Redrawing the Poverty Line

Redrawing the Poverty Line

THE SOURCE: “Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure” by Bruce D. Meyer and James X. Sullivan, in Journal of Economic Perspectives, Summer 2012.

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The official U.S. poverty rate is an important benchmark for policymakers, researchers, and advocates as they grapple with the dispensation of billions of dollars in government aid. The huge sums that are involved ensure that the stakes will be high whenever anyone tries to define who is poor. The current method takes the wrong approach, argue Bruce D. Meyer, a professor of public policy at the University of Chicago, and economist James X. Sullivan of the University of Notre Dame. The most accurate way to identify society’s most disadvantaged is to look at how much people consume, not their income.

The nation’s official poverty measure debuted in the 1960s and hasn’t changed much since then, aside from adjustments for inflation. Because research at the time showed that the average family spent a third of its after-tax income on food, the poverty level was set at three times the cost of a nutritional but low-cost diet for each person in a household. In 2011, 15 percent—about 46 million Americans—lived at or below the poverty line, defined as $23,021 for a family of four.

Last year, in response to criticism, the U.S. Census Bureau released a secondary gauge. The Supplemental Poverty Measure (SPM) defines resources to count not just cash income, but also food stamps, tax credits, and other government benefits. It subtracts costs such as tax liabilities, child care, and out-of-pocket medical expenses. It also has different poverty thresholds for renters and homeowners, and adjusts thresholds in response to regional variations in the cost of living.

But both measures still trip over the same problem, the authors say: In large part because people tend not to give very accurate reports of their income, it is not a particularly accurate measure of disadvantage. In one 2010 survey, for instance, 44 percent of eligible food stamp dollars were not accounted for.

Meyer and Sullivan developed a measure based on resource consumption, not income, and they argue that it provides a more accurate picture of poverty. To prove their case, they compared 25 characteristics of the bottom 16.5 percent of the U.S. population as calculated with each of the three tools. (According to the authors’ calculations, the SPM put the poverty rate at 16.5 percent in 2010.) The Meyer-Sullivan proved the most accurate. It yielded the worst off of the three groups, having the lowest annual consumption ($18,000 for a family of four), and being the least educated (40 percent lacked a high school diploma) and the least likely to have health insurance (57 percent).

Additional exercises demonstrated that a consumption-based measure most accurately identified the worst-off Americans and therefore would allow for better-targeted aid to the poor. Advocates are right to call for a revised poverty measure, the authors say, but the one just added to the books isn’t doing the trick.