I begin by examining how different poverty thresholds behave over time, including how they compare to peoples subjective notions of poverty. This is followed by an examination of changes in the absolute, relative, and NAS poverty rates in the United States between 1992 and 1998. I compare these trends with those observed using other measures of material well-being, such as difficulty meeting basic needs and reports of unsafe neighborhood conditions. We would expect that all measures would track in the same direction, given that they all purport to measure underlying changes in economic well-being. However, we would also expect that a relative income poverty measure would track less closely with the other material hardship measures because the former is designed to be more sensitive to income inequality than to more basic deprivation, which the other measures are probably more apt to capture.
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The analysis of trends over time is followed by a look at poverty across demographic groupsage, race, family structure, and regionusing various income poverty and well-being measures. This is meant to be a more inductive examination of how patterns vary across measures and to demonstrate whether any measure appears to be an outlier. Some previous research, for example, has indicated that elderly poverty is more prominent when using relative poverty measures and at least some versions of the NAS measure than when using the official U.S. measure (Brady, 2004; Iceland, Short, Garner, & Johnson, 2001). How do patterns vary when using other well-being measures? If a particular measure is an outlier, this could be cause for some concern. Trends in Thresholds Research has shown that the income level that people consider to be poor increases as standards of living increase (Fisher, 1995; Vaughan, 1993, 2004). A 2004 study by Vaughan (which updated his 1993 research on the same topic) examined subjective, absolute, and relative poverty thresholds in the United States. The subjective poverty thresholds were based on questions that were asked by the Gallup Organization between 1946 and 1989 about the money people need to get along: What is the smallest amount of money a family of four (husband, wife and two children) needs each week to get along in this community? (as cited in Vaughan, 1993, p. 42). In 1989 Gallup also asked a more specific question on poverty:
People who have income below a certain level can be considered poor. That level is called the poverty line. What amount of weekly income would you use as a poverty line for a family of four (husband, wife and two children) in this community? (as cited in Vaughan, 1993, p. 25)
The poverty line represents a lower living standard than the get along one; in 1989 the poverty standard given by respondents was equal to about 72% of the get-along standard (Vaughan, 2004, p. 9). Vaughan estimated a subjective poverty standard back to 1946 based on the assumption that the poverty standard remained a constant percentage of the get-along standard throughout the period. He found that between 1947 and 1989, the Gallup get-along level averaged about 73% of the median four-person family net after-tax income. Assuming a constant ratio between the get-along responses and poverty responses throughout the period, the poverty needs standard averaged about 52% of the median four-person family net after-tax income from 1947 to 1989, which closely approximates the level at which a typical relative poverty threshold is operationalized. However, despite some fluctuations, the subjective poverty needs standard declined from about 56% of the median income in the period between 1947 and 1950 to about 49% in the period between 1984 and 1989, indicating that subjective poverty thresholds rise modestly less quickly than relative
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poverty thresholds (Vaughan, 2004, p. 16). This is in line with findings from other studies on the issue, although results from those studies do differ from one another. A review by Fisher (1995) of these studies based on Gallup poll responses, including Vaughans, indicated that the amount of money people think it takes to get along rises 0.6% to 1.0% for every 1.0% increase in the income of the general population (Kilpatrick, 1973; Leveson, 1978; Osberg, 1984; Rainwater, 1974, 1990; Vaughan, 1993). Differences (i.e., the 0.61.0 range) arise because the analyses can be complex and involve making assumptions about, for example, whether subjective thresholds represent a before- or after-tax income concept. Vaughan (2004) also noted that although his analysis assumed a constant ratio between get-along and poverty responses over the period, other research indicates that the elasticity of the unobserved poverty series with respect to the Gallup get-along series may be closer to 0.85 (Kilpatrick, 1973). Taken as a whole, the implication of this set of findings is that relative poverty thresholds could (if the elasticity is indeed below 1.0) slowly become less socially meaningful over time if median incomes (or, more precisely, thresholds based on a fixed percentage of median income) surpass peoples views of what poverty thresholds should be. Nevertheless, it is clear that relative thresholds perform better when evaluated vis--vis subjective thresholds than the official U.S. poverty thresholds, which are absolute thresholds. Vaughans (2004) study indicates that while the official poverty threshold projected back to 1947 was higher than the subjective poverty threshold in that year (35% greater), these thresholds were about equal at the time that Orshansky devised the official poverty thresholds in 1963 and 1964, and by 1989 the official poverty threshold was in fact only 81% of the subjective one. This indicates that the official poverty threshold has indeed become less socially meaningful since the 1960s and considerably less meaningful over time than the relative threshold (Vaughan, 2004). There is no poverty threshold time series based on recommendations by the NAS that spans enough time to appropriately evaluate how it compares with subjective notions of poverty, since no version of NAS thresholds existed before 1989. Short and Garner (2002) found that one version of the NAS poverty threshold fairly closely tracked the official poverty threshold for most of the 1990s in current dollars (i.e., it rose at a rate similar to inflation), although it rose modestly more quickly after 1997, when real spending on a basic bundle of items (food, clothing, shelter, and utilities) rose more quickly than inflation. Real spending on these items did not rise as much as median incomes over the period. More research on NAS panelbased thresholds over time clearly would be informative. Poverty Estimates Using Alternative Measures Figure 2 shows poverty estimates in 1992 and 1998 using three alternative income poverty measures and a few different material hardship measures. The three in-
