Rebecca Blank: How to Improve the Poverty Measurement

NAS

(National Academy of Sciences) appointed a panel to make recommendations for improving the measurement. Said to 1) change threshold based on expenditures on necessities plus a little more 2)resource definition should be after-tax income, plus near-cash in-kind benefits, minus work expenses and medical expenses. Offered 24 experimental poverty calculations.

4 Recommendations from Blank

1) Assign statistical agency the authority to develop an alternative measure of income poverty that should produce on primary Revised Poverty Measure 2) Explicitly direct the statistical agency to provide a poverty definition that produces both a credible and coherent poverty threshold and a consistent and appropriate resource measure 3) Allow public programs to continue to use the OMB-defined poverty rate or multiple of the poverty guidelines as an eligibility cutoff, unless they choose to make changes 4) Commission work to develop a list of key measures of economic deprivation beyond income poverty

Poverty concept and measure

A lack of resources (income), Threshold--level of income--pre-tax, pre-transfer, government or external

Absolute Measurement

Hasn't changed except for inflation. By definition, Thresholds that are fixed over time in real times, that is entirely non-responsive to economic growth.

Politics of Poverty Movement

This methodology imbedded as official poverty measurement in 1969 when OMB issued a directive stating that the Census Bureau should calculate and report this figure annually. This is odd because usually would come from one of the U.S statistic agencies which have authority to implement improvements over time. In contrast, any change in the official measurement of poverty requires a change in this directive. Since the OMB sits within the Executive Office of the President, this means the White House needs to sign off on any change.

Relative Measurement

Thresholds that vary 1-1 with income growth, such as threshold set at 50% of median income. Used in EU.

Headcount Measurement of Poverty

indicate a certain share of people fall below some definable point that indexes poverty or deprivation, but does not measure depth of economic need. Easily understood and easy to implement.

Implications for Validity

o Cost of living has changed dramatically (in 1963, poverty threshold was just 50% of median income, in 2005 it was at 28%). o In kind services have increased, but not measured  Makes it easy to claim that public spending on services have no impact o Cost of food changed (down in real terms, housing and medical costs gone up) o Standards of Living has changed o Doesn't consider geography

History of Poverty Measurement

o Current poverty measure developed in 1961 by Mollie Orshansky based on the 1955 HH Consumption survey. Took baseline food budget and multiplied by 3=threshold.

Income based poverty requires

o Poverty threshold (US 1961 threshold) o Resource measure (income) (US: pre-tax, pre-transfer, gov't or external) o Income aggregated/time period (US: All Related co-resident family over calendar year) o Family Size (US: threshold based on modal family sized then use equivalence scale)

Why hasn't the poverty threshold changed?

o The distribution of who was poor would change:  No president wants poverty going up on his watch  But special interests don't want amounts to go down, thus understating need o Public programs use poverty rates for eligibility o The support for change comes from a small group: statisticians and economists, not primary constituencies o Poverty is an inherently vague concept, and developing a poverty measure requires a number of relatively arbitrary assumptions