October 26, 2023
Executive Summary
The Biden administration is considering unilateral changes to the way policymakers measure poverty. Such a change may significantly increase eligibility for and spending on social welfare programs, as well as rearrange funding between states. The change is large and consequential enough to warrant Congress’ undivided attention.
But beyond the immediate changes, Congress should use this opportunity to debate even bigger questions: What is poverty, and how should policymakers measure it?
Ultimately, attempts to develop a statistical measure of poverty venture beyond science, reflecting value judgments and biases. Such measures cannot explain everything about how the poor really live, how easily they can improve their situation, or how policymakers can best help them. Therefore, Congress should decouple program eligibility from any single poverty measure, and adopt a broader definition of poverty that examines the totality of the circumstances that low-income people face and their potential to rise above them. A less-specific definition of poverty would enable policymakers to develop a more holistic approach to fighting poverty based less on an individual’s financial condition at any specific point in time, and more on their ultimate ability to flourish in society.
The Current Debate over Defining Poverty
The Biden Administration is currently reviewing the way in which we measure poverty. Responding to a new report from the National Academy of Sciences, Engineering, and Medicine, the Census Bureau is considering replacing the current official poverty measure with a revised supplemental poverty measure. The final determination of this review will significantly affect who receives government benefits and how much taxpayers will spend on anti-poverty programs.
The current government definition of poverty is nearly 60 years old. In January 1965, the Social Security Administration published “Counting the Poor: Another Look at the Poverty Profile” by Mollie Orshansky. Orshansky, a food economist, based her research on the Department of Agriculture’s (Ag) 1955 Household Food Consumption Survey, which indicated that the average family spent about a third of its after-tax income on food. Extrapolating from this survey, she suggested a poverty level equal to three times Ag’s low-cost food plan. While most previous poverty standards had been the same regardless of family size, she suggested an increasing scale, based on the common sense proposition that larger families needed more money.
In May 1965, the White House’s Office of Economic Opportunity adopted Orshansky’s methodology as its official definition of poverty. From there, the definition rapidly spread throughout the government. It was adopted as the official statistical definition of poverty in August 1969. It remains the official poverty measure (OPM) today, nearly unchanged except for a small statistical adjustment in 1978 to adopt a better measure of inflation and to better take into account family size.
Ironically, no federal bureaucrat, nor Orshansky herself, ever intended her formula to determine eligibility for federal programs. In fact, many experts explicitly warned against this. Nevertheless, Congress soon tied eligibility for most anti-poverty programs to some multiple of the official poverty measure. As a result, this seemingly technical and inconsequential measure of poverty has had an enormous impact on who receives benefits and on the overall level of government spending.
The United States’ OPM uses a set of income thresholds that vary by family size and composition to determine who is in poverty. The threshold income is set at three times the cost of a minimum food diet in 1963, updated annually for inflation using the Consumer Price Index for All Urban Consumers. Using this measure, the 2021 poverty rate was 11.6 percent, or roughly 39.9 million Americans.
Despite its official status, the OPM is deeply flawed. The average family budget has changed significantly since the development of the OPM. Food, for instance, now comprises only about one-seventh of the average family’s budget, rather than the one-third used by the OPM. At the same time, expenses that carried little weight in the 1960s — such as health care, childcare, and housing — now consume a much higher share of family income. Nor does the OPM capture the value of most government benefits, particularly tax credits and in-kind benefits. Yet, those benefits — including the Earned Income Tax Credit, Medicaid, SNAP, housing, and other large scale social welfare programs — account for the vast majority of benefits received by low-income Americans. Nor does the OPM reflect the wide variation in cost-of-living across the country. Identical incomes mean very different things in, say, Los Angeles versus the Mississippi Delta.
Recognizing the problems with the official poverty rate, the Census Bureau developed the Supplemental Poverty Measure (SPM), which includes the effect of non-cash welfare benefits, as well as taxes and certain cost of living considerations. Based on recommendations from a 1995 report by the National Academy of Sciences, the SPM threshold is based on the 33rd percentile of expenditure on basic necessities — food, shelter, clothing, and utilities — adjusted for geographic differences in the cost of housing. The threshold is updated using a five-year moving average, rather than being indexed to inflation like the official poverty rate. The SPM also considers out-of-pocket health care expenses, the cost of childcare, and other factors that were not included in the official poverty rate. Some of those changes reduce the number of people living in poverty, while others increase the number of people considered poor.
Recently, the Census Bureau released its latest estimates of poverty in America, illustrating the vast variation in measurements between the OPM and the SPM.
According to the OPM, the poverty rate declined by a statistically insignificant 0.1 percentage points to 11.5 percent, roughly 37.9 million people. On the other hand, according to the Supplemental Poverty Measure (SPM), which many experts prefer, poverty increased by a whopping 4.6 percentage points to 12.4 percent, the largest one-year increase on record. Child poverty, using this measure, more than doubled from 5.4 percent in 2021 to 12.4 percent as well.
Kevin Corinth of the American Enterprise Institute warns that, in the absence of congressional action, switching poverty measures could effectively raise the poverty line by 20 percent in 2024 and by 34 percent within ten years. As a result, both the number of people receiving government assistance and the cost of those programs would grow. For instance, he estimates that it would increase spending on SNAP by $47 billion and Medicaid by $78 billion over the next decade. It would also favor high cost states such as California (where the poverty threshold would increase by 21 percent), over low-cost states such as West Virginia (where it would fall by 19 percent).