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FIGURE 2 Percentage poor or reporting hardship in the United States by method of measurement: 1992 and 1998. Note. The three income poverty measures are based on author tabulations of 1993 and 1999 U.S. Current Population Survey data. Hardship measures are from Extended Measures of Well-Being: Living Conditions in the United States: 1998 (p. 15), by K. J. Bauman, 2003, Washington, DC: U.S. Government Printing Office.
come poverty measures were based on tabulations of data from the March supplement of the U.S. Current Population Survey (the source of official U.S. poverty statistics). The absolute measure of poverty in this analysis uses the current official U.S. measure methodology. The measure consists of a set of poverty lines that vary by family size and composition, and that are compared to a familys gross cash income. If the familys income falls below the threshold, that family, and everyone in it, is considered poor. The relative poverty measure is based on a threshold set at one half the after-tax national median family income. Using one half the median income as the threshold is perhaps the most relative poverty measure used most commonly by researchers who study relative poverty (e.g., Bradbury & Jantti, 2001; Burtless & Smeeding, 2001; Rainwater & Smeeding, 2003). To adjust the poverty threshold for families of different sizes, a single parameter equivalence scalewith a square-rootof-household-size factoris used. This equivalence scale, a common (although not unique) one used by researchers implementing relative poverty measures, takes into account greater economies of scale in larger households. People are poor if their after-tax family income is below the threshold corresponding to their familys size and composition. The quasi-relative measure used here is based on the NAS panels recommendations and on the corresponding implementation procedures developed by the U.S. Census Bureau (e.g., Iceland & Kim, 2001; Short et al., 1999). Thresholds un-
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der the NAS measure, as it is called in the U.S. Census Bureau reports, are represented by a dollar amount for food, clothing, shelter, utilities, and a small amount for other needs for a family of four. This is then adjusted, using an equivalence scale, to reflect the needs of different family sizes and types. The NAS panel recommended a two-parameter scale; one parameter takes into account that children consume less than adults and the other that there are greater economies of scale in larger families. Thresholds are further adjusted for geographic variations in housing costs in different regions and city sizes. Family resources in the NAS measure are defined as the value of cash income from all sources (e.g., earnings, social security, and welfare income) plus the value of near-money benefits that are available to buy goods and services covered by the new thresholds, minus nondiscretionary expenses. Near-money benefits include food stamps, housing subsidies, school lunch subsidies, home energy assistance, and the EITC. Information on subsidies and additions to income is available in the CPS files used in the analysis. Nondiscretionary expenses subtracted include taxes, child care and other work-related expenses, and MOOP costs. Tax estimates (including the EITC) based on models are available in the CPS data set. Child care and other work-related expenses and MOOP costs are imputed to CPS families. Details on the implementation of the NAS poverty measure used here are contained in the appendix of Short et al., 1999. The NAS measure used here is just one of several possible variants. Other versions have been produced by recent U.S. Census Bureau reports, but because these measures continue to evolve, I used one that was available for the period of interest and the one that was most similar to the original NAS recommendations. See the Appendix for more details on a related NAS-based measure. The hardship measures used here were based on data collected in the 1991, 1992, and 1996 Survey of Income and Program Participation (SIPP), as reported by Bauman (2003). The SIPP is a longitudinal survey that interviews respondents every 4 months for 3 to 4 years. During the course of the panel there is a topical module on adult well-being. This consists of an extensive battery of questions on possession of consumer durables, housing conditions, and ability to meet basic needs, among other items. The data from the topical modules reported here were collected in the 1992 and 1998 calendar years. The hardships reported in Figure 2 refer to lacking a full set of appliances (a full set of appliances in Bauman [2003] includes a stove, refrigerator, clothes washer, clothes dryer, dishwasher, and telephone); unsatisfactory neighborhood conditions (problems with traffic, litter, odors, abandoned buildings, or street repair); problems with housing repair (broken windows, plumbing problems, pests, leaks, holes, or cracks); difficulty meeting two or more basic needs (reports of not meeting essential expenses, not paying utility bills, needing to see a dentist but not going, needing to visit a doctor but not going, did not pay rent or mortgage, had phone service cut, did not have enough food, had utility service cut, and eviction); and staying home at some point due to fear of crime.
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As some researchers have advocated, many of the hardship measures used here are intended to capture objective rather than subjective conditions (Beverly, 2001; U.S. Department of Health and Human Services, 2004). Objective measures capture facts about specific conditions or circumstances, whereas subjective measures are self-assessments or evaluations of material need. For example, items such as whether the respondents house had broken windows, or whether he or she was evicted, or if he or she had utility service cut are meant to capture specific conditions, although some judgment of the respondent is inevitably required for all items (U.S. Department of Health and Human Services, 2004). There are a few items that involve more subjective assessments, such as not meeting essential expenses. We nevertheless include a few of these subjective items because they may be informative about peoples circumstances and because they have been included in other analyses (e.g., Bauman, 2003; Iceland & Bauman, 2004). Figure 2 indicates that nearly all measures showed a decline in poverty and hardship between 1992 and 1998. The absolute and NAS poverty measures fell by more than the relative poverty measure. The proportion of people reporting various types of hardship also declined quite significantly over the period across four of the five hardship measures. For example, 20.9% of people reported a problem with the condition of their