May 11, 1995
Vol. 14, No. 17

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    Poverty definition flawed, more accurate measure needed

    The official poverty measure in the United States is flawed and does not adequately inform policy-makers or the public about who is poor and who is not poor, according to a national research panel led by Robert Michael, the Eliakim Hastings Moore Distinguished Service Professor in the Irving B. Harris Graduate School of Public Policy Studies.

    Michael is chairman of a research panel organized by the National Research Council's Committee on National Statistics. In the recently issued book Measuring Poverty: A New Approach, the panel recommends a fresh look at poverty that takes into account recent changes in the family and in regional differences in the cost of living.

    "The current poverty measure has not kept pace with far-reaching changes in society and the economy," Michael said. "Our new measure, for example, will show for the first time the effects of work-related expenses -- such as transportation costs and child-care costs -- on families' available income. This new approach will provide us all with a more accurate and consistent picture of who is living in poverty today."

    The accuracy of such data is essential, Michael said, because poverty measurements are used broadly as an indicator of the population's well-being and to design and evaluate particular social policies. In 1994, for example, 27 government programs providing low-income families with benefits -- such as food stamps, Head Start, legal service and Medicaid -- linked applicants' eligibility to poverty status in some way.

    The current poverty line, developed in the early 1960s, is considered to be the minimum dollar amount needed for individuals, couples or families to purchase food and meet other basic needs. According to 1992 data -- the most recent available -- 36.9 million people, or 14.5 percent of the U.S. population, have incomes below the current poverty line.

    The panel's recommended measure uses both a more accurate definition of income and a different concept of basic needs. The recommended measure of disposable income reflects the income actually available to the nation's families for purchasing basic needs.

    According to the panel's recommended measure, income would include, in addition to money received, the value of noncash benefits such as food stamps, school lunches and public housing that can be used to satisfy basic needs. The new measure also would subtract from gross income certain expenses that cannot be used for these basic needs, such as income taxes, child-support payments, medical costs, health-insurance premiums and work-related expenses, including child care.

    The new measure of basic needs is based on amounts spent on three essentials -- food, clothing and housing (including utilities) -- with a small percentage added to cover other necessary items, such as personal-care expenses and nonwork travel. The new measure also includes adjustments for different family sizes and an adjustment for the cost of living in different city sizes and different regions of the country. The panel recommends that, for purposes of measuring poverty, the definition of family be broadened to include cohabiting couples.

    The new approach calls for the poverty line to be updated annually, based on consumer-spending patterns for food, clothing and housing in the previous three years. In this way, the poverty line would keep pace with the changes in the standard of living for basic needs as well as price fluctuations. Under the proposed measure and using 1992 figures, the panel said a reasonable range for the poverty threshold would be $13,700 to $15,900 (in 1992 dollars) for a family of two adults and two children. While this figure does not differ much from the 1992 poverty line of $14,228, the new method calculates family resources very differently and has important implications for the distribution of measured poverty among groups in the nation.

    According to the analysis, the largest effect of the new measure would be a decrease in the percentage of poor people who are in families receiving cash welfare (Aid to Families With Dependent Children and Supplemental Security Income) and an increase in the percentage of poor people who are in working families. People in families receiving cash welfare would make up 30 percent of the poor under the new measure, compared with 40 percent under the current measure. In contrast, people in working families would make up 59 percent of the poor under the new measure, compared with 51 percent under the current measure.

    The number of working-age adults in poverty would be higher under the new measure because working families are proportionately more affected by the subtraction of out-of-pocket medical-care costs, taxes, child-care costs and other work-related expenses, according to the report.

    By region, the poverty rates for residents of the Northeast and West would be higher than the current measure. In contrast, the poverty rates for residents of the South and Midwest would be lower. These shifts occur because of adjustments to the poverty line that take into account geographic differences in housing costs.

    The panel also recommends a major change in the source of data used to estimate the number of people in poverty. Instead of using data from the Current Population Survey, the measure should be based on the Survey of Income and Program Participation, which collects more complete data on families' sources of income.

    The National Research Council is the principal operating agency of the National Academy of Sciences and the National Academy of Engineering. It is a private, not-for-profit institution that provides scientific and technological advice under a congressional charter.

    Michael has been a University faculty member since 1980. He served as Dean of the Harris School from 1989 to 1994. He also served as Director of the National Opinion Research Center from 1984 to 1989.

    -- William Harms