Moving to the SPM would represent an enormous policy shift, even if the SPM were incontestably superior. But the SPM has flaws of its own. For example, while the SPM does a better job of gathering up the total number of poor Americans, it does a worse job of identifying those most in need. A study by Bruce Meyer and James Sullivan used consumer expenditure data to compare families that were poor under an OPM-type measure with those considered poor under a more SPM-like measure. They found that SPM-only poor families were actually better off than OPM-only poor families on all general measures of hardship. Liana Fox and Lewis Warren of the Census Bureau conducted a similar study and reached the same results, as have other studies.
In addition, the SPM is a quasi-relative measure of poverty (see below), which means that poverty rates tend to measure inequality more than absolute poverty. Because it is based on the 33rd percentile of spending on a basket of goods, some people will always fall below this threshold, and thus “in poverty” regardless of their actual living conditions. A hypothetical situation in which every American household’s income doubled overnight would have no perceivable effect on the SPM, even though it would obviously make a tremendous difference in everyone’s lives, inflationary effects notwithstanding. Even President Obama’s Council of Economic Advisers conceded that “eliminating poverty defined with a relative measure may be nearly impossible, as the threshold rises apace with incomes.”
Finally, while tying poverty levels to cost-of-living delivers a better understanding of actual material conditions, tying benefits to the SMP would effectively reward states with policies that drive up costs. For instance, California welfare recipients would receive higher benefits because the state’s housing policies — such as rent controls and exclusionary zoning — artificially inflate rents.
None of this is to say that switching from the OPM to the SPM is necessarily a bad idea, but certainly there are too many ramifications for such a change to take place by administrative fiat. Congress should make the decision. More importantly, policymakers should also look at this debate as an opportunity to discuss the larger question of how governments measure poverty and whether they should look at poverty in an entirely different way.
How We Got Here: A Little History
The first serious attempt to define and measure poverty came in the late nineteenth century. Starting in the 1850s, European scholars began to publish standard budgets, detailing the cost of goods and services for various social or occupational classes. Academics in the United States began to follow suit by the 1870s. These budgets, some of which defined a minimum level of subsistence, provided a standard against which poverty could be measured. Most of them centered on what came to be known as Engel’s Law. Ernst Engel was the head of the Prussian Statistical Bureau. In developing a poverty standard, he posited that, “[t]he poorer is a family, the greater is the proportion of the total outgo which must be used for food…. The proportion of the outgo used for food, other things being equal, is the best measure of the material standard of living of a population.” Thus, minimum budgets generally reflected some proportion of the income spent on food. We can, in fact, see this reflected today in the official U.S. poverty measure, which is based on three times Ag’s low-cost food plan.
In 1890, the Iowa Bureau of Labor Statistics proposed a standard budget that measured, “the minimum cost of the necessary living expenses of men with families.” In 1892, the English philanthropist and social researcher Charles Booth published Life and Labour of the People of London in which he became the first to refer to a “line of poverty.” Booth defined the poor as “those whose means…are barely sufficient for decent independent life; the ‘very poor’ those whose means are insufficient for this according to the usual standard of life in this country.” Booth’s definition was the reflection of a larger shift in public perception of the poor. The terms “poverty” and “poor” increasingly supplanted words such as “pauperism” and “pauper.” The concept of poverty as a condition of “having insufficient income to live appropriately,” rather than as a measure of those receiving public assistance or charitable alms, was gaining acceptance with social workers, social scientists, and government officials. A few years later, Benjamin Seebohm Rowntree developed a two-tier standard of poverty based on a budget with three components: food, rent, and “household sundries,” such as clothing, and fuel. Rowntree classified those with incomes below the poverty standard as living in “primary poverty.” Those with incomes above the poverty line, but whose condition was still one of “obvious want and squalor” were labeled the “secondary poor.”
Perhaps the first American to link poverty to a specific income level was W.E.B. DuBois. In his 1899 article, The Philadelphia Negro: A Social Study, DuBois included a table listing families with a weekly income of less than $5 a week or $260 a year ($7,000 today) as being “poor.” DuBois did not intend his definition to be universal, suggesting that it might be altered in different cities, and that there might be different poverty lines for black and white families. But his linking of income and poverty previewed the research to come.
By the start of the twentieth century, the concept of either a poverty line or a minimum budget target was firmly entrenched. However, there was widespread disagreement on what that poverty standard should be. States, cities, and private charities all developed their own standards and budgets. By 1921, in fact, Dorothy Douglas was able to catalog more than 30 different city standard budgets. Oscar Omati later listed 60 standard budgets developed between 1905 and 1960.
As American living standards rose, the income considered minimally necessary to meet the “subsistence and poverty level,” in the words of a 1934 Brookings Institution report, gradually crept upward. Thus, in 1905, Robert Hunter wrote in his book, Poverty, that the poverty line for a family of five should be set at $460 per year (roughly $14,000 today) in industrial states and $300 per year in rural areas. Around the same time, others suggested that the minimum needed to provide food, clothing, and shelter, as well as “a moderate amount of amusement and recreation” for a family of six or seven — clearly families were much larger in those days — was around $600 per year ($15,960 today). A national survey, The Study of Consumer Purchases, conducted in 1935–36, during the Great Depression, pegged the income for the “lower third of the nation” at $780 per year ($17,300 today).