housing in 1998, down from 27.2% in 1992. The only item that showed an increase in hardship was an increase in the proportion staying home due to fear of crime, an unexpected finding given that crime victimization fell during the same period (Bauman, 2003). Bauman (2003) mentioned that other surveys using more recent data have found declines in fear of crime. That all but one poverty-related measure acted in concert provides a robust picture of better times in the mid-to-late 1990s, consistent with GDP growth, rising incomes, and moderating income inequality over that time (Danziger & Gottschalk, 2004; Iceland, 2003b). As might be expected, relative poverty declined by less than most other measures because it is more sensitive to trends in inequality than economic growth. Overall, the results do not indicate that any of the income poverty measures are unreasonable barometers of trends in economic deprivation in the United States over this period, although the relative poverty measure fell by less than the majority of other measures. Tables 1 and 2 show poverty rates for different demographic groups and the composition of the poverty population, respectively, using alternative income poverty and hardship measures calculated by Short (2003), plus the relative poverty measure from Figure 2. The NAS-based measure that Short calculated for Table 1 is similar to the one I used in Figure 2, except that (a) the data Short used came from the SIPP rather than the CPS (poverty rates tend to be a little lower when using SIPP data than when using CPS data because the former tends to have more thorough reporting of income); and (b) the method for subtracting estimated medical expenses from peoples resources differs a little. The amounts subtracted tend to be lower in the Short (2003) measure, resulting in modestly lower poverty rates. The Appendix contains details of how the measure in Short (2003) is oper-
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TABLE 1 Poverty Rates for Individuals by Demographic Characteristics and Measure Official Poverty Measurea 12.1 18.7 9.7 9.6 9.6 27.0 27.0 6.5 14.1 28.8 10.7 9.7 14.0 13.1 NAS Poverty Measurea 11.7 14.2 10.5 11.9 10.5 18.0 25.8 7.1 17.6 23.4 12.1 8.4 12.0 14.5 Relative Poverty Measurea,b 17.6 23.1 14.8 20.4 15.1 33.5 33.1 9.5 22.0 38.7 16.8 14.6 19.4 18.7 Cannot Meet Basic Expensesc 15.0 21.0 14.2 5.4 13.3 26.5 22.2 11.9 15.2 24.6 14.3 14.5 15.1 16.1
Demographic Characteristic All Persons Age Children Nonelderly adults Elderly Race/ethnicityd White Black Hispanic Family type Married couple Male headed Female headed Region Northeast Midwest South West
Deprivation Indexc 8.4 11.2 8.4 1.8 7.6 13.4 15.2 6.4 10.8 13.7 7.1 7.0 9.3 9.6
Note. NAS = National Academy of Sciences. All measures except relative povertywhich is from author tabulations of 1999 Current Population Survey dataare from Material and Financial Hardship and Alternative Poverty Measures 1996, by K. Short, 2003, paper presented at the annual meeting of the American Statistical Association, San Francisco. a1996. bThe relative threshold equals one half the median family income in 1998. See text for details on all measures. c1998. dWhites and Blacks include those who may also be Hispanic. Hispanics may be of any race.
ationalized. One of the hardship measures refers to the ability to meet basic expenses. It is based on the following question in the 1996 SIPP panel:
Next are questions about difficulties people sometimes have in meeting their essential household expenses for such things as mortgage or rent payments, utility bills, or important medical care. During the past 12 months, has there been a time when you/ your household did not meet all of your essential expenses?3
Another hardship measure in the table, the deprivation index calculated by Short (2003), is similar to the index used by Mayer and Jencks (1989). It is com3Short (2003) notes that sometimes families with high incomes (and expenses) report affirmatively to this type of inability meet expenses.
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TABLE 2 Composition of the Total Population and Poverty Population, by Measure Poor Population Official Poverty Measurea 100.0 41.2 49.6 9.3 66.2 27.4 24.9 36.9 51.7 17.3 19.6 39.6 23.5 NAS Poverty Measurea 100.0 32.4 55.6 12.0 74.6 19.0 24.7 41.5 43.7 20.3 17.5 35.3 26.9 Relative Poverty Measureb,c 100.0 34.5 51.7 13.8 70.4 24.5 21.8 35.2 50.3 18.2 19.3 38.4 24.1 Cannot Meet Basic Expensesc 100.0 37.4 58.4 4.2 74.0 21.8 16.6 54.4 35.7 18.7 23.5 34.5 23.4
Demographic Characteristic All Persons Age Children Nonelderly adults Elderly Race/ethnicityd White Black Hispanic Family type Married couple Female headed Region Northeast Midwest South West
Total Population 100.0 26.6 61.7 11.7 83.2 12.3 11.2 68.5 21.7 19.6 24.4 34.3 21.7
Deprivation Indexb 100.0 35.6 61.8 2.5 75.5 19.7 20.3 51.8 35.6 16.5 20.4 38.1 24.9
Note. NAS = National Academy of Sciences. All measures except relative povertywhich is from author tabulations of 1999 Current Population Survey dataare from Material and Financial Hardship and Alternative Poverty Measures 1996, by K. Short, 2003, paper presented at the annual meeting of the American Statistical Association, San Francisco. a1996. bThe relative threshold equals one half the median family income in 1998. See text for details on all measures. c1998. dWhites and Blacks include those who may also be Hispanic. Hispanics may be of any race.
posed of the following reported items: respondent experienced difficulty paying rent, experienced difficulty paying utilities, did not see a doctor or a dentist when needed, did not have enough food to eat, expressed dissatisfaction with condition of housing, reported at least two housing-related problems, or reported having no health insurance. A family is classified as experiencing material hardship if they report two or more of the listed items, although Short (2003) emphasizes that the SIPP questions used here do not have a follow-up question that gauges whether the respondent is lacking these items because he or she cannot afford them. Table 1 shows that poverty rates are highest when using the relative poverty measure (17.6%) and lowest when using the deprivation index (8.4%). The official poverty measure and NAS measure used here are similar at close to 12% each. The point estimate for the relative measure is fairly close to that of the Cannot meet basic needs item, which indicates some congruence between relative poverty and
