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Supplemental Poverty Measure - USA - Census Bureau - November 2011 - 1 in 3 People in America are either poor or in near poverty status -

Supplemental Poverty Measure - USA - Census Bureau - November 2011 - 1 in 3 People in America are either poor or in near poverty status -

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Consumer Income
U.S. Department of Commerce
Economics and Statistics Administration
U.S. CENSUS BUREAU
 The Research SUPPLEMENTALPOVERTY MEASURE: 2010
IdI
The current official poverty measurewas developed in the early 1960s, andonly a few minor changes have beenimplemented since it was first adopted in1969 (Orshansky, 1963, 1965a, 1965b;Fisher, 1992). This measure consists of a set of thresholds for families of dif-ferent sizes and compositions that arecompared to before-tax cash income todetermine a family’s poverty status. Atthe time they were developed, the officialpoverty thresholds represented the costof a minimum diet multiplied by three (toallow for expenditures on other goodsand services).Concerns about the adequacy of the offi-cial measure have increased during thepast decade (Ruggles, 1990), culminatingin a congressional appropriation in 1990for an independent scientific study of theconcepts, measurement methods, andinformation needs for a poverty measure.In response, the National Academy of Sciences (NAS) established the Panel onPoverty and Family Assistance, whichreleased its report titled
Measuring Poverty: A New Approach
in the spring of 1995, (Citro and Michael, 1995). Based onits assessment of the weaknesses of thecurrent poverty measure, this NAS panelof experts recommended having a mea-sure that better reflects contemporarysocial and economic realities and govern-ment policy. In their report, the NAS panelidentified several major weaknesses of the current poverty measure.
The current income measure does not reflect the effects of key government policies that alter the disposableincome available to families and,hence, their poverty status 
. Examplesinclude payroll taxes, which reducedisposable income, and in-kind publicbenefit programs such as the FoodStamp Program/Supplemental Nutri-tion Assistance Program (SNAP) thatfree up resources to spend on nonfooditems.
 
The current poverty thresholds do not adjust for rising levels and standards of living that have occurred since1965.
The official thresholds wereapproximately equal to half of medianincome in 1963–64. By 1992, onehalf median income had increased tomore than 120 percent of the officialthreshold.
 
The current measure does not takeinto account variation in expenses that are necessary to hold a job and to earnincome—expenses that reduce dispos- able income
. These expenses includetransportation costs for getting towork and the increasing costs of childcare for working families resultingfrom increased labor force participa-tion of mothers.
The current measure does not takeinto account variation in medical costs 
 across population groups depend-ing on differences in health statusand insurance coverage and does notaccount for rising health care costs asa share of family budgets.
 
The current poverty thresholds usefamily size adjustments that are
Issued November 2011
P60-241
ByKathleen Short
 
CurrentPopulationReports
 
2
U.S. Census Bureau
anomalous and do not take into account important changes in family situations,
includingpayments made for child sup-port and increasing cohabitationamong unmarried couples.
 
The current poverty thresholds do not adjust for geographic differences in prices across the nation,
although there aresignificant variations in pricesacross geographic areas.To address these weaknesses, theNAS panel recommended chang-ing the definition of both thepoverty thresholds and familyresources that are compared withthose thresholds to determinepoverty status. One of the goalsof the NAS panel was to producea measure of poverty that explic-itly accounted for governmentspending aimed at alleviating thehardship of low-income families.Thus, taking account of tax andtransfer policies, such as the foodstamp program/SNAP and theearned income tax credit (EITC), themeasure would show the effects of these policies on various targetedsubgroups, for example, familieswith children. The current officialmeasure, which does not explicitlytake account of these benefits,yields poverty statistics that areunchanged regardless of many of these policy changes.In 1999 and in 2001, the U.S.Census Bureau released reports thatpresented a set of experimentalpoverty measures based on recom-mendations of the 1995 NAS panelreport (Short et al., 1999, Short,2001). Some additional variationson that measure were included inorder to shed light and generatediscussion on the various dimen-sions included in the proposedrevision. Comparisons were madeacross various demographic sub-groups in order to illustrate howtheir poverty rates were affected bythe different measures. That worksuggested that with these newmeasures there would be a some-what different population identifiedas poor than is typically describedby the official poverty measure.This new poverty population wouldconsist of a larger proportion of elderly people, working families,and married-couple families thanare identified by the official povertymeasure.
1
 In March of 2010, an InteragencyTechnical Working Group (ITWG)listed suggestions for a Supple-mental Poverty Measure (SPM). TheITWG was charged with developinga set of initial starting points topermit the Census Bureau, in coop-eration with the Bureau of LaborStatistics (BLS), to produce the SPMthat would be released along withthe official measure each year.Their suggestions included:The
SPM thresholds 
shouldrepresent a dollar amount spenton a basic set of goods thatincludes food, clothing, shelter,and utilities (FCSU), and a smalladditional amount to allow forother needs (e.g., householdsupplies, personal care, non-work-related transportation).This threshold should be calcu-lated with 5 years of expendituredata for families with exactlytwo children using ConsumerExpenditure Survey data, andit should be adjusted (using aspecified equivalence scale) toreflect the needs of differentfamily types and geographicdifferences in housing costs.
1
These experimental poverty measureshave been updated regularly and are availableat <www.census.gov/hhes/povmeas/methodology/nas/index.html>, accessedSeptember 2011.
Adjustments to thresholdsshould be made over time toreflect real change in expendi-tures on this basic bundle of goods at the 33rd percentile of the expenditure distribution.
SPM family resources 
shouldbe defined as the value of cashincome from all sources, plusthe value of in-kind benefitsthat are available to buy thebasic bundle of goods (FCSU)minus necessary expenses forcritical goods and services notincluded in the thresholds. In-kind benefits include nutritionalassistance, subsidized housing,and home energy assistance.Necessary expenses that mustbe subtracted include incometaxes, social security payrolltaxes, childcare and other work-related expenses, child supportpayments to another household,and contributions toward thecost of medical care and healthinsurance premiums, or medicalout-of-pocket (MOOP) costs.
2
The ITWG stated further thatthe official poverty measure, asdefined in Office of Manage-ment and Budget (OMB) Statisti-cal Policy Directive No. 14, willnot be replaced by the SPM. Theynoted that the official measure issometimes identified in legislationregarding program eligibility andfunding distribution, whilethe SPM will not be used in thisway. The SPM is designed toprovide information on aggregatelevels of economic need ata national level or within largesubpopulations or areas and,
2
For information, see ITWG,
Observa- tions from the Interagency Technical Working Group on Developing a Supplemental Poverty Measure
(Interagency), March 2010, availableat <www.census.gov/hhes/www/poverty/SPM_TWGObservations.pdf>, accessedSeptember 2011.
 