Throughout this period, the federal government had no unified poverty standard, though individual government programs were based on varying estimates of poverty. During the 1930s and 40s, the Bureau of Labor Statistics periodically issued reports based on updates of the Work Progress Administration’s “maintenance budget.” After World War II, however, the growing scope of federal anti-poverty programs increasingly demanded a more consistent and coordinated approach. In 1948, the Bureau of Labor Statistics issued the first of its City Workers Family Budgets (CWFB). Although not widely adopted, the CWFB was important because it moved away from the subsistence-level poverty budgets that had been in use, calling instead for a standard that allowed for “a modest but adequate standard of living.”
While the CWFB changed how policy makers thought about poverty, the first real attempt to establish a national poverty standard was undertaken by the congressional Joint Economic Committee Subcommittee on Low-Income Families (SLIF) in 1950. The SLIF suggested a poverty level income of $2,000 per year for urban families ($20,060 today) and $1,000 for rural families. The committee went to great lengths to say that they were not, in fact, establishing a specific poverty standard, warning that their efforts “are not intended to be, and must not be interpreted to be, a definition of ‘low’ income…The cash-income levels chosen for the present report were selected only to designate an income group for intensive study.” Despite the SLIF’s protestations, however, lawmakers thought otherwise and adopted the report’s national poverty line — with appropriate updates — for more than a decade.
In the 1960s, economists with the Social Security Administration and the Department of Agriculture began to argue for a new and more official poverty standard. The debate over what constituted poverty accelerated when President Lyndon Johnson declared a “War on Poverty” in his 1964 State of the Union address. In a report designed to accompany this speech, the president’s Council of Economic Advisers suggested a poverty line of $1,500 for individuals and $3,000 for families ($14,600 and $29,000 today).
The Difficulties of Measuring Poverty
To some extent, poverty measures reflect the value judgments and ideology of whoever measures it. As philosopher and Nobel Prize-winning economist Amartya Sen notes, the definition of poverty can encompass a broad range of possibilities “from such elementary things as being adequately nourished, being in good health, avoiding escapable morbidity and premature mortality, etc., to more complex achievements such as being happy, having self-respect, taking part in the life of the community, and so on.” That leaves a lot of room for interpretation.
Some of the best work on poverty measurement has been done by Bruce Meyer of the University of Chicago and James Sullivan of Notre Dame. In an article for the Journal of Economic Perspectives, they posit some of the questions that must be answered to measure poverty.
Let’s examine some of those questions in more detail.
How should the resources available to people be defined?
Most poverty measurements rely on income, both because the information is easy to capture and because it is relatively straightforward to understand. Mollie Orshansky, the Agriculture Department researcher who developed the official U.S. poverty measure in 1955, saw income as “gross money income,” that is, income before taxes. The data itself is readily available from tax returns, and, as the National Academy of Sciences notes, the availability of high-quality data is often the prime determinant in choosing a resource definition.
But, there are also significant problems with using income as a measure of resources. Income, for example, does not include savings. This could make many non-poor elderly individuals appear to be poor, since they are living off accumulated savings rather than large annual incomes.
Perhaps more importantly, as noted above, the OPM and similar measures do not include non-cash social benefits that have played an increasingly prominent role in recent years, such as WIC, SNAP, Medicaid and housing assistance because they are either non-cash benefits or delivered through the tax code. Cash assistance programs now make up just 24 percent of direct federal assistance. In-kind assistance comprises the other 76 percent. In other words, more than three-quarters of the benefits received by the poor are not counted as income.
Another study estimated that the Census Bureau’s Current Population Survey (CPS) misses safety net income for more than one-third of housing assistance recipients and 40 percent of food stamp recipients. The report also finds that CPS data fails to include some antipoverty programs, thus understating the effects of antipoverty efforts.
On the other side of the ledger, many poverty measures do not consider tax liabilities. Therefore, someone with an income just above the poverty line, but whose take-home pay is below the poverty level, would not be considered poor. Money paid in taxes is not money that can be spent on the necessities of life. At the same time, tax credits, such as the Earned Income Tax Credit (EITC), are also not included. Since such credits can increase earnings by as much as 40 percent for some families, leaving them out can be extremely misleading, making a family look much poorer than it really is.
Further complicating income-based calculations, income appears to be regularly under-reported. Low-income individuals consistently report greater consumption than their income would support. Poor families often receive a substantial portion of their resources from sources not included in traditional income measures, such as in-kind welfare and off-the-books payments. One study, for example, found that welfare-dependent single mothers received as much as ten percent of their income from unreported work, and an additional ten percent from boyfriends or the fathers of their children. Only ten percent came from cash welfare benefits, and just two percent from reported earnings. The remainder was from other sources, including in-kind benefits. While this study is likely dated, evidence suggests that current percentages would not be very far off. For example, according to the Consumer Expenditure Survey, expenditures for the poorest decile are more than double their reported incomes. Among the poorest 20 percent, consumption exceeds income by more than 40 percent.
As a result, many experts recommend using a consumption-based resource measure, that is, essentially a measurement based on what a person or family spends. That would provide a solid measure of the resources that a family is actually able to put against needs. As researchers point out, “Generally, income is valued not for its own sake but for the ability it provides to buy goods and services.” Expenditure or consumption, on the other hand, “generates the flow of services from which material well-being is derived…It is thus more satisfactory to measure directly the level of goods and services bought.”