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one subjective notion of hardship. In general, the precise poverty level estimates should be taken with a grain of salt because, as mentioned previously, there are alternative methods of implementing the NAS, relative, and hardship measures (as well as subjective measures). Thus, for the purposes here, it is more important to examine patterns across demographic groups than to look at exact levels of poverty. These comparisons are facilitated by looking at the composition of the poverty population using the alternative poverty measures (Table 2). Overall patterns tend to be consistent across measures, but with some notable differences. The elderly make up a larger proportion of the poverty population when using the income poverty measuresand especially the relative poverty measureas compared with the two material hardship measures. The elderly have considerably higher relative poverty rates than the official (and NAS) poverty measure because the elderly often have incomes above the official poverty lines but below the relative ones. The finding that the elderly report fewer hardships despite low incomes has been noted by others (e.g., Bauman, 1999, 2003; Short, 2003). The elderly may have expenses that are less variable and therefore easier to budget, and they also are more likely to own their homes than younger householders. That elderly relative poverty rates are high even as reports of material hardship are quite low indicates, in my view, that the relative poverty measure may not be as useful an indicator of poverty, as most people would understand the term, as either the official or NAS poverty measures. It may also be quite true, however, that the elderly experience poverty in different ways than young families. The elderly, for example, may need to make difficult decisions about whether to pay rent or skip out on obtaining all the drugs they need for their well-being. The elderly make up a larger proportion of the poverty population when using the NAS measure than the official poverty measure (and the hardship measures) in part because of high medical expenses (which are taken into account in the NAS measure) among this population. The NAS estimate of elderly poverty would be even higher if one were to adopt the precise methods discussed in the original NAS report (NRC, 1995). The measure presented in Table 2, from Short (2001, 2003) is lower than the original NAS panel estimates largely because it does not benchmark estimates of out-of-pocket cost to aggregate totals from independent data sources.4
4David Betson, one of the original NAS panel members, has argued that this type of benchmarking
is a mistake because many sources of income are greatly underreported in many surveys, including the CPS and SIPP. He argues that, If other sources of resources were similarly adjusted for under reporting then the current (original NAS panel) method would be appropriate. But since they are not adjusted, the use of estimates of actual [benchmarked] MOOP in poverty measurement with reported amounts of other family resources will overstate the impact of the subtraction of MOOP spending on poverty counts. (Betson, 2001, p. 4) Thus, Short (2001) adopted Betsons new methodology of estimating medical out-of-pocket expenses without benchmarking, and this serves to moderately reduce estimated elderly poverty rates by more than if they are benchmarked.
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If a future NAS panel-based measure takes into account the fact that many of the elderly own their homes, as recommended by participants in a recent NASsponsored workshop, and thus require less income to meet basic needs, then elderly NAS poverty rates could go down moderately when using future versions of this measure (Grall, 1994; NRC, 2005). The proportions of the poor who are White or Black are fairly similar across the NAS and material hardship measures, but Blacks compose a relatively larger proportion of the poor when using the official and relative poverty measures. The compositional difference when using the official and NAS measures has been noted in previous research (Iceland et al., 2001; Iceland & Kim, 2001; Short et al., 1999); differences are due to greater receipt of noncash government transfers and lower MOOP expenses reported by Blacks, which produce relatively lower NAS poverty rates. Hispanics (who may be of any race) make up a higher proportion of the NAS poverty population for a few reasons, including less receipt of noncash benefits and higher work-related expenses (Iceland et al., 2001; Iceland & Kim, 2001). Table 3 indicates that Hispanics compose a larger proportion of the NAS poverty population than of the relative poverty or hardship populations. People in married-couple families make up a larger proportion of the poverty population when using the NAS and hardship measures than when using either the official or relative poverty measures. People in married-couple families tend to have higher NAS poverty rates because they tend to receive fewer noncash government transfers and have higher work-related expenses (Iceland & Kim, 2001; Iceland et al., 2001; Short et al., 1999). Perhaps they make up a relatively higher proportion of the hardship population for the same reasons. When it comes to regional variations, the NAS measure shows a higher proportion of the poverty population in high-cost regions, such as the Northeast and West, than the other poverty and hardship measures. The NAS measure takes into account differences in housing costs in different regions, whereas the other income poverty measures do not. This is a case in which the NAS measure looks a little more like an outlier when compared with the other measures. The method for taking geographic adjustments into account in the NAS measure has recently received close scrutiny, and participants in the 2004 NAS-sponsored workshop recommended that these adjustments be excluded from the measure until they are technically more sound (NRC, 2005). Once again, this empirical analysis does not prove that any of the measures are unreasonable, nor that one is clearly much superior to the others; no measure is consistently an outlier across the demographic comparisons. However, the analysis does provide some reason to be hesitant about using a relative poverty measure for understanding the composition of the poverty population, particularly with regard to age, where elderly relative poverty rates are high but reports of material hardship for this group are low. Similarly, patterns by family structure also show some divergence across these measures.
