See Chen and Ravallion.
For more details, see http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Glossary: At-risk-o-poverty_rate
Tese estimates are provided by the Small AreaIncome and Poverty Estimates (SAIPE) programo the U.S. Census Bureau. Te program wascreated to provide estimates or school districts,counties and states. For more inormation, seewww.census.gov/did/www/saipe/
See U.S. Department o Health andHuman Services.
See Coer, Grossman and Clark.
See O’Brian and Pedulla.
See Cauthen and Fass.
See Levitan et al.
See Alkire and Foster.
See Citro and Michael.
See New York City.
R EFER ENCE S
Alkire, S.; and Foster, J. “Counting and Multidimen-sional Poverty Measurement.” OPHI WorkingPaper Series No. 7, 2007.Cauthen, Nancy; and Fass, Sarah. “MeasuringPoverty in the United States.” National Centeror Children in Poverty, June 2008.Chen, Shaohua; and Ravallion, Martin. “Te Devel-oping World Is Poorer than We Tought, ButNo Less Successul in the Fight against Poverty.”World Bank Policy Research Working PaperNo. 4703, August 2008.Citro, Constance; and Michael, Robert.
Measuring Poverty: A New Approach.
National Academy Press, Washington, D.C., 1995.Coer, E.; Grossman, E.; and Clark, F. “Family FoodPlans and Food Costs.” U.S. Department o Agri-culture, Agricultural Research Service, Consumerand Food Economics Research Division, HomeEconomics Research Report No. 20, 1962.Dinan, Kinsey. “Budgeting or Basic Needs—AStruggle or Working Families.” National Centeror Children in Poverty, Mach 2009.Fisher, Gordon. “Te Development and History o the U.S. Poverty Tresholds—A Brie Overview.”
Social Security Bulletin
, 1992, Vol. 55, No. 4.Levitan, Mark; D’Onorio, Christine; Krampner,John; Scheer, Daniel; and Seidel, odd. “Under-standing Local Poverty—Lessons rom NewYork City’s Center or Economic Opportunity.”
, Fall 2011.New York City. “New York City Mayor BloombergAnnounces New Alternative to Federal Poverty Measure.” July 13, 2008. See www.nyc.gov/portal/site/nycgov/menuitem.b270a4a1d51bb3017bce0ed101c789a0/index.jsp?doc_name=/html/om/html/recent_events.htmlO’Brian, Rourke; and Pedulla, David. “Beyondthe Poverty Line.”
Stanord Innovation Review
,Fall 2010.Orshansky, Mollie. “Counting the Poor: AnotherLook at the Poverty Prole.”
, 1965, Vol. 28, No. 1, pp. 3-29.Short, Kathleen. “Te Research SupplementalPoverty Measure: 2010.”
, November 2011.U.S. Department o Health and Human Services. Seehttp://aspe.hhs.gov/poverty/aq.shtml#dierences
ut ptym t cT ut T
By Natalia Kolesnikova and Yang Liu
overty means dierent things in dierentregions. Te World Bank ofen denesliving on less than $2 per day per person asthe main poverty indicator in developingcountries.
Te European Union considers60 percent o the national median disposableincome afer social transers as the thresholdo being at risk or poverty.
In the United States, individuals whoseamily income is less than the ocial poverty threshold are in poverty. Te threshold itsel depends on the size o the amily, as well asthe number o those in the amily who areunder 18 or are at least 65. For example, in2010 a amily o two adults with two childrenunder 18 was living in poverty i its annualincome was below $22,113; a amily o ouradults was living in poverty i its annualincome was below $22,491.As the table shows, the poverty rate in theUnited States rose to 15.3 percent in 2010, up4 percentage points rom a decade earlier.
In the Eighth Federal Reserve District, whichis served by the Federal Reserve Bank o St. Louis, all seven states and major metro-politan areas saw a similar trend—the poverty rate rose between 3.6 percentage points and6.5 percentage points rom 2000 to 2010. Teincrease was even bigger or the populationunder 18 years old.Does the increase in the poverty rate meanmore Americans all short o a desired stan-dard o living? Or does the increase meanmore people lack the resources necessary or basic needs? o be able to answer thesequestions, we need a better understanding o poverty threshold.
History o U.S. Poverty Gauges
Te ocial U.S. poverty measures are basedon studies conducted by Social Security programs use 125 percent, 150 percent oreven 200 percent o a poverty guideline as aneligibility benchmark.Te poverty level o amilies with childrenis urther underestimated. One study oundthat American amilies with two young chil-dren need an income that is 150 percent to 350percent o the ocial poverty level, dependingon location, to cover their basic needs.
On the other hand, the government’s taxprograms and other noncash benets increaseamilies’ disposable income; poverty mea-sures should be adjusted to reect the actualresources that amilies have or basic needs.
Finally, the ocial poverty threshold isthe same or the entire contiguous UnitedStates. Tus, New York City has the samepoverty threshold as St. Louis, despite thecost o living being much higher in New York City than in St. Louis. Tis unied poverty measure without geographic adjustment may present a distorted picture o local poverty levels.
