Workers & Economic Inequality

Graph: How We Measure Poverty

Post by: Benjamin Landy , on November 15, 2012

After declaring a "war on poverty" in 1964, the Johnson administration enlisted the help of economist Mollie Orshansky to develop an absolute measure of poverty to evaluate the success of Great Society programs. Using research from the Department of Agriculture, Orshansky defined the poverty line as the cost of an “economy food plan” multiplied by three—in other words, the amount a family would need to spend less than a third of their income on milk and bread in 1963. Other expenses—like payroll tax, transportation, housing, education and health care—were not considered, nor were non-cash benefits like food stamps or housing subsidies.

Yet almost fifty years later, the Census Bureau still measures poverty the exact same way. So while we know that 46.2 million people—nearly one in six Americans—lived below the official poverty line last year ($22,811 for a family of four and $11,702 for an individual), it’s not immediately clear what that figure really means. Some, like the conservative Heritage Foundation, have taken advantage of this ambiguity to suggest that, because 96 percent of households can afford food and 92 percent have a microwave, “real material hardship . . . is limited.” But while the price of food remains more or less the same (and 1960s-era appliances are indeed ubiquitous), the cost of traditional middle class markers like homeownership, college education, and health care have skyrocketed. The official US poverty threshold has not kept pace with other costs

Although the Census Bureau has made it clear that they do not plan to revise the current poverty thresholds, they have in recent years developed a “supplemental poverty measure” (SPM) that accounts for utilities, non-cash benefits, taxes, out-of-pocket medical expenses, child support, and geographic differences in housing costs, in addition to food.

The latest supplemental poverty report, released this week, differs from the original in several interesting ways. For starters, the headline poverty rate for 2011 is a full percentage point higher than the official measure, at 16.1 percent, or about 3.5 million additional people. Much of that increase came from groups like Hispanics, Asians, and the elderly; ABC News reports that nearly three in ten Latinos lived below the alternate poverty line. For other groups, poverty was actually lower. People with disabilities, children under 18, and blacks all did somewhat better under the supplemental poverty measure, as did people who lived outside of metropolitan areas.

Perhaps most importantly, the SPM report shows that federal assistance for the poor is working. According to the Census, programs like the Earned Income Tax Credit and food stamps helped to reduce poverty by more than 2 percentage points on average. Social Security reduced poverty by more than 8 points. And while medical expenses raised the supplemental poverty rate by nearly 4 percent—the single largest contributor to poverty in 2011—the Affordable Care Act will begin providing subsidies for health insurance premiums and payment support in 2014.

Poverty and welfare in the United States

Tags: poverty, economy

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