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CONCLUDING REMARKS: WHAT IS THE BEST POVERTY MEASURE? Income poverty measurement research efforts in the United States may be approaching a crossroads. Most people recognize the significant faults of the current official poverty measure. No consensus has been reached, however, on a new measure. There has been increasing use of relative measures among academic researchers, as is already common in Europe, but not really among those outside the academy. Some poverty researchers have also shown interest in the quasi-relative measure recommended by the NAS panel. A key theoretical issue is whether poverty should refer to a subsistence standard (a notion associated with absolute poverty measures), economic marginalization (a notion associated with relative measures), or something in between. A related issue is whether poverty measures should be based on income at all, as some have argued that it is more important to look at peoples capabilities or social exclusion more directly. Indeed, in recent years there has been increasing research on measures of poverty not based on income, such as capability deprivation, social exclusion, and material hardship. These efforts should certainly continue because they all provide important insights into different dimensions of peoples wellbeing. Nevertheless, I believe there continues to be a vital place for income-based measures of poverty in research because income-based measures are the most conceptually and, especially, operationally advanced measures of poverty available, and they are broadly understood and accepted by researchers, policy makers, and the public. The challenge is to implement income-based poverty measures that are socially relevant and conceptually and empirically sound. I have argued that the quasi-relative approach to measuring income poverty advocated by the NAS panel is conceptually superior to purely relative measures because the former is designed to measure peoples capabilities to meet basic consumption needs (mainly food, clothing, and shelter). Although relative income poverty thresholds capture peoples subjective notions of poverty over time better than absolute thresholds, they capture whether people have incomes sufficient to meet their basic needs more indirectly than the NAS measure, and they sometimes behave oddly over the short run during periods of economic growth or recession (NRC, 1995). While the NAS measure is conceptually similar to traditional basic budget approaches to measuring poverty, it is superior to them because it has been designed to be implemented more easily across locales, and it has a mechanism that allows it to be updated over time as real spending on basic needs increases. Overall, the empirical analysis of trends in poverty over time and the demographic composition of the poverty population using different measures did not indicate that any one of the income poverty measures is wholly unreasonable. It did, however, provide some reason to be hesitant to rely too heavily on a relative poverty measures alone, especially for understanding patterns of poverty by age, as
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they compared unfavorably with some measures of hardship. Thus, the NAS poverty measure is, in my view, the single most informative income poverty measure because of its theoretical attributes and its empirical performance thus far, although clearly more research on its empirical performance over time is essential.
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APPENDIX Calculating the National Academy of Sciences Poverty Measure This appendix describes how to calculate one version of the National Academy of Sciences (NAS) poverty measure, as implemented in a 2001 U.S. Census Bureau report on experimental poverty measures (Short, 2001). This measure was also used in another poverty report by Short (2003). The measure, termed MSI (medical out-of-pocket expenses subtracted from income) in those reports, corresponds to
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the NAS measure reported in Tables 1 and 2 of this article. The one difference is that the one used here, from Short (2003), was calculated using data from the Survey of Income and Program Participation (SIPP), whereas the procedures described following are for implementing the measure with the Current Population Survey (CPS; as done in Short, 2001) or other surveys that do not have as in-depth information on income sources as the SIPP. Much of the discussion comes directly from Appendix A in Short (2001).
Constructing Poverty Thresholds Poverty thresholds are constructed through six steps (Short, 2001): 1. Median expenditures (adjusted to current dollars) for reference units (two-adult, two-child families) are calculated based on their expenditures on food, clothing, shelter, and utility (FCSU), as reported in the U.S. Consumer Expenditure Survey (CE). Three-year averages across CE data collection quarters are the basis of annual estimates in order to minimize year-to-year fluctuations. 2. Percentages of median expenditures are selected that reflect the 30th and 35th percentiles of the distribution of FCSU expenditures. These percentiles come to approximately 78% and 83% of the median. The NAS panel concluded that this was a reasonable range. 3. Expenses for other needs (such as household supplies and personal care expenses) are accounted through the use of a multiplier. The NAS panel recommended a multiplier between 1.15 and 1.25. Short (2001) uses the midpoint or averages of these upper and lower values for both the percentages and multiplies, where the threshold equals 0.5 (1.15 .78 + 1.25 .83) median FCSU. This results in a threshold that equals 0.96725 median FCSU expendituresor almost the median of these expenditures. 4. Adjustments are made to reflect geographic differences in costs. Details on this are given shortly. 5. An equivalence scale adjusts the reference units threshold to produce thresholds for families of different sizes and compositions. More about this is given shortly as well. 6. The base-year thresholds are updated using a price adjustment factor. Short (2001) uses alternative methods, including updating using the Consumer Price Index for all urban consumers (CPI-U), and updating the change in median expenditures each year using the CE data. A quasi-relative approach would use CE data for these annual adjustments rather than use the CPI because the former collects information on real changes in spending patterns whereas implementing the latter would not. Table A1 shows the CE-based thresholds used in Short (2001).
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TABLE A1 Poverty Thresholds for a Reference Family of Two Adults and Two Children: 19891999 Official Poverty Threshold $12,575 13,254 13,812 14,228 14,654 15,029 15,455 15,911 16,276 16,530 16,895 34.4 29.4 3.8 FCSU CE-Based Threshold a $12,734 13,398 13,917 14,284 14,806 15,169 15,514 15,710 15,985 16,517 17,036 33.8 25.5 6.6
Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 % change: 198999 198997 199799
Note. FCSU CE = Expenditures on food, clothing, shelter, and utilities, as reported in the U.S. Consumer Expenditure Survey. From Experimental Poverty Measures: 1999 (U.S. Census Bureau, Current Population Report, Consumer Income, P60-216), by K. Short, 2001, Washington, DC: U.S. Government Printing Office. aFCSU CE-based threshold is a National Academy of Sciences measure.