Consumption also better encompasses the ability of families to “smooth” their expenditures over longer periods of time. Income is directly affected by transient events — such as the loss of a job — while consumption can reflect a family’s perception of their long-term prospects. For example, a college student or recent graduate might have little income in the short term, but can reasonably anticipate higher future earnings. The same might be true for a woman who quits her job to have a child but anticipates returning to work in the future. Those expectations might be best captured through consumption.
Using consumption to measure poverty, though, has some problems. For example, consumption will likely include one-time purchases of durable goods that can provide a misleading appearance of actual consumption patterns. Moreover, expenditures are frequently the product of voluntary choices in ways that income is not. Different families may make different choices between saving and immediate consumption. As such, a consumption-based model would consider the family that saves poor rather than the family that spends. In fact, the family that saves for future consumption might be considered poorer than a family whose expenditures were financed almost entirely through debt.
Should poverty be measured annually over some other period?
The length of time that someone is in poverty can tell us a great deal about the type of poverty they experience and what obstacles may be in the way of that household reaching the middle class. Those in chronic poverty face vastly different circumstances than those experiencing shorter poverty spells, perhaps only a month or two.
As Table 1 shows, there are many ways to look at poverty depending on the period of interest. We can, for instance, measure whether a person is poor for any given month or year. We can measure periods of poverty, such as multiple consecutive months or years. We can measure how long people remain poor, and how many people become poor or leave poverty during a given period. Each of these measures will provide a different snapshot of the number of poor and who those poor people are.
Different sources measure poverty using very different time frames, among them:
Monthly Poverty Rate
Percent in poverty in a given month using monthly income and a monthly threshold.
Episodic Poverty Rate
Percent in poverty for 2 or more consecutive months.
Chronic Poverty Rate
Percent in poverty every month of a given reference period. Chronic poverty over an annual period includes individuals who have been in poverty for all 12 months, while chronic poverty over the panel refers to individuals in poverty all 36 months of the 3-year period.
Annual Poverty Rate
Percent in poverty in a calendar year. Each individual’s annual poverty status is calculated by comparing the sum of monthly family income over the year to the sum of monthly poverty thresholds for the year.1
Length of Poverty Spell
Number of months in poverty. The minimum spell length is 2 months and spells are separated by 2 or more months of not being in poverty. Individuals can have more than one spell
Poverty Entry
Based on annual poverty measures, people who were not in poverty in the first year of the panel but in poverty in a subsequent year.
Poverty Exit
Based on annual poverty measures, people who were in poverty in the first year of the panel but not in poverty in a subsequent year
Most poverty rate measures, especially in the United States, use an annual measure. Perhaps the biggest reason for this is simplicity and convenience. People file tax returns that pertain to their income and deductions for a calendar year. Assistance programs that are geared to the tax system (notably, the Earned Income Tax Credit) also use an annual accounting period.
A year also appears to be a reasonable period in which to judge a family’s circumstances. There is widespread acceptance of the view that families can smooth consumption and accommodate fluctuations in income over the duration of a year.
On the other hand, an annual poverty count ignores the degree to which income fluctuates heavily for many families, everything from layoffs to health problems to educational choices and childbearing can temporarily affect income. Scholars have pointed out one example of these divergences between a family’s measured cash income and its permanent economic capabilities: a student who chooses to remain in school may be counted as poor, even though she has very high long-term earnings potential. In fact, college students are disproportionately included in most headcounts of the poor. This not only may overstate the total number of poor people, but it also makes the pool of poor people appear younger and more highly educated than it would otherwise be. Similarly, fluctuations in income by groups such as farmers and real estate speculators are notoriously unreliable, fluctuating sharply, and leaving such families over-represented in the official poverty count.
This would seem to argue for a long-term view of poverty. Yet, public policy also seeks to deal with the ability of a person to meet his or her immediate needs. If a person is hungry today, it does relatively little good to say that the person is not poor because they might expect to be able to buy food in the future.
How should we measure families or other groups sharing or pooling resources?
Poor people are first and foremost individuals. But in looking at their economic circumstances, they may also be part of a family or a group of non-related people that share resources. The question arises, therefore, when measuring the resources available to that person, should we only consider those resources that are directly his or hers, or should we take into account the pooled resources of the family or group to which he or she belongs.
To cite an obvious example, we would not ordinarily consider a non-working spouse, with little or no personal income, to be poor if he or she was married to a partner whose wages were enough to lift the two of them above the poverty level. It is the combined resources available to the two spouses as a family unit that matters, not their income as individuals. Similarly, children and other dependents partake of the family’s resources rather than relying on their own earnings.
However, the question becomes more complex in non-family households. Suppose for example, that the two people in the previous examples were cohabiting rather than married. They still pool their resources, but the non-working partner has a more tenuous claim on those resources. Alternatively, suppose they were not cohabiting as a couple but were merely friends sharing expenses. How should the non-working friend be considered in such a case?
In general, there is more resource sharing among family members than among non-related groups. For example, it is common for a group of young professionals in places like Washington, D.C. or San Francisco to share housing. They may also share some other resources, such as paying utilities or even food jointly. But there is still likely to be far greater variation in living standards among the group than there would be in a family with the same number of people.