Additionally, some argue that otheraspects, such as access to education and levelo health care, might need to be considered todene poverty beyond income.
Attempts To Improve Poverty Measures
U.S. policymakers have long been awareo these criticisms. Even though the currentocial U.S. poverty threshold and poverty guidelines are still based on 1960s’ construc-tion, numerous attempts have been made tocome up with a better measure.
In 1968, thePoverty Level Review Committee decided toadjust the poverty level by cost o living (usingthe Consumer Price Index) but not by stan-dard o living. In 1973, the Subcommittee onUpdating the Poverty Treshold recommendeddecennial revisions o ood plans and multipli-ers, as well as o the denition o income usedor calculating the poverty threshold. Yet, nochanges in the poverty denition were made inresponse to these recommendations.In the 1980s, there was extensive debateover whether to count government noncashbenets, such as ood stamps, as income.Once again, no changes in the denition o poverty were made. In the 1990s, Congresscommissioned the National Academy o Sciences (NAS) to research possible revisionsto the poverty measurement. A nal report,“A New Approach o Developing Poverty Measurement,” was published in 1995.
Tis report conducted a thorough analysisAdministration economist Mollie Orshansky.In the 1960s, Orshansky created a poverty threshold using the cost o the Department o Agriculture’s economical ood plan. Orshan-sky assumed that U.S. amilies spent a thirdo their income on ood and, thus, she usedthree as the multiplier to obtain the poverty threshold. It indicates the minimal monetary income required to pay or basic needs. I a amily’s total pretax monetary income isbelow the poverty threshold, then the am-ily has inadequate resources or day-to-day necessities; every member in the amily isconsidered in poverty.In 1969, the U.S. government adopted thispoverty threshold as the ocial statisticaldenition o poverty. Te poverty thresholdis used, or example, to estimate the num-ber o Americans living in poverty. Te U.S.Department o Health and Human Servicesuses a somewhat simplied version o Orshansky’s poverty threshold as the ocialpoverty guidelines.
Te poverty guidelinesare commonly used or government admin-istrative purposes, such as determining theeligibility or public assistance programs.
Limits o the Ocial Measures
For decades, the poverty measures havebeen criticized or their limitations. Com-plaints include that these measures are out-dated, provide incomplete inormation andare not location-specic.In addition, the U.S. economy has changedsignicantly since the 1960s, and the standardo living has been substantially improved. Yetthe methodology behind the poverty thresholdhas remained unchanged. Te 1960s econom-ical ood plan was “designed or temporary and emergency use when unds are low.”
Tenutrition oered by this plan no longer reectswhat is considered to be adequate nutrition orAmericans in the 2010s. As American amiliesspend a much smaller portion (about one-eighth)o their income on ood than they did 45 yearsago, Orshansky’s assumption and multiplier o three used or calculating the poverty thresh-old also have become outdated.
Te act that the poverty threshold does nottake into account other living costs and socialbenets also raises some concerns. Poor ami-lies spend a substantial portion o income onclothing, shelter, utilities and out-o-pocketmedical expenses. Te ocial poverty measures are likely underestimating the truepoverty level because they do not reect suchcosts. Consequently, many public assistance
o a new methodology to construct a poverty threshold and to measure amily resources.Te report recommended taking noncashincome, tax programs, housing status, work-related expenses and out-o-pocket medicalexpenses into account, but the report did notpropose any specic numbers or new poverty guidelines or poverty thresholds.Although the 1995 NAS report did not resultin immediate changes in the ocial measures, itdid become the oundation or creating severalalternative poverty measures in the ollowingdecade. Beginning in the late 1990s, the CensusBureau conducted a series o studies based onrecommendations o the 1995 NAS report. Asa result, NAS-based annual poverty estimateshave been published by the Census Bureau since1999. In 2008, the New York City governmentocially adopted a new poverty measure basedon the 1995 NAS report to “devise eectivestrategies or tackling poverty.”
Moreover, in 2011, the Census Bureau beganto publish the Supplemental Poverty Measure(SPM).
Te SPM urther improves the con-cept o the poverty threshold and the deni-tion o amily resources. Te SPM thresholdis based on the out-o-pocket spending onood, clothing, shelter and utilities (FCSU).Te SPM uses the 33rd percentile o FCSUexpenditure distribution o amilies with twochildren to reect a typical American am-ily’s basic needs. Te SPM threshold is thencalculated by adding another 20 percent tothis number to account or additional basicneeds; it is also adjusted or geographic di-erences, amily size and amily composition.SPM redenes amily resources as all cashincome, plus in-kind benets that amilies canuse to meet their FCSU needs, minus net taxpayments, work-related expenses and out-o-pocket medical expenses.As an ongoing research project, the SPMwill continue to be updated and improved. Itwill probably not be used as an ocial pov-erty measure or or program eligibility in thenear uture. However, the SPM solves severallimitations in the ocial poverty measures.It is a big step orward to better understand-ing and accurately measuring poverty.
Natalia Kolesnikova is an economist and Yang Liuis a senior research associate, both at the Federal Reserve Bank o St. Louis. See http://research.stlouised.org/econ/kolesnikova/ or more onKolesnikova’s work.
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