Equivalence scales. Although the NAS panel originally recommended a two-parameter equivalence scale, Short (2001) used a three-parameter one recommend by Betson (1996). Specifically, this scale fixes the ratio of the scale for 2 adults and 1 adult to a constant value, 1.41. For single parents, the scale adds the number of adults to 0.8 for the first child plus 0.5 times all other children raised to a power of 0.7, that is: [a + .8 + p(c1)]F. And for all other families the formula is: (a + pc)F where, as before, p = .5, and F = .7, a = number of adults in family, and c = number of children in family. Geographic adjustments. The NAS panel recommended adjusting thresholds for differences in the cost of living in different areas. Short (2001) used a method for these adjustments using data on fair market rents (FMRs). This method differs somewhat from the NAS-recommended approach, although the net effect on estimated poverty rates is small. The U.S. Department of Housing and Urban Development (HUD) calculates FMRs annually for 2,416 counties that are outside metropolitan areas and for all 341 metropolitan areas in the United States. FMRs are defined to be the gross rent (with utilities) at the 40th percentile for the rent dis-
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tribution of a standard quality of rental housing. Short (2001) grouped FMRs by state and metropolitan status for a total of 100 indexes: 2 per state (except only metropolitan indexes in New Jersey and the District of Columbia) by which thresholds are adjusted for the cost of housing differences. FMRs do not represent an ideal method for adjusting poverty thresholds because they do not fully control for housing quality and because they are based on rental data of recent movers only. See Short (2001) and National Research Council (2005) for a more extended discussion. Table A2 shows the FMRs used in Short (2001) to make geographic adjustments. Indexes based on data in Short are shown in the table as well. Applying these indexes involves two additional adjustments. First, when applying these indexes to thresholds, the final indexes should be adjusted such that the average index across individuals in the data set should equal 1. This is necessary in order to ensure that applying these indexes does not result in an increase or decrease in the overall poverty rate. Second, these index values should be applied to the estimated fraction of the poverty budget of the reference family accounted for by housing (including utilities)44%. This in effect creates a price index with two components: (a) housing, which varies across geographic areas, and (b) all other budget items, which are assumed not to vary. Constructing a Measure of Family Resources (Income) To determine whether a family is poor, a measure of resources needs to be compared to the appropriate family threshold. Under the NAS measure, family resources are defined as the value of cash income from all sources (the definition of resources in the official U.S. poverty measure) plus the value of near-money benefits that are available to buy goods and services covered by the new thresholds, minus nondiscretionary expenses. Cash income sources include wages and salaries, interest income, and cash welfare assistance. Near-money income and benefits (not included in the official poverty income definition) comprise food stamps; housing subsidies; school breakfast and lunch subsidies; home energy assistance; assistance received under the Woman, Infants, and Children (WIC) nutritional supplement program; realized capital gains and losses; and the Earned Income Tax Credit (EITC). Nondiscretionary expenses subtracted include federal and state income taxes, payroll taxes, child care and other work-related expenses among families where parents work, medical out-of-pocket (MOOP) costs, and child support payments to another household. Taxes represent a nondiscretionary expense in that people cannot spend this money. Child care and other work-related expenses (such as commuting expenses) are also subtracted because, the panel argued, these costs are often incurred if parents are to work and earn labor market income. The panel recommended subtracting MOOP expenses because such expenses can affect peoples ability to meet other basic consumption needs.
TABLE A2 Geographic Indexes by State and Metropolitan Status: 1999 Mean Metropolitan FMRb 468.84 773.00 623.64 485.25 769.32 654.64 772.79 659.20 820.00 628.39 635.62 863.00 540.00 685.24 552.59 521.57 525.71 505.31 480.90 597.70 696.93 798.61 600.37 638.83 495.98 493.04 496.96 563.22 695.97 724.61 830.73 577.25 826.81 553.63 531.29 538.65 482.39 624.20 594.63 663.68 515.93 Mean Nonmetropolitan FMRb 348.75 777.01 503.71 375.68 603.36 589.74 750.28 579.00 (NA) 553.77 415.84 957.98 441.53 409.28 419.97 419.87 406.50 383.35 362.35 529.98 526.46 691.63 425.16 447.51 378.57 368.92 477.83 409.97 614.11 637.47 (NA) 439.54 546.68 433.42 381.75 437.20 362.12 518.96 471.13 828.95 410.26
State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina
Metropolitan Index Valuea 0.76 1.25 1.01 0.79 1.25 1.06 1.25 1.07 1.33 1.02 1.03 1.40 0.87 1.11 0.90 0.84 0.85 0.82 0.78 0.97 1.13 1.29 0.97 1.03 0.80 0.80 0.81 0.91 1.13 1.17 1.35 0.94 1.34 0.90 0.86 0.87 0.78 1.01 0.96 1.08 0.84
Nonmetropolitan Index Valuea 0.71 1.58 1.02 0.76 1.23 1.20 1.52 1.18 (NA) 1.13 0.85 1.95 0.90 0.83 0.85 0.85 0.83 0.78 0.74 1.08 1.07 1.41 0.86 0.91 0.77 0.75 0.97 0.83 1.25 1.30 (NA) 0.89 1.11 0.88 0.78 0.89 0.74 1.05 0.96 1.68 0.83
(continued)
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TABLE A2 (Continued) Mean Metropolitan FMRb 577.49 535.23 600.31 619.90 692.00 651.00 680.86 510.50 569.45 539.84 Mean Nonmetropolitan FMRb 438.77 363.72 395.74 471.59 573.56 502.88 493.86 374.00 423.25 435.79
State South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming
Metropolitan Index Valuea 0.94 0.87 0.97 1.00 1.12 1.05 1.10 0.83 0.92 0.87
Nonmetropolitan Index Valuea 0.89 0.74 0.80 0.96 1.17 1.02 1.00 0.76 0.86 0.89
Note. FMR = fair market rents. aAuthor estimates based on data in Columns 3 and 4. bFrom Experimental Poverty Measures: 1999 (U.S. Census Bureau, Current Population Report, Consumer Income, P60-216), by K. Short, 2001, Washington, DC: U.S. Government Printing Office.
All of the near-cash benefits described above are available in the CPS except for school breakfast and WIC subsidies (these are available in the SIPP). Short (2001) used these values, where present, when calculating the experimental poverty measures. The one exception is housing subsidies, for which she used an alternative method for calculating, described in detail shortly. Regarding expenses, the CPS contains tax estimates (including the EITC) as well as realized capital gains and losses. Expenses that involve additional calculation include child care and other work-related expenses and MOOP expenses. Child support payments are not included in the CPS and are left out of experimental poverty measure calculations based on CPS data (these items are available in the SIPP). Thus, following is a detailed discussion of how child care and other work-related expenses, housing subsidies, and MOOP costs are estimated when computing the NAS-related measure in Short (2001).
