Employment and Poverty Among the Homeless - Measuring Poverty

Defining poverty and counting the poor is a difficult task. The official poverty measure used in the United States was developed during the 1960s by Mollie Orshansky of the Social Security Administration. Called the poverty index, this measure was based on the Department of Agriculture's 1955 Household Food Consumption Survey, which had determined that a family of three spent approximately one-third of its income on food. The poverty threshold for a family of three was therefore set at three times the cost of the economy food plan, an amount seen as necessary to cover minimal living expenses. A family whose annual before-tax income was below this poverty threshold was "poor." The government has since revised the poverty threshold regularly to account for inflation and changes in the economy.

The Official Poverty Threshold

Table 3.1 shows the 2004 poverty thresholds for families by size and number of children. These amounts include income before taxes but do not include any capital gains or noncash benefits such as public housing, Medicaid, or food stamps. For example, in 2004 a family of five consisting of a father, mother, two related children under age eighteen and an aunt to those children could jointly earn up to $23,108 and still be considered "poor" by the official poverty measure. If, however, all the adults in the family were employed and their annual incomes were as follows: father, $12,000; mother, $8,000; and aunt, $4,000, then the family would have a joint income of $24,000 which is higher than the 2004 poverty threshold figure for a family of five. In 2004 the poverty thresholds ranged from $9,060 for an elderly person living alone to $36,520 for a family of nine or more members with at least one child. The poverty threshold for a family of four was $19,157 (two adults and two related children under eighteen years of age). The threshold for a typical single-parent family with two children was $15,219, almost 50% more than one person would earn working full-time at the federal minimum wage of $5.15 per hour.

Concerns about the Accuracy of the Official
Poverty Rate

Social scientists have for years debated about the best and most accurate means of establishing a poverty threshold. TABLE 3.1
Poverty threshold by size of family and number of related children under 18 years of age, 2004
[In thousands of dollars]
SOURCE: "Poverty Thresholds 2004," U.S. Census Bureau, January 28, 2005, http://www.census.gov/hhes/poverty/threshld/thresh04.html (accessed February 18, 2005)

	Related children under 18 years
Size of family unit	None	One	Two	Three	Four	Five	Six	Seven	Eight or more
One person (unrelated individual)
Under 65 years	9,827
65 years and over	9,060
Two persons
Householder under 65 years	12,649	13,020
Householder 65 years and over	11,418	12,971
Three persons	14,776	15,205	15,219
Four persons	19,484	19,803	19,157	19,223
Five persons	23,497	23,838	23,108	22,543	22,199
Six persons	27,025	27,133	26,573	26,037	25,241	24,768
Seven persons	31,096	31,290	30,621	30,154	29,285	28,271	27,159
Eight persons	34,778	35,086	34,454	33,901	33,115	32,119	31,082	30,818
Nine persons or more	41,836	42,039	41,480	41,010	40,240	39,179	38,220	37,983	36,520

The central question that arises in debates about measuring poverty is whether to use an absolute or a relative means of updating the poverty rate on an annual or periodic basis. Once established, an absolute poverty measure is updated to account for price changes (inflation) only. A relative poverty measure is one that is updated based on changes in the median or mean income or compensation of the general population. The relative poverty measure adjusts for changing standards of living. The official poverty measure used by the United States is an absolute measure.

In 2001 the "Conveners of the Working Group on Revising the Poverty Measure"—a group of economists, lawyers, professors, and social academics—wrote An Open Letter on Revising the Official Measure of Poverty to the Director of the Office of Management and Budget. They wrote to express their concerns over the inadequacy of the official poverty level measurement and proposed a set of guidelines for a revised standard. The letter stated that the current system was one that was established in the 1960s and that it had not been meaningfully adjusted in the years since, despite decades of major changes in the social safety net for low-income families.

Three of the items that were specifically listed in the letter as examples of areas not well accounted for in determining the official poverty rate were:

• Noncash benefits (food stamps, housing assistance, free school lunch programs) that are not included in the calculation of income
• Out-of-pocket medical expenditures that are not included in the calculation of costs
• Out-of-pocket child care costs that are not included in the calculation of costs

The letter criticizes many aspects of the methodology used to determine the official poverty threshold, as did a report published by the National Academy of Sciences in 1995. The debate about how best and most accurately to determine who is and who is not poor has gone on for decades and will likely continue. It is, therefore, worth-while when reviewing statistics about poverty to keep in mind that they may be skewed by the methods used in calculating them.