Poverty Measurement

The official U.S. poverty measure, as devised three decades ago, compares a family's income with the level believed necessary to provide a minimum standard of living. This measure is widely used as an indicator of the economic well-being of the population, for analysis of government policies, and in allocating benefits in social welfare programs, but it has not changed significantly since 1965. During the past 20 years, researchers have questioned the accuracy of the measurement of family resources for this purpose, as well as the appropriateness of the level of income used to define poverty. GAO found that some of the issues involved in updating the poverty measure seem to be fairly well resolved in the scientific community. Although a family's economic resources are only a proxy for its ability to obtain an adequate standard of living, they clearly provide the most reliable means of assessing and comparing families' ability to meet their needs. Similarly, GAO found agreement that the measure of a family's economic resources should include near-money government benefits and exclude income and payroll taxes. But additional discussion and research may be needed on other issues, such as how to incorporate government medical assistance in a measure of disposable income and how to accommodate geographical differences--and changes--in the cost of living. Updating the thresholds, in contrast, poses issues for which scientific evidence can only bracket a set of alternatives. Determining what constitutes a minimally adequate standard of living is, in essence, a social judgment that should reflect the views of both society and experts.

GAO noted that: (1) the choices or issues to address in developing a routinely available, reliable measure of a family's economic resources include: (a) whether to directly measure a family's spending on basic necessities or use income and other economic resources as a proxy for their ability to buy these necessities; (b) which economic resources should be considered available for meeting a family's basic needs; and (c) whether existing data sources are adequate (for whichever resource definition is selected) or should be modified to improve the reliability of poverty estimates; (2) some issues in updating the family resource measure seem to be fairly well resolved in the scientific community, while additional discussion and research may be needed to reach consensus on some of the practical details; (3) although assessing a family's expenditures might provide a more direct picture of its economic well-being than income, measuring income is considered to be more feasible for obtaining routinely available poverty statistics; (4) the panel recommended that the official poverty measure should define a family's economic resources to include disposable money income and near-money government benefits, although experts differ on how to make some of the adjustments to cash income; (5) issues to address in developing a contemporary set of poverty thresholds to represent a "minimally adequate standard of living" for families in different circumstances include: (a) what basis should be used to set the level of the thresholds; (b) whether to accommodate changes over time in standards of living as well as in prices; (c) how to quantify the differences in needs between families of different size and composition; and (d) whether and how to accommodate geographical differences in the cost of living; (6) in contrast to defining family resources, additional research may lead to consensus on some issues in selecting a set of poverty thresholds, but other issues will require policy judgment; (7) the panel proposed a statistical formula derived from the literature to develop thresholds for different family sizes, but lacking an objective way to measure the difference in needs between families, left setting the formula's exact terms to policy judgment; and (8) the Office of Management and Budget has not yet begun a formal review of the poverty measure as the NRC panel recommended, but it plans to create a working group soon with the Bureau of Labor Statistics, the Bureau of the Census, and other interested agencies to explore general issues in measuring income and poverty and consider alternative measures to be developed and tested.