Work-related expenses. In the NAS measure, two types of work-related expenses are subtracted from a familys resources: (a) child care expenses, and (b) other work-related expenses, such as transportation costs. Child care expenses. Since 1999, the CPS has fielded a question about whether anyone in the household paid for the care of their children while they worked. If the response is yes, then the children who needed care are listed. Because the CPS lacks any questions about the dollar amount of child care expenses,
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TABLE A3 Estimated Coefficients of Family Expenditures on Child Care Single-Parent/ Other Families 0.83 0.23** 0.24 0.82*** 0.57*** 0.13* 0.39*** 0.12 0.45*** 0.35*** 0.03 0.37*** 0.03** 0.03* 0.15** 0.97*** 0.81*** 0.86** 0.74* 0.08 0.07 0.10 0.88 0.31 372 Married-Couple Families 1.02 0.06 0.10 0.69*** 0.45*** 0.01 0.07 0.18 0.39*** 0.26*** 0.06 0.26*** 0.15 0.03*** 0.01 0.05 0.09 0.01 0.09 0.17 0.13** 0.06 0.09 0.84 0.31 1029
Characteristic Intercept Family head Black Family head Hispanic 02 children 35 children 611 children 1215 children 1618 children Midwest South West Family income (natural log) Proportion from mothers earnings Mothers average weekly hours worked Hours2 (/100) Number of adults in household Some high school (mother) High school (mother) Some college (mother) College + (mother) Urban residence Age (mother) Age2 (/100) Root MSE R2 Observations *p < .10. **p < .05. ***p < .01.
Short (2001) uses a method implemented by Iceland and Ribar (2001) to impute such expenses. More specifically, the SIPP contains more detailed questions about child care expenses; in order to impute expenses to CPS families, then, the method basically involves estimating the dollar amount of expenses based on a set of family characteristics: family type, race/ethnicity of family head, number and age of children, region, family income, and so forth. Table A3 contains the coefficients used to impute expenses to CPS families. The dependent variable represents the natural logarithm of child care expenses (imputations are formed by taking the exponential of the predicted outcome).
Other work-related expenses. A flat amount is subtracted from family resources to account for other work-related expenses. Following the NAS panels
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recommendations, Short (2001) subtracted 85% of the median amount spent on other work-related expenses as reported by SIPP respondents (in a topical module on work-related expenses and child support paid) because no questions are asked about these expenses in the CPS. This amount is restricted to not exceed the persons earnings. This information is collected in the SIPP from people who had at least one employer in the reference period. There are three types of expenses: (a) annual expensesannual work-related expenses, such as union dues, licenses, permits, special tools, or uniforms; (b) mileage expensesthe number of miles usually driven to and from work in a typical week, for people who drive to work, with an estimate of 22.5 cents per mile used to convert mileage to expenses; and (c) other expenses incurred in the work commute, such as bus fares or parking fees, in a typical week. According to 1999 data from the SIPP, 85% of median expenses on the work items listed produces an estimate of $16.83 per week.
Housing subsidies. While estimates of housing subsidies are available in CPS microdata files, the procedure and data used are thought to be somewhat dated. Thus, Short (2001) produced new estimates of housing subsidies families receive. The main method used in that report uses FMR data. Mean 1999 FMRs by state and metropolitan status are used to estimate monthly market rent amounts of subsidized units, as discussed in the section on geographic indexes. Table A2 shows the relative values of amounts used by state. Short (2001) described the detailed procedures in the following way:
In the calculations, we assign FMRs for 0 to 4 bedrooms, based on the number of individuals in the household following HUD program rules for section 8 housing. We then calculate subsidy amount[s] by subtracting 30 percent of total household income. This calculated subsidy is then prorated among families in each household, based on the number of people in each family. If market rent is smaller than 30 percent of the household income, the subsidy value is set to zero. If the value of the subsidy is greater than 44 percent of the family threshold, then it is capped at that amount. This is done to include as a noncash benefit only the amount deemed to be necessary to meet shelter needs. The mean subsidy amount from this procedure is $274 per month. (p. A-9)
MOOP expenses. As the NAS panel recommended, Short (2001) deducted families MOOP expenses from families resources in the MSI measure contained in that report. Since the CPS does not collect such information, data on expenses from the 1996 and 1997 CE were used to impute a predicted expenditure to each family, based on the characteristics of that family. Because the regression models concerning who incurs MOOP in the Short (2001) report are too complex to be reproduced here, following are the regression coefficients for estimating MOOP contained in the Short et al. (1999) report that were based on data in the 1987 Na-
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tional Medical Expenditure Survey (NMES) rather than the CE. For a full accounting for how Short (2001) calculated MOOP, see Betson (2001). The imputation model has three components. The first determines whether a family incurred any out-of-pocket expenses during the year. A set of probabilities for various families was determined using NMES data that take into account insurance status, age, race, income level, and family size. Whether a particular family incurs MOOP is based on drawing a random number from a uniform distribution. If that random number exceeds the probability of not incurring MOOP, the family is imputed a positive MOOP value. Table A4 shows these probabilities. The second component involves modeling expenses to those who incur them. The NAS panel assumed that the cumulative distribution of medical expenses could be described by a logistic function. In Short (2001), the imputation of MOOP values is limited to the lower 99% of the estimated MOOP distribution. In both Short et al. (1999) and Short (2001), parameters were estimated for the following: ln(c/1 c) = a + bX(h) + g ln(MOOP) + dX(h) ln(MOOP) + e where ln(MOOP) = the natural log of MOOP spending and c is the percentile in the cumulative distribution of MOOP in the NMES data. The estimated regression results are shown in Tables A5 and A6. This information is then used to assign a value of MOOP to each family. The