U.S. Census Bureau
3as such, the SPM will be anadditional macroeconomic statisticproviding further understanding of economic conditions and trends.This report presents estimatesof the prevalence of poverty inthe United States, overall and forselected demographic groups, forthe official and SPM measures.Comparing the two measures shedslight on the effects of in-kindbenefits, taxes, and othernondiscretionary expenses on mea-sured economic well-being. Thecomposition of the poverty popu-lations using the two measuresis examined across subgroups tobetter understand the incidenceand receipt of benefits and taxes.Effects of benefits and expenses onSPM rates are explicitly examined.The distribution of income-to-poverty threshold ratios are esti-mated and compared for the twomeasures. Finally, SPM estimatesfor 2009 are compared to the 2010figures to assess changes in pov-erty rates from the previous year.
Poverty Estimates for 2010
The measures presented in thisstudy use the 2011 Current Popula-tion (CPS) Survey Annual Social andEconomic Supplement (ASEC) withincome information that refers tocalendar year 2010 to estimate SPMresources.
3
These data are the sameas are used for the preparationof official poverty statistics andreported in DeNavas et al. (2011).The official “Orshansky” thresholdsare used for the
official 
povertyestimates presented here, however,unlike published estimates,unrelated individuals under the age
3
The data in this report are from the“Annual Social and Economic Supplement(ASEC)” to the 2010 and 2011 Current Popula-tion Survey (CPS). The estimates in this paper(which may be shown in text, gures, andtables) are based on responses from a sampleof the population and may dier from actualvalues because of sampling variability orother factors. As a result, apparent dier-ences between the estimates for two or moregroups may not be statistically signicant.All comparative statements have undergonestatistical testing and are signicant at the90 percent condence level unless otherwisenoted. Standard errors were calculated usingreplicate weights. Further information aboutthe source and accuracy of the estimates isavailable at <www.census.gov/hhes/www/p60_238sa.pdf> and <www.census.gov/hhes/www/p60_239sa.pdf>, accessedSeptember 2011.
of 15 are included in the povertyuniverse.Since the CPS ASEC does not askincome questions for individu-als under the age of 15, they areexcluded from the universe forofficial poverty calculations. For theofficial poverty estimates shown inthis paper all unrelated individualsunder the age of 15 are includedand presumed to be in poverty.For the SPM, they are assumed toshare resources with the householdreference person.The SPM thresholds used in thisstudy are based on out-of-pocketspending on food, clothing, shelter,and utilities (FCSU). Thresholds use2005–2011 quarterly data fromthe Consumer Expenditure (CE)Survey and are produced by staff at the BLS.
4
Three housing statusgroups were determined and theirexpenditures on shelter and utili-ties produced within the 30–36thpercentiles of FCSU
4
See <www.bls.gov/cex/anthology08/csxanth2.pdf> and <www.bls.gov/cex/anthology08/csxanth3.pdf>, accessedSeptember 2011. See Garner, 2010.
Poverty Measure oncepts: fficial an Supplemental
 
Official Poverty MeasureSupplemental Poverty MeasureMeasurementunits
Families and unrelatedindividualsAll related individuals who live at the same address, includ-ing any coresident unrelated children who are cared for by thefamily (such as foster children) and any cohabitors and theirchildren
Povertythreshold
Three times the cost of minimum food diet in 1963The 33
rd
percentile of expenditures on food, clothing, shelter,and utilities (FCSU) of consumer units with exactly two childrenmultiplied by 1.2
Thresholdadjustments
Vary by family size, composi-tion, and age of householderGeographic adjustments for differences in housing costsand a three parameter equivalence scale for family size andcomposition
Updatingthresholds
Consumer Price Index:all itemsFive year moving average of expenditures on FCSU
Resourcemeasure
Gross before-taxcash incomeSum of cash income, plus in-kind benefits that families can useto meet their FCSU needs, minus taxes (or plus tax credits),minus work expenses, minus out-of-pocket medical expenses

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