Families are also a more stable unit than other types of households. Of course, the number of people in a family may change as children are born or reach adulthood, and the family itself may dissolve in the case of divorce, but other household groupings tend to be more transient.
Moreover, living as a couple is more economically efficient than living as two single people even sharing a home. A couple does not need twice the income of two single people. For example, two single roommates might prefer a two-bedroom apartment, but a couple can manage with a one-bedroom apartment. As a result, most poverty measures have focused on families.
However, that assumption is being challenged by the rise in the number of cohabiting couples and their children. There are currently more than eight million cohabiting couples in the United States. In fact, studies show that more than half of all marrying couples first cohabit. Most poverty measures treat cohabiters and their children as separate units even though they live together and share resources.
Changing the unit of measure can make a big difference. For example, a 2010 analysis by the Census Bureau found that one third of cohabiters were considered poor using traditional measurements, but that number dropped to just 21 percent if the cohabiting couple and children were treated as a family unit. Traditional household definitions, therefore, may be significantly overstating the number of people living in poverty.
Yet, counting households unrelated by blood or marriage offers its own pitfalls. First, how do we differentiate between cohabiting couples that are essentially mimicking marriage under different arrangements from casual roommates or other transitory living arrangements like the young professionals cited above? Moreover, even with couples that are cohabiting in lieu of marriage, there is somewhat less resource sharing than among legally married couples. They may be more likely to maintain separate bank accounts or put other resources outside the reach of their partners.
Should we measure the number of poor individuals or the total amount of poverty in society?
The most common poverty measurements perform a simple headcount of the number of low-income people in a society. Thus most news reports that there are 43 million poor Americans, or that 13.5 percent of Americans live below the poverty level. Indeed, this provides a readily understandable snapshot of poverty, making it easy to compare historical measurements over time.
But a headcount measure also leaves out a lot of potentially valuable information. For example, it offers a simple yes or no answer to whether someone is poor. They are either above the poverty level or below it. People labeled as poor could all be concentrated just slightly below the poverty line, or they could be concentrated at the very bottom with little or no income. Yet, there is a vast difference in the circumstances of someone far below the poverty line and someone barely below it.
In actuality, there are “shades” of poverty. But with a headcount we don’t know whether the condition of the poor is improving or deteriorating. Are the poor becoming poorer — as is often alleged — or are the poor becoming less poor?
In practice, observers tend to try to solve this problem by using a fraction or multiple of poverty, such as 50 percent of the poverty line or 125 percent of the poverty line. Another approach might be to measure the total financial resources needed to lift all the poor out of poverty, generally called “the poverty gap.”
The poverty gap is a measure, not of the number of poor people, but of the intensity of overall poverty. It is generally measured as the average shortfall of the entire population from the poverty line — counting the non-poor as having zero shortfall — expressed as a percentage of the poverty line, or the amount of resources per capita required to eliminate poverty through perfectly targeted cash transfers. The advantage of such a measure is that it provides a precise estimate of the size of the problem and the resources necessary to fight poverty.
The problems with using a “poverty gap” measure, however, are obvious. Such a measure doesn’t tell us whether there is widespread but mild poverty or a small number of people living in deep poverty. Nor does it say anything about who the poor are, and therefore about what steps might be necessary to assist them. The working poor with incomes slightly below the poverty level might benefit most from efforts to boost or supplement their wages, but an unemployed individual with few resources might require an entirely different sort of assistance.
Should poverty be measured against an absolute standard or is poverty relative?
All of the above questions deal with how to determine the amount of resources that a poor person has available. But to measure poverty, we must also establish a standard against which those resources will be compared. Perhaps no question of poverty measurement is as hotly debated as whether resources should be compared to some fixed or absolute standard or whether they should be measured against a relative benchmark, such as the overall distribution of income, or the standard of living achieved by others in society?
Absolute measures of poverty compare the resources available to an individual or family with a fixed amount of resources judged necessary to achieve a minimum standard of living. This can be measured either through income or consumption. In theory, an absolute poverty standard is derived without any reference to consumption patterns or income levels of the population as a whole though, in practice, it is difficult to isolate poverty from local consumption norms. With appropriate adjustment for price fluctuations, an absolute measure of poverty remains stable over time. Perhaps the best examples of absolute measures are those looking at issues like homelessness or hunger. Whether or not a person is hungry or has a home has no relationship to the amount of food or type of house that others have.
Absolute poverty is premised on the idea that there is some level of income or consumption below which life would become difficult if not untenable. Although the absolute standard need not be at mere subsistence levels, most such measures use a meager standard of material well-being. Conceptually, absolute poverty assumes that there is an essential core to the idea of poverty that equates poverty with lacking the necessities of survival.
Relative poverty, in contrast, is heavily dependent on the income and consumption of society at-large. That is, relative poverty attempts to measure whether an individual’s standard of living is so far below the general standard of living in the country or region in which they live that they are unable to participate in the ordinary economic, social, and cultural activities of that area. Of course, the income and consumption of others heavily influences those activities.
Thus, a relative poverty threshold might be defined as receiving an income that is less than one-third or one-half of the median income in the covered area, or something similar. In this way, relative poverty is more a measure of inequality than it is of material deprivation.
The United States has traditionally measured poverty against an absolute standard, while most European countries prefer a relative measure. Both approaches have significant drawbacks.
