Lecture 9: Measuring Poverty

Question 1

General clarification

Answer 1

The US Census Bureau determines poverty status by comparing pre-tax cash income against a threshold that is set at 3 times the cost of a minimum food diet in 1963

Updated annually for inflation using the Consumer Price Index

Adjusted for family size, composition, and age of householder

“Family” is defined by the official poverty measure as persons living together who are related by birth, marriage, or adoption

Thresholds do not vary geographically
- Except for HI and Alaska

Question 2

Accounting and implications

Answer 2

Official poverty statistics, as we have noted, do not count the effect of near cash or in-kind benefits

Masks the full extent to which poverty has been reduced by programs to ameliorate it

Income taxes, payroll taxes and work expenses may overstate the living standard that low-income families can afford

Refundable Earned Income Tax credits substantially boost after-tax income

Question 3

Criticisms of the OPM

Answer 3

Identifies only the share of people who fall below the poverty threshold, but does not measure the depth of economic need

It does not reflect modern expenses and resources, by excluding significant draws on income such as taxes, work expenses, and out-of-pocket medical expenses, and excluding potentially sizable resources such as in-kind benefits (e.g., food assistance)

It does not vary by geographic differences in cost of living within the contiguous United States (it is higher for AL and HI)

It is not adjusted for changes in the standard of living over time

Its strict definition of measurement units - “family”- as persons living in the same household who are related by birth, marriage, or adoption does not reflect the nature of many 21st century households, including those made up of

• Cohabitors
• Unmarried partners with children from previous relationships
• Foster children

Question 4

The indicator (Meyer and Sullivan)

Answer 4

“Few economic indicators are more closely watched or more important for policy than the official poverty rate. The poverty rate is often cited by policymakers, researchers, and advocates who are evaluating social programs that account for more than half a trillion dollars in government spending.”

Question 5

What do we know about the lived experience of the poor?

Answer 5

We may not understand what it means to live in poverty because

• We have not experienced it
• We experienced it fleetingly
• We experienced it under different conditions- it is not the same to be experiencing poverty as a child today as it was in a different decade
• We have no reference point

NOTE it is always important to have a bit of humility about others lived experience

Question 6

Reminder: What the OPM counts

Answer 6

The official poverty measure takes account of cash benefits from the government

• Social Security
• Unemployment Insurance (UI) benefits
• Supplemental Security Income (SSI)
• Public assistance benefits (TANF)
• Workers’ compensation benefits

It does not take account of

• Taxes (payroll taxes)
• Noncash benefits aimed at improving the economic situation of the poor (SNAP, housing benefits)
• Refundable tax credits (EITC, Child Tax Credit)