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Measuring Poverty: A New Approach
differences are largely the result of two factors: first, the proposed measure counts not only cash assistance, but also the value of such in-kind benefits as food stamps; second, the proposed measure counts net earnings, after deductions for taxes and work expenses, instead of gross earnings. Equally important, the proposed measure will more accurately describe changes in the extent of poverty over time that result from new public policies and further social and economic change.
THE CURRENT POVERTY MEASURE: EVALUATION
The current poverty measure has a set of lines, or thresholds, that are compared with families' resources to determine whether or not they are poor. The thresholds differ by the number of adults and children in a family and, for some family types, by the age of the family head. The resources are families' annual before-tax money income.
The current thresholds were originally developed as the cost of a minimum diet times three to allow for expenditures on all other goods and services. The multiplier of three represented the after-tax money income of the average family in 1955 relative to the amount it spent on food. The central threshold for 1963 was about $3,100 for a family of four (two adults and two children). Because the thresholds have been adjusted only for estimated price changes, the 1992 threshold for a two-adult/two-child family of $14,228 represents the same purchasing power as the threshold of $3,100 did 30 years ago.
From the beginning, the poverty measure had weaknesses, and they have become more apparent and consequential because of far-reaching changes in the U.S. society and economy and in government policies.
First, because of the increased labor force participation of mothers, there are more working families who must pay for child care, but the current measure does not distinguish between the needs of families in which the parents do or do not work outside the home. More generally, the current measure does not distinguish between the needs of workers and nonworkers.
Second, because of differences in health status and insurance coverage, different population groups face significant variations in medical care costs, but the current measure does not take account of them.
Third, the thresholds are the same across the nation, although significant price variations across geographic areas exist for such needs as housing.
Fourth, the family size adjustments in the thresholds are anomalous in many respects, and changing demographic and family characteristics (such as the reduction in average family size) underscore the need to reassess the adjustments.
Fifth, more broadly, changes in the standard of living call into question the merits of continuing to use the values of the original thresholds updated