For example, absolute poverty measures fail to account for changes in public opinion or perception. That is, as one expert puts it, “People are poor when others think they are poor.” But as standards of living increase, people’s perception of poverty changes along with them. Economists refer to this as the “income elasticity” of poverty. Would we really say that no one should be considered poor today if that person would not have been considered poor in 1900 or 1500 for that matter? Looking at the public perception of poverty in Australia, Britain, Canada, and the United States, Gordon Fisher, a scholar and historian with the U.S. Department of Health and Human Services, estimated that for every dollar increase in income of the general population, the amount of income that people believe constitutes the poverty level increase by more than 60 cents. A second study examining “minimum subsistence” budgets from 1905 to 1960 — as categorized in a previous study by Oscar Omanti — found that the minimum subsistence level increased by roughly 0.75 percent in real terms for every one percent increase in real disposable income per capita of the general population.
Similarly, absolute poverty measures fail to consider how the poor perceive themselves. Not only are people poor when others think they are, but also when they themselves think they are. The juxtaposition of wealth and poverty makes matters worse. Even if they are not starving, the poor in the United States may be all too aware of the disparity between their lives and those of their neighbors.
This disparity would suggest shifting to a relative or at least partially relative poverty measure. Yet, doing so would open its own set of problems.
For example, relative poverty measures may tell us little about the actual conditions of the people involved. Consider two large distinct areas. The first area suffers an economic calamity. As a result, its entire population has been reduced to the most desperate conditions. People exist on less than $1 per day. Deprivation is spread evenly over the entire population, but that doesn’t decrease the amount of deprivation. The second area experiences an economic boom, but unevenly. No one earns less than $100,000 per year, but many individuals earn $300,000 or more. Can anyone honestly say that the first society has no poverty, but poverty is widespread in the second?
As the Urban Institute’s Patricia Ruggles points out, “Poverty cannot decline under a relative poverty measure without some change in the shape of income distribution.” Moreover, a relative poverty measure is likely to rise during periods of rapid economic growth, times when both the rich and poor are experiencing growth in both earnings and consumption. Those gains may mean that the poor are not only better off in real terms but may subjectively feel themselves to be better off as well. Yet, the poverty rate would not fall, and could even increase.
China provides a good example. Over the last 30 years or so, the living standards of those at the bottom of the Chinese income ladder have improved remarkably. Using absolute measures, more than 600 million Chinese have risen out of poverty since 1980. Yet, because a smaller subset of Chinese individuals grew fabulously wealthy at the same time, relative poverty measures would generally fail to capture these gains.
Relative poverty, then, reflects a “fixed pie” mentality. Double the income of everyone in your country and relative poverty would remain unchanged. This makes it difficult, if not impossible, to reduce poverty through economic growth, making redistribution the only available policy to reduce poverty.
Where exactly should the poverty line be drawn?
Regardless of whether policymakers use an absolute or relative poverty standard, that threshold must still be specified. Ruggles correctly notes “‘poverty’ is a socially determined state, and in the end, official thresholds come down to what some collection of politicians and program administrators consider an adequate level of resources to support a life in a particular community.”
Some define the poverty standard in the most minimalist terms. The pioneering sociologist Seebohm Rowntree, for example, counted a family as poor if “total earnings are insufficient to obtain the minimum necessities of merely physical efficiency.” A writer for the American Journal of Sociology in 1904 painted an even starker definition of poverty: “Whether it be directly, through starvation, or indirectly, through sickness brought on by insufficient nourishment, poverty must necessarily lead to the extinction of the physical life.”
However, few would choose such a narrow definition today. Rebecca Blank, one of the nation’s premier poverty researchers, explains that “the poverty measure in the United States is usually thought of as a measure of serious economic need or economic deprivation…Living in poverty suggests that a family has so little income that they are unable to purchase the things that we as a society think they need for a minimally decent life.” But what does a minimally decent life mean?
Basic needs could be defined as those requirements which must be met for people to function. The National Academy of Sciences defines basic needs specifically as “food, clothing, and shelter.” However, even limiting the discussion to these items runs quickly into the necessity for value judgments. What constitutes an adequate diet, wardrobe, or shelter? Those choices are inevitably entwined with socially determined values.
More significantly, few of those studying poverty would consider it sufficient to meet nothing more than a person’s most minimum physical needs. Blank herself suggests that a full definition of poverty should also include:
“being able to purchase the goods and services that are necessary to afford adequate and stable housing, find and hold a job (if physically able), participate as a citizen in the community, keep oneself and one’s family reasonably healthy, and provide the things that one’s children need to participate effectively in school.”
Even the father of modern capitalism, Adam Smith, said, “By necessaries, I understand, not only the commodities which are indispensably necessary for support of life but whatever the custom renders it indecent for creditable people, even of the lowest order, to be without.” Smith went on to use “a good linen shirt” as an example, pointing out, “A linen shirt…is strictly speaking not a necessity of life…But in the present time…a creditable day-laborer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful state of poverty.”
Moreover, as Sen and others have argued, “the essence of humanity is the capacity to make choices,” meaning that any measure of poverty must take into account whether people have the capacity and capabilities to participate in society, to function fully as human beings.
What is today’s equivalent of Smith’s good linen shirt? Should it include a car or access to some other form of transportation? What about a cell phone? Or a computer? It would certainly seem difficult to function in today’s society without access to such items.
