A Better Way to Measure Poverty
To figure out who’s poor, the federal government does some simple calculations. It looks at how much money a family makes before taxes, how many people are in that family, and compares that income level to the cost of food. If a household’s pre-tax income is lower than three times the cost of feeding themselves, that household is officially in poverty. The rules have pretty much been the same since the 1960s. More and more officials—even at the federal level—are saying that it’s time for a change.
"It’s now a 50 year-old indicator. It’s really become a total anachronism," says Mark Levitan, director of poverty research at the New York City Center for Economic Opportunity.
New York City is leading the way toward improving the way government thinks about poverty levels. In 2008, it unveiled a new poverty measurement technique that takes into account the unique costs and differences of the city. An income of $20,000 a year can buy you a lot more in rural Alabama than it can in Manhattan, and city officials rightly thought that using the same federal standard for both places was a bad way to go about it. The new measurement accounts for differences in housing prices, the cost of food and clothing, and also the amount of government aid a household receives, from food stamps to Section 8 housing assistance to the earned income tax credit. Levitan says this more robust measurement gives officials a broader understanding of what it means to be poor in the city.
"We’re measuring against a much higher poverty threshold because New York City is a much higher-cost city," says Levitan. “We have a much more inclusive measurement of what families require to meet their needs.”
The new measurement doesn’t actually change the city’s official poverty level, nor does it change how much federal assistance is applicable to families. Levitan says it’s just a tool – a rather valuable one – that helps city officials understand the economic makeup of its population. The information is based on surveys collected on a rolling basis by the U.S. Census Bureau’s American Community Survey. The data is then broken down into 55 distinct segments, which allows more targeted efforts to address citizens’ needs.
The Census Bureau will soon follow suit. A report to be released in October will look at how this "supplemental poverty measure could be used to inform policy at the federal and local levels."
"Poverty is a complicated enough problem that it merits different ways of measurement," says Trudi Renwick, chief of the Poverty Statistics Branch at the U.S. Census Bureau.
These changes have actually been in the works for years. A National Academy of Sciences panel released a study looking at the poverty measurement back in 1995 which called for many of the same changes already in place in New York and now underway at the Census.
The supplemental measure looks at various expenses households face, including geographic differences in housing prices, out-of-pocket medical expenses, and child support paid and received. In much the same way that New York City is using its new measurement to inform policy decisions, this measurement is intended to help evaluate government services and their effectiveness in different places.
“It’s a tool to use to say, ‘Look, we tweaked the food stamp program and it had this effect,’” explains Renwick.
The new measurement also distinguishes between renters, those paying off a mortgage, and those who own homes outright.
By combining these criteria and taking into consideration various demographic, geographic and household variables, the Census Bureau is hoping to enhance the way the government thinks about what it means to be poor.
When the report is released later in October, it will compare poverty rates measured by the existing federal method and those recorded by the new supplemental measurement. A preview report from June offered early versions of those figures, and found significant differences in poverty rates between the two measures, especially for different demographic groups.
“It changes the demographic makeup of who’s poor,” says Renwick. “It’s not unidirectional.”
Under the official poverty measurement, 21.2 percent of children in 2009 were in poverty. Under early estimates using the supplemental measurement, that number drops to 17.9 percent. For elderly people, the official rate of 8.9 percent jumps to 15.6 percent, largely due to the inclusion of out-of-pocket medical costs in the supplemental poverty measurement. Renwick cautions that the exact figures in this report aren’t as accurate as those forthcoming, but the differences between the current measurement and the supplemental measurement are pretty close.
Renwick says that the supplemental measurement is not intended to replace the official poverty measurement, but rather to give another lens through which to look at these issues. It’s essentially the same method New York City has pursued. Levitan argues that his city’s new measurement technique has enhanced the way the city understands its poverty problems, but it has hardly created a solution.
“This is just one piece of a complex soup,” Levitan says.
But, he hopes, with more data and a better understanding of how poverty affects citizens, New York and the rest of the country can begin to better serve those most in need.