value of the expense is estimated from a distribution of expenditures in the NMES using a stochastic approach with the following formula: M = exp({ln[rn2/(1 rn2)] a bX(h)}/g) where M = MOOP rn2 = random number drawn from a uniform distribution X(h) = a vector of family characteristics (age, race, income, and insurance coverage) that varies by elderly status a, b, and g = parameters estimated from the equations The third and final component of the calculation involves computing medical expenses as the sum of Medicare part B premiums for the elderly and the imputed value of MOOP, adjusted for the cost of living in a given year. More specifically, for each elderly person in the family who was not covered by Medicaid, a fixed amount of money equal to the legislated part B premium amounts for each year was assigned to the family (see Social Security Administration, 1997). In Short (2001), elderly adults in families with income below 120% of their poverty threshold were not assigned Medicare part B premiums (Medicaid picks up these expenses).
TABLE A4 Probabilities of Not Incurring Medical Out-of-Pocket Expenses by Characteristics of Householder Characteristics Insurance Private health insurance Family Size 1 person Income Not low income Low income Race White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black White or other Black Nonelderly Probabilities 0.065 0.041 0.075 0.143 0.061 0.083 0.012 0.012 0.031 0.024 0.003 0.006 0.397 0.606 0.219 0.628 0.371 0.408 0.212 0.279 0.237 0.507 0.256 0.345 0.378 0.482 0.248 0.420 0.151 0.194 0.103 0.128 0.043 0.126 0.036 0.213
2 or 3 persons
Not low income Low income
4 persons or more
Public health insurance
1 person
2 or 3 persons
4 persons or more
No health insurance
1 person
2 or 3 persons
4 persons or more
(continued)
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TABLE A4 (Continued) Elderly Probabilities 0.167 0.023 0.101 0.016 0.087 0.022 0.054 0.017
Age Under 75
Family Size 1 person 2 persons or more
Income Not low income Low income Not low income Low income Not low income Low income Not low income Low income
75 or over
1 person 2 persons or more
Note. From Experimental Poverty Measures: 1990 to 1997. (U.S. Census Bureau, Current Population Report, Consumer Income, P60-205), by K. Short, T. I. Garner, D. Johnson, and P. Doyle, 2001, Washington, DC: U.S. Government Printing Office.
TABLE A5 Regression Coefficients for Nonelderly Population Coefficient Constant Log of medical out-of-pocket expenses (MOOP) Insured by Medicare or Medicaid (public insurance) Uninsured 2- or 3-person family 4 or more persons in family Family income above 1.5 times the poverty line (nonpoor) Householder is Black Interactions MOOP public insurance MOOP uninsured MOOP nonpoor MOOP 2 or 3 person family MOOP 4 or more person family R2 0.9028 1.2549 1.2560 1.0070 0.8702 1.1897 0.1913 0.3866 0.4039 0.1304 0.0644 0.0921 0.1491 0.9227 t 37.595 89.848 45.142 44.449 45.427 58.434 9.533 20.215 28.007 9.467 5.441 8.338 11.912
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TABLE A6 Regression Coefficients for Elderly Population Coefficient Constant Log of medical out-of-pocket expenses (MOOP) 2- or more person family Householder age 75+ Family income above 1.5 times the poverty line (nonpoor) Interactions MOOP nonpoor MOOP 2 or more person family MOOP householder 75+ R2 0.5079 1.217 0.4655 0.2682 0.6364
t
25.777 94.459 30.387 3.837 12.75
0.441 0.161 0.0515 0.9458
14.151 23.768 31.019
The 2004 National Academy of Sciences Workshop on Poverty Measurement While the previous calculations indicate how the MSI version of the NAS panel recommended poverty measure was implemented in Short (2001), it should be noted (as mentioned briefly in the text) that the NAS convened a workshop in 2004 to discuss more current research and thinking about alternative methods of implementing an NAS panel based measure. Members of the workshop tended to support most of the methods used in Short (2001), with some exceptions as follow (see Iceland, 2005; NRC, 2005, for details):
While workshop recipients favored making geographic adjustments to poverty thresholds in principle, many thought that current methods available to make them were technically problematic. Thus, many favored not making such adjustments until methods were sufficiently improved. Many participants favored accounting for MOOP spending by including a measure of families expected MOOP in the poverty thresholds. In other words, poverty thresholds should account for out-of-pocket spending needs of families (such as cost of insurance) based on a few of their demographic and health characteristics. This is in contrast to a method that involves subtracting MOOP expenses from family resources. Many workshop participants favored accounting for expected child care expense needs based on families demographic characteristics rather than modeling expenses using regression methods.
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Many favored incorporating the value of housing in a new measure by making distinctions between the income needs of owners with substantial mortgages, owners with low or no mortgages, and renters.
How exactly these elements would be operationalized in a new measure would still need to be worked out; the U.S. Census Bureau may release a new report on this issue in 2005 or 2006. It is also my view that at some point the new measure would need to be simplified in order for it to be more widely adopted, and this may occur as more consensus is achieved on the final form of this measure. Such simplification could be achieved by incorporating expected MOOP expenses and child care expenses into the thresholds instead of using complex modeling to subtract them from family incomes. In this way, a simplified threshold matrix for families of different sizes and characteristics could be published, and the resulting computations required by outside researchers would be minimized.

Measuring Poverty

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This article was downloaded by: [Lund University Libraries] On: 21 April 2012, At: 13:01 Publisher: Psychology

Measurement: Interdisciplinary Research & Perspective

Measuring Poverty: Theoretical and Empirical Considerations

MEASUREMENT, 3(4), 199235 Copyright 2005, Lawrence Erlbaum Associates, Inc.

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Measuring Poverty: Theoretical and Empirical Considerations

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Not low income Low income

Not low income Low income

Public health insurance

Not low income Low income

Not low income Low income

Not low income Low income

Not low income Low income

Not low income Low income

Not low income Low income

Family Size 1 person 2 persons or more

1 person 2 persons or more

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0.441 0.161 0.0515 0.9458

14.151 23.768 31.019

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