How we measure poverty

The U.S. government's method, established in 1964, is badly outdated and leads to an inaccurate picture of who is, and is not, poor in America.

By Rebecca M. Blank 
September 15, 2008

Who is poor in America? It turns out that's a hard question to answer. 

The federal government's badly outdated method of measuring poverty provides an inaccurate picture. New York found the official numbers so useless that the city recently developed its own poverty measure. Other cities, including Los Angeles, are considering doing the same thing, and those efforts are expected to be high on the agenda when the U.S. Conference of Mayors meets in Los Angeles on Sept. 23-24. 

But what's most needed is an overhaul of the nation's poverty measurement statistics. The good news is that legislation is being drafted in both the House and Senate. A change is long overdue.

Why does it matter if we have a good measure of poverty? 

In the last four decades, the U.S. has greatly expanded programs for lower-income families, including food stamps, housing vouchers, medical care assistance and tax credits. But the poverty rate doesn't take any of these resources into account because it doesn't account for taxes or noncash income. At the same time, Americans' medical expenses have increased, and more single parents work and pay child-care expenses. The current poverty measure is unaffected by these changes too.

The result?

Poverty statistics that make it depressingly easy to claim that public spending on the poor has had little effect. Indeed, most programs to help the needy would never budge the U.S. poverty rate the way we measure it now. 

The current measure of poverty was established in 1964 by a Social Security Administration economist named Mollie Orshansky. Looking at data from 1955 -- the best available in the early 1960s -- she found that a family spent, on average, one-third of its income on food. Hence, three-times-food became the official poverty line. That line has ticked upward only by being adjusted for inflation each year.

No other regularly reported economic statistic has been unchanged for four decades. Food prices have fallen; today, food constitutes less than one-seventh of the average family's budget. But people pay substantially more for housing and energy. 

Still, the old poverty measure continues to be used by all sorts of government programs. Some use it for eligibility limits; most families below 130% of the poverty line, for instance, are eligible for food stamps. Some federal block grants to states are partly based on state poverty levels.

In 1995, I participated in a panel of scholars at the National Academy of Sciences (NAS), a group that advises the federal government on scientific issues. We recommended a far more effective way to establish a poverty threshold, based on expenditures for a bundle of necessities, including food, shelter, clothing and utilities. Furthermore, this threshold would vary geographically, based on differences in housing costs. 

This would mean that families in Los Angeles have a different poverty line from families in rural Wyoming. When New York calculated a new threshold with this methodology, officials found that it was $21,818 for a family of four, not far from the official U.S. figure of $20,444. But when they adjusted for New York's high housing costs, it rose to $26,138. 

But the poverty measure also needs to recognize that the resources in low-income families extend beyond wages and cash income. The NAS panel recommended a much broader definition, including cash income adjusted for tax payments, plus the value of government benefits such as food stamps or Section 8 rental vouchers. Unavoidable costs were subtracted from income, as well, because working requires spending money on transportation and, often, child care. Similarly, out-of-pocket medical expenses also were deducted.

Why weren't these changes made years ago? That's a story of politics getting in the way of good statistics. Back in the 1960s, the poverty measure was placed under the control of the White House. This is in contrast to all of our other national statistics, which are defined and updated by agencies with a long history of nonpolitical decision making. 

Unfortunately, no president (Democrat or Republican) has wanted to touch this political hot potato. If a new measure shows higher poverty, the president looks bad, but if a new measure shows lower poverty, he'll be accused of dismissing the problem. 

And the numbers will change. In New York, where the official U.S. poverty measure finds 18% of the city is poor, the new measure (largely because of housing costs) finds 23%. But the picture will be more accurate. New York found rates differed little for children but were much higher for the elderly because of out-of-pocket medical expenditures. 

That's why Congress needs to pass legislation to direct one of the statistical agencies to calculate a new federal poverty measure, guided by the NAS recommendations. Under a new measure, single-mother families receiving food stamps and in subsidized housing would appear a little better off; disabled individuals with high medical expenses, a little worse. Families in big cities with high housing costs, such as in California, would be poorer, and families that receive working tax credits less poor. 

But that is just as it should be. If we want to debate new policies to help the poor, we first need a poverty measure that shows us who they really are.



Rebecca M. Blank is the Robert V. Kerr senior fellow in economics at the Brookings Institution in Washington.

Poverty in America

I'm going to phrase this pretty starkly, because that's the way things are:

37 million Americans are living below the poverty line, and inequality has increased to a level not seen since before the Depression and the New Deal. I could batter readers with statistics forever, shock you with the percentages of children who go hungry and families who lack stable housing, but that would be missing the point.

The point is that an enormous number of people living in the richest nation in the world are struggling to get by, while a sliver of folks at the top just keep raking it in.

There are some who would point out that poor people in America are still rich by world standards, that compared with the 1 billion people who live on the oft-repeated "dollar a day," they are doing pretty well for themselves. It's certainly true that those of us who live in this country are very lucky to do so. But a key aspect of evaluating poverty is considering the ability to participate in one's society, and that is growing increasingly difficult for poor Americans to do.

The opportunities and choices available to low-income individuals and families are so different from those available to their wealthy and even middle-class counterparts that they might as well be living in another country. You're more likely to get sent to Iraq, more likely to go to jail, more likely to have an unplanned child, more likely to have asthma from breathing polluted air if you're poor. More likely to have to choose between paying for food (none of that organic stuff, either) and medical treatment, less likely to get adequate care if you choose the latter. Pointing out that there are still people in the world who are worse off in an absolute sense does not absolve us of the responsibility to address our own country's need.

Why is this important for young people? Well, first of all, young Americans make up a large percentage of those below the poverty line, a percentage that is increasing more rapidly than that of any other age group. As the gap between the rich and the rest increases, more and more of us young folks are likely to find ourselves flirting with poverty. But even those of us who are heading for jobs at Google should be worried about the principles of the country we hold so dear, the one that first declared that all men are created equal.

The invocation of the American dream is more disingenuous than inspiring these days; the America that we're inheriting is one that treats its own residents disgracefully. Poor people have become second-class citizens, and the stigma attached to poverty is justified by the illusion that we live in a meritocracy. Segregation is acceptable as long as it's rationalized by socioeconomic status, since that is supposedly determined by a person's choices in life. We don't like to admit that it helps to have been born into the right neighborhood, race, gender, family.

It's much easier to dismiss poor people as undeserving, unsavory, crackheads, welfare queens--not like respectable middle-class Americans--than to acknowledge the enormous problems that continue to plague our society. What it really comes down to is not morality or work ethic but that some of us have sufficient resources to cushion us from our mistakes and others do not. For millions of Americans, one fluke event can turn a delicate balancing act into financial free-fall. And when the government doesn't provide an adequate safety net, it's a long way down to the bottom.

I once read a study for a sociology class that showed that risk-averse people, when given a choice at a young age, choose to live in a society that is relatively equally distributed over one that is equally rich but grossly lopsided. Seems like a no-brainer, right? But as people age and find themselves in the higher brackets, the lopsided society doesn't seem quite so bad. People with power don't act to end the oppression of those without it unless pushed by some sort of force.

The growing gap between those at the top and the bottom of the socioeconomic scale is perhaps the greatest moral issue facing America today. If we, the young people of America, don't attack it with all the idealism and energy of our youth, who will? Desperate and afraid, we can turn on whoever seems to present a threat--immigrants, perhaps--or we can open up a constructive dialogue about the reality of poverty in America and what we can do about it.