Finally, shifting from an absolute to a relative measure of poverty does not eliminate arbitrary choices. After all, the percentage of median wage or median income that is used for the poverty line is an essentially arbitrary proposition.
How should poverty thresholds be adjusted to reflect geographic differences and changes in prices or wages?
The United States is a large and economically diverse country with wide variations in the cost of living from region to region. Simply put, $100 will buy a lot more in Mississippi than it will in New York. Therefore, families with identical incomes could have radically different standards of living depending on where they live. An income that might be sufficient for a rural Mississippi family to escape poverty is likely to be insufficient for a New York family to do so.
But adjusting poverty measures to account for geographical variations turns out to be complicated as much for political reasons as social scientific ones. From a political standpoint, a regional or state-by-state adjustment of poverty standards could raise questions about the distribution of federal funds. Relatively few federal transfer or antipoverty programs are adjusted to reflect differences in the cost of living. Indeed, some federal programs, such as Medicaid, provide higher levels of matching payments to poorer and cheaper states such as Mississippi.
How should poverty thresholds be adjusted to reflect differences in family size or household composition?
It seems obvious that the poverty line for a two-person household has to be lower than that of a four-person household, since the cost of meeting the needs of the latter is larger. This increase is not directly proportional. That is, the resources needed to support the four-person household is not double that of the two-person household. Economies of scale apply. A couple with two children can, for example, meet their needs for shelter and heat without spending twice as much as a couple with no kids. Similarly, children are generally acknowledged to require smaller food and clothing budgets than adults.
One problem is that no one can say for certain exactly how needs vary with family size and composition. Measurement of economies of scale is highly imprecise, and experts disagree on how to estimate them.
Other Poverty Measures
There are many other less frequently used ways to measure poverty as well. For example, some advocate a subjective measure under which individuals judge for themselves whether they are poor relative to some social norm. Generally, this standard would be based on access to a specified basket of resources. One would ask people what they consider to be a “minimally adequate” income, or an income that is the minimum necessary “to get along.” Individuals would then decide whether their standard of living met or exceeded that level. It can be argued that a subjective measure makes sense, since poverty is a socially determined state, that the poor should define for themselves what comprises a “minimally adequate income level.” However, others warn that such subjective measures break down in the absence of a common perspective. Individuals accustomed to living under certain conditions and with or without certain goods and services are likely to feel differently about the necessity of such goods and services. For example, people who have a car may be unable to imagine themselves without one, and therefore feel a car is a necessity. But people who have never owned a car may believe it is perfectly reasonable to get along without one. One would expect very different consideration of car ownership in rural versus urban areas, or depending on the availability of reliable public transit.
One answer to this problem is to expand the pool of those establishing the subjective measure to the entire population. In 1983, for example, the United Kingdom became the first country to try to define poverty on the basis of public consensus. Pollsters asked Britons to choose which items and social activities they considered to be the essential and minimum characteristics of an acceptable standard of living. These items ranged from a basic diet and minimum housing adequacy to household goods and social activities. The list is updated every few years to reflect societal changes. In the most recent survey, conducted in 2012, respondents identified 25 items and activities for adults and 24 for children as essential to meeting an acceptable standard of living. The poverty threshold was defined as the point at which adults lack three or more of the listed items and children lack two or more.
Other poverty measures dispense with the idea of income or wealth all together, or at least measure it in vastly different ways. EuroStat and the European Union now measure whether individuals meet some 26 measures of “material deprivation,” ranging from whether individuals have sufficient savings to meet unexpected emergencies to whether they are able to go on vacation to whether individuals lived in a polluted or high crime neighborhood. They then publish a “deprivation index” based on how many items citizens in each country match. And the United Nations Development Program defines poverty as the lack of opportunities in the areas of education, health and command over resources, as well as participation in the democratic processes.
Money is Not Enough
In an important way, all the measures discussed above fall short because they deal mostly with measuring poverty in material terms: income and expenses. To a large extent, they are neutral between types of income, treating welfare, charity, work incomes, returns on investment, and to some extent borrowing, as equally desirable.
Focusing solely on the material or financial aspects of poverty is a very narrow and technical definition of poverty. Obviously, the government needs to set targets and be able to measure results, but an obsession with specific numbers can do more to obscure progress than to illuminate it. It is this type of measurement that allows Matthew Desmond to suggest that the government could end poverty in America by spending precisely $177 billion more annually. That is the amount that would theoretically raise every American to precisely the poverty level. But, providing just enough assistance to bring a family one dollar over the poverty line does not mean that family is not poor. Certainly, their economic condition would remain precarious.
It is also hard to argue that one has truly escaped poverty if one is only doing so through reliance on benefits provided through various welfare programs, or, for that matter, private charity. One might, therefore, consider some type of self-reliance standard. But determining self-reliance is not as easy as simply subtracting government aid from income. Such a measure would vastly overstate the number of materially impoverished and fails to account for the counterfactual: how individuals might have behaved in the absence of such benefits and related incentives. Rather, it is a larger measure of an individual’s ability to function in society absent such assistance.
