United States General Accounting Office

GAO Report to the Ranking Minority Member,

Committee on Finance, U.S. Senate

April 1997 POVERTY

MEASUREMENT

Issues in Revising and

Updating the Official

Definition

GAO/HEHS-97-38

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-275689 

April 15, 1997

The Honorable Daniel Patrick Moynihan

Ranking Minority Member

Committee on Finance

United States Senate

Dear Senator Moynihan:

The official U.S. poverty measure, as devised 3 decades ago, compares a

family’s income with a level believed necessary to purchase a minimum

standard of living. This measure is widely used as an indicator of the

economic well-being of the population, for analysis of government

policies, and in allocating benefits in social welfare programs, but it has

not changed significantly since 1965. Over the past 2 decades, researchers

have questioned the accuracy of its measurement of family resources for

this purpose, as well as the appropriateness of the level of income used to

define poverty. Two years ago, the National Academy of Science’s National

Research Council (NRC) Panel on Poverty and Family Assistance issued a

report, Measuring Poverty: A New Approach (1995), recommending a

thorough review and updating of the definition of family income and its

standard for comparison.

This letter responds to a request from your office that we describe various

issues involved in updating the federal government’s measure of poverty.

As agreed with your office, in this report we identify (1) the issues

associated with measuring a family’s economic well-being and setting a

standard below which families are considered poor, (2) the suggestions

experts have for addressing these issues, and (3) recent developments on

these issues since the NRC panel issued its report in 1995. To do this work,

we reviewed the panel’s report and recommendations and literature

published since 1995, and we interviewed selected experts in the areas of

poverty measurement and government statistics. These experts included 4

academic researchers, 3 of whom were members of the panel; the panel’s

study director; and 10 federal government officials who were either

involved in the production of poverty statistics or were consumers of

those statistics. As agreed with your office, we did not independently

analyze the various technical approaches discussed, but, instead, are

summarizing expert opinion on these issues. Previously, you asked for

information about an experimental measure suggested as a replacement

for the current measure, which uses the amount a family spends on goods

and services, rather than its income, as the measure of a family’s

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well-being. In separate correspondence we provided a description of this

methodology.1

 We conducted our work between June 1996 and

February 1997 in accordance with generally accepted government auditing

standards.

Results in Brief Defining a measure of the extent of poverty consists of two fundamental

decisions: first, how to define a family’s resources and, second, how to

select a threshold, or standard, to represent a “minimally adequate

standard of living.” While the two decisions are distinct, the two

definitions must be consonant with each other so that the eventual

comparison of a family’s resources with a standard is considered fair.

Developing a useful and practical measure involves making a number of

choices that require balancing conceptual and practical considerations as

one addresses these two fundamental decisions.

The choices or issues to address in developing a routinely available,

reliable measure of a family’s economic resources include (1) whether to

directly measure a family’s spending on basic necessities or use income

and other economic resources as a proxy for their ability to buy these

necessities, (2) which economic resources should be considered available

for meeting a family’s basic needs, and (3) whether existing data sources

are adequate (for whichever resource definition is selected) or should be

modified to improve the reliability of poverty estimates.

Some issues in updating the family resource measure seem to be fairly

well resolved in the scientific community, while additional discussion and

research may be needed to reach consensus on some of the practical

details. Although assessing a family’s expenditures might provide a more

direct picture of