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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
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1

Introduction

In fall 2021, the U.S. Census Bureau (2021a, p. 1; Creamer et al., 2021) reported both an increase and a decrease in poverty for families between 2019 and 2020. The poverty rate under the Official Poverty Measure (OPM), developed in the 1960s and methodologically unchanged since then, grew from an estimated 10.5 to 11.4 percent of the population (and then to 11.6% in 2021). In contrast, the rate under the Supplemental Poverty Measure (SPM), introduced in 2011 (U.S. Census Bureau, 2011), declined from 11.8 to 9.1 percent (then to 7.8% in 2021). The primary reason for the opposing directions of the two measures was that the SPM counts income support received through the tax system which, during this period, included COVID-19 stimulus payments, while the OPM does not. The media chose to highlight the SPM findings, which more accurately portrayed the efforts of the government to bolster families’ economic wellbeing during the pandemic.1

The SPM, which is published annually by the U.S. Census Bureau working closely with the U.S. Bureau of Labor Statistics (BLS), is largely based on a congressionally mandated National Academies of Sciences, Engineering, and Medicine consensus report from almost 30 years ago. That 1995 report, Measuring Poverty: A New Approach, recommended that the OPM be replaced with a new measure (NRC, 1995). The Interagency Technical Working Group (ITWG) on Developing a Supplemental Poverty Measure, which set the SPM in motion (Short, 2011), suggested a “supplemental” measure because of the previously established status of the OPM.2

The National Academies’ 1995 report and the ITWG document both urged that the SPM be revisited at least every 10 years and appropriate changes made to keep it up to date. Accordingly, the Census Bureau approached the National Academies to examine needed improvements to the SPM. This report is the result of that examination. The charge to the study panel and the organization of this report are presented following a brief discussion of the importance of poverty measurement, the key elements of an economic poverty measure, and the motivation for the current study.

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1 For example, see Casselman and Smialek (2021).

2 In May 1965, the Office of Economic Opportunity, part of the Johnson administration’s War on Poverty, adopted the OPM as its working definition of poverty. In 1969, the Bureau of the Budget (now the Office of Management and Budget) adopted the OPM as the federal government’s official statistical definition of poverty in Statistical Policy Directive No. 14 (Fisher, 1992).

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×

1.1. POLICY AND RESEARCH PURPOSES OF POVERTY MEASUREMENT

Poverty statistics are essential for determining the size and composition of the population whose basic needs are unmet, and for tracking changes in conditions for this group over time. Poverty reflects economic inequalities that exclude a portion of the population from the social mainstream to the extent that their experienced deprivation pushes them below what is viewed as a basic standard of living (Sen, 1997). While not all countries publish an “official” poverty measure, it is standard practice for national statistical offices to estimate the extent of poverty, to collect data to assess the wellbeing of the nation’s people along a range of dimensions, and to examine factors that affect wellbeing at both national and subnational levels.3

Poverty statistics also inform society’s response in terms of targeting resources to alleviate hardships experienced by disadvantaged populations and assessing the effectiveness of programs designed to improve the wellbeing of those populations. Individual-level data are often needed for program applications performed by federal, state, and local government agencies, for purposes including determining assistance eligibility against a standard of need. Poverty measures are also important for evaluating the role and effectiveness of safety net programs and for prioritizing funding options. Additionally, these measures are essential for identifying populations—whether defined by geography, age, gender, race, or ethnicity—that are at particular risk.

While few would disagree that data and statistics serving these purposes are central to a comprehensive economic statistics program, the way poverty is defined and measured elicits extensive debate. Clearly, no single metric can serve all purposes. For example, a suitable metric used by an international agency such as the World Bank to compare global poverty across countries, or one that researchers use to study intergenerational poverty, will differ from the metric used to establish program eligibility of households in a particular country. Organizations also differ based on methods used to measure household resources for meeting household needs. International statistics groups, such as those within the World Bank and United Nations, often use consumption (or expenditures) per capita as an indicator of welfare rather than income as used in the United States or they use a deprivation index focused on lack of access to certain goods and services considered necessary for functioning in society (Townsend, 1979). Some poverty measures are absolute (their need standard is fixed and adjusted simply for price inflation, as in the OPM), but a long-argued shortcoming of absolute poverty measures is that they “do not take account of the concerns people face about relative deprivation, shame, and social exclusion” (Ravallion, 2015, p. 231). Many countries have relative poverty measures in which the need standard is a percentage of median income or expenditures, thereby relative to changes in the standard of living.4 Yet, such relative measures have their own drawbacks (e.g., depending on the recency of the data utilized, the needs standard may decline in economic downturns and thereby counterintuitively reduce measured poverty as hardship rises). The computation of the SPM includes aspects of both relative and absolute poverty measures (see Chapter 2). A key point is that, due to their differing conceptual bases, the quasi-relative SPM5 and the absolute OPM poverty levels are not comparable with one another.

The SPM is the statistical construct serving the greatest range of research and policy purposes in the United States. The goal of the SPM is to provide information on economic needs for the population as a whole, and for particular subpopulations, to inform public understanding of economic conditions and trends affecting people with low incomes. It is also used to assess the effectiveness of various antipoverty social safety net programs not captured by the OPM. Indeed, several states and municipalities (e.g., California, Wisconsin, New York City) have implemented variations on the SPM to assess the effectiveness of specific policies adopted at the state and local levels. The Census Bureau’s budget justification states: “The Supplemental Poverty Measure uses new data and

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3 For an overview of alternative approaches to measuring poverty in various countries, see Atkinson (2019).

4 European Union countries (and the Organisation for Economic Co-operation and Development) most often rely on relative poverty measures (e.g., set at 50–60% of national median incomes). International agencies (e.g., the World Bank) have used absolute poverty measures (e.g., set at $1.90 per person per day, in 2011 purchasing power parity dollars) for cross comparisons of lower-income countries.

5 The 1995 National Academies’ report (NRC, 1995, p. 23) used the term “quasi-relative” based on the following explanation: “Under our threshold concept, we propose that the values for food, shelter, and clothing—the basic bundle—and for a small amount of other needed spending—the multiplier—be developed by direct reference to spending patterns of American families below the median expenditure level. More important, we propose that real changes in spending on food, clothing, and shelter be used to update the poverty thresholds each year. By so doing, the thresholds will maintain a relationship to real changes in living standards, but only to the extent that these changes affect consumption of basic goods and services that pertain to a concept of poverty, not all goods and services. In this sense, our concept is quasi-relative in nature.”

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×

methodologies to obtain an improved understanding of the economic wellbeing of American families and of how Federal policies affect those living in poverty [in a way that] complements, and is released alongside, the official poverty measure” (United States Census Bureau, 2021b, p. 80). Given its leading role as the poverty measure of choice for most research and policy purposes, and its greater precision compared with the OPM, use of the term “supplemental” is a misnomer in the name “SPM.”

1.2. SPECIFYING AN ECONOMIC POVERTY MEASURE

The measurement of economic poverty involves estimating two components: (1) a basic needs level—a budget or threshold—below which people are considered poor; and (2) the resources available to families, individuals, or households, to determine whether they have met the threshold. As discussed in greater detail in Chapter 2, the major advances of the SPM over the OPM are that it uses a more encompassing bundle of goods reflecting contemporary budgetary needs and it measures resources to include both cash income and in-kind government benefits such as food assistance and housing subsidies, as well as income provided through the tax system (e.g., the Earned Income Tax Credit). The SPM resource concept also considers nondiscretionary expenditures (taxes, work expenses, child support payments, and medical out-of-pocket expenses) as reductions in resources available to meet basic needs.6

Methodological differences between measures significantly affect estimates of poverty and rates of change over time. For example, the rates of poverty among children and their families tend to be lower under the SPM than the OPM, due to the SPM’s inclusion of food assistance through the Supplemental Nutrition Assistance Program (Wimer et al., 2016; Pac et al., 2017); whereas rates of SPM poverty among the elderly tend to be higher than the OPM because the SPM accounts for out-of-pocket medical expenditures.

This report reflects the panel’s focus on specific statistical objectives of the SPM.7 The SPM was not conceived for the purpose of directly informing decisions regarding qualification or payment amounts for specific safety net programs. As articulated by Blank (2011), “a number of programs have eligibility formulas that use the relationship between household income and the official poverty line as one of the criteria for eligibility” (p. 12).8 In contrast, the SPM is meant as a statistical monitoring tool that provides accurate, granular estimates of poverty in a way that is critical to inform evidence-based policy decision making. Nonetheless, as discussed in Chapter 2, a variant of the SPM thresholds could be developed to serve additional functions, such as those that currently default to the OPM or to other statistics. Regardless, in the panel’s judgment, specification of official statistics should be driven by the information needs of policy makers and researchers. For the SPM, these needs include identifying population groups experiencing the greatest economic deprivation, tracking changes in these populations over time, and assessing the effectiveness of public policies and safety net programs designed to alleviate poverty.

1.3. MOTIVATION FOR THE STUDY AND CHARGE TO THE PANEL

The objective of this study is to assess the strengths and weaknesses of the SPM in the context of the information priorities, objectives, and goals of the measure. This assessment takes into account the historical development of poverty measurement, focusing on the period since the implementation of the SPM in 2011, and harking back to the National Academies’ 1995 report recommending a new measure (NRC, 1995). Building on recent or planned changes to the SPM by the Census Bureau and BLS, the guidance provided in this report involves reviewing and updating the basic needs categories, the approach to setting and adjusting thresholds, and the way household

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6Appendix A summarizes how this methodological framework creates meaningful conceptual differences between the SPM and OPM. Table A-1 details specifications for the OPM, notes criticisms of the measure, and documents changes (virtually none) since the measure was officially adopted in 1969. Table A-2 provides specifications for the SPM, notes differences from the OPM and from the recommendations in the National Academies’ 1995 report, and indicates changes that the Census Bureau, working with BLS, has made to the SPM to date.

7 The literature contains many detailed comparisons of the OPM, the SPM, and other poverty and wellbeing statistics—including resource versus consumption-based concepts—some of which require very different data sources to construct. See, for example, National Academies of Sciences, Engineering, and Medicine (2019, Appendix D) and Fox and Burns (2021b).

8 Key differences between the OPM “poverty thresholds” and the “poverty guidelines” are described here: www.aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines/frequently-asked-questions-related-poverty-guidelines-poverty#differences.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×

resources (including income and in-kind benefits) are estimated.9 A key element of this report’s recommendations involves a broadening of explicit basic needs categories—particularly for high-expenditure budget items such as medical care and childcare—in the conceptualization of the SPM.

This report is intended to serve as the basis for proposed reforms and adjustments, at least until the next major review of the SPM in another decade or so. As suggested by Ruggles (1990) and by the initial Interagency Technical Working Group developing the SPM (ITWG, 2010), the poverty measure would benefit from periodic updating. Unlike Ruggles,10 this report does not specifically discuss drawing the poverty line, but the panel does view this report as a reconceptualization of the poverty line. To provide guidance for improving the SPM in light of social and economic changes since its inception, the panel concentrated its efforts on the measurement of resource and threshold elements for which conceptual and data questions have proven most difficult to resolve and, consequently, led to inaccuracies in measuring poverty. In so doing, the report focuses on medical care, childcare, and housing expenditure categories as encouraged by the study sponsors outlined in the Statement of Task (Box 1-1). The recent ITWG also focused on the inclusion of medical care and housing in a poverty measure and the importance of using administrative data (BLS, 2020). Prioritization of these three areas is further motivated by their prominent

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9 Throughout this report, “household” is used as shorthand for the SPM resource unit, which is not quite the same as a household (the OPM resource unit differs even more from a household—see Table 2.1). Chapter 2 reviews revisions to the SPM specifications that took effect in 2021 or are still being considered; these changes are also listed in Appendix A, Table A-2.

10 The title of Ruggles’ book is Drawing the line: Alternative poverty measures and their implications for public policy.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×

presence in family budgets, where expenditures on these basic needs have tended to grow faster than lower- and middle-income family resources available to pay for them.

To identify underlying data deficiencies for poverty measurement, the panel considered promising alternative data sources, both survey and nonsurvey. The panel also identified measurement gaps—such as the lack of adequate data to measure poverty status longitudinally—and considered ways to address those gaps.

Prior to assembling the panel of experts to conduct this study, the National Academies’ Committee on National Statistics, in collaboration with the Census Bureau and BLS, developed the study scope. The Statement of Task was further refined by the panel during its initial meetings.

While there are many alternative approaches to measuring poverty—including relative incomes, consumption, wealth, and material hardships—during its deliberations, the panel adhered to the guidelines outlined in the Statement of Task—focusing on the strengths and shortcomings of the SPM and possible improvements that could be made. Notwithstanding their value, this report does not discuss or make recommendations on alternative approaches vis-à-vis the SPM.

1.4. ORGANIZATION OF THE REPORT

This report is intended to clarify measurement objectives of the SPM, to provide guidance for improving several traditionally difficult-to-measure resource and needs categories, and to explore strategies for advancing the data infrastructure from which the SPM is estimated. To this end, Chapter 2 covers the conceptual basis of the SPM, articulating the guiding measurement principles of the process. Chapters 3, 4, and 5 describe the current treatment of three prominent (large budget share) expenditure categories—medical care, childcare, and housing—and provide recommendations for changes. These chapters address advantages and drawbacks of approaches currently used in the SPM and propose alternative approaches for the estimation of households’ basic needs thresholds and their resources available to meet those thresholds. Chapter 6 addresses data and statistical issues, assessing the strengths and shortcomings of the current (largely survey-based) data infrastructure, alongside opportunities for improving measures of resources that feed into the SPM. The report concludes with a set of appendixes providing background and specifications of the OPM and SPM; description of data input sources for poverty measurement—specifically, the Current Population Survey/Annual Social and Economic Supplement and the American Community Survey; a summary of public comments on this study; and biographical information on panel members and staff.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×

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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×
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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×
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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×
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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×
Page 14
Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×
Page 15
Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2023. An Updated Measure of Poverty: (Re)Drawing the Line. Washington, DC: The National Academies Press. doi: 10.17226/26825.
×
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An accurate measure of poverty is necessary to fully understand how the economy is performing across all segments of the population and to assess the effects of government policies on communities and families. In addition, poverty statistics are essential in determining the size and composition of the population whose basic needs are going unmet and to help society target resources to address those needs.

An Updated Measure of Poverty: (Re)Drawing the Line recommends updating the methodology used by the Census Bureau to calculate the Supplemental Poverty Measure (SPM) to reflect household basic needs. This report recommends that the more comprehensive SPM replace the current Official Poverty Measure as the primary statistical measure of poverty the Census Bureau uses. The report assesses the strengths and weaknesses of the SPM and provides recommendations for updating its methodology and expanding its use in recognition of the needs of most American families such as medical care, childcare, and housing costs.

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