The Self-Sufficiency Standard, developed by Diana Pierce of the University of Washington’s School of Social Work, was one of the earliest attempts to measure this. The Self-Sufficiency Standard defines the income working families need to meet their basic necessities without public or private assistance. Basic minimum needs include: housing, child care, food, transportation, health care, miscellaneous expenses (clothing, telephone, household items), and taxes (minus federal and state tax credits) plus an additional calculation for emergency savings. The standard varies with family size and local cost of living, among other things.
Moreover, if the goal of antipoverty policy is to enable the poor to escape poverty, and that definition encompasses the idea of moving up the economic ladder to a place where they are economically independent, then policymakers need to know the degree to which people in society are capable of doing so. This means policymakers should measure the number of people who can and can’t achieve self-sufficiency in a free-market economy.
However, few scholars or policymakers have adopted self-reliance measures. Most antipoverty policy is focused, for reasons both good and bad, on immediate needs. In addition, self-reliance measurements tend to be extremely complex, and highly subjective, limiting their utility for both academic study and public policy.
Moreover, even a self-reliance measure might not tell us what we really want to know. Amartya Sen has argued for a measure of poverty of “capabilities.” This measure would go beyond material poverty to encompass a lack of skills and physical ability, as well as a lack of self-respect or respect within a society.
One measure that attempts to measure this aspect of poverty is Net Earning Capacity , which aggregates the income a family could earn if all working-age family members work full-time, full-year at earnings, taking into account age, education, and other characteristics, with an adjustment made for childcare costs. This is a measure often used in legal cases to assess damages.
Another approach has been suggested by Kathryn Edin, Luke Shaefer, and Timothy Nelson, who suggest a geographically based “Index of Deep Disadvantage,” measuring the ways in which a person’s life chances are hindered by circumstances outside their immediate control. The index considers both traditional poverty measures, such as poverty rates and “deep poverty” rates, as well as health measures — e.g., life expectancy and birth weights — and social mobility. The Index of Deep Disadvantage is particularly interesting for two reasons. First, as a geographically targeted measure it provides a different lens for examining the success or failure of government policies, including those not directly linked to social welfare benefits. Second, the Edin, Shaefer, and Nelson approach recognizes that poverty involves more than just income.
Unfortunately, none of these measures is totally satisfying. Numerical measures of poverty can give us a glimpse of where we stand at a given point in time, which are needed to target anti-poverty programs. No one suggests that anyone stop trying to measure poverty in the most accurate way possible.
Still, as counterintuitive as it might seem, policymakers may be better served overall by a less precise but more comprehensive definition of poverty, one that looks holistically at people’s capabilities, that is, their real opportunities to achieve their personal goals. For instance, the United Nations’ global poverty definition includes the ability to access services and social protection measures and to express opinions and choice; the power to negotiate; social status, and decent work and opportunities.
Such things are difficult to measure numerically and take the definition of poverty back toward an imprecise “know it when we see it” standard. However, they also enable policymakers to look at poverty more holistically, considering not just material well-being but also things like educational opportunities, the adequacy of health care, the availability of jobs, housing access and affordability, treatment within the criminal justice system, and so on. In doing so, they are better able to measure a person’s ability to escape poverty and dependence, to become self-sufficient, and to rise as far as their talents will take them.
Conclusion
Perhaps nothing illustrates the problems with our current approach to measuring poverty as the sharp increase in poverty according to the 2022 SPM. As noted above, According to the SPM, increased by a whopping 4.6 percentage points in 2022 to 12.4 percent, the largest one-year increase on record. Likewise, according to the SPM, child poverty more than doubled from 5.4 percent in 2021 to 12.4 percent.
This rise in poverty rates reflects the expiration of several one-time benefits provided during the pandemic, including an expansion of the Child Tax Credit, enhanced unemployment benefits, several rounds of stimulus payments, and more. Those payments resulted in a significant drop in poverty rates in 2021 (the year they were paid). But, once those programs expired, poverty rates returned to their previous levels.
Welfare spending, including the massive pandemic-spurred increase, improved poorer Americans’ material circumstances for as long as they received the payments. But simply continuing pandemic-era programs forever is fiscally unsustainable, with the expanded Child Tax Credit alone cost more than $100 billion per year. All that money did nothing to help poor Americans become self-sufficient or to prepare them for the day the programs expired. When the programs ended, they were still poor. In fact, it is fair to say that these families were poor all along: government payments merely disguised their true condition for a time.
Fortunately, there is an opportunity for a new and better approach. The Biden administration is currently considering whether to update the way in which we measure poverty. Of course, the administration’s decision will have a significant impact on eligibility for various government programs and the amount that we spend on those programs. Congress should scrutinize the administration’s actions carefully.
More importantly, we should seize on the debate over the official poverty measure as an opportunity to reexamine the broader question of how we should define and measure poverty.
Measuring poverty is much more complex and difficult than it first appears, and any measure is going to reflect the biases and preferences of the measurer. It would be a mistake, therefore, to become too heavily invested in any particular set of numbers. Therefore, Congress should decouple program eligibility from any specific poverty measure. Instead, Congress should develop eligibility criteria on a program-by-program basis calibrated to the goals of that particular program.
At the same time, policymakers, Congress, and executive agencies should begin to look at poverty in a larger more holistic context that considers not just a person’s material circumstances, but also their capabilities to become self-sufficient. Doing so would allow for the development of a broader, more nuanced approach to fighting poverty based less on an individual’s financial condition at a point in time and more on their ultimate ability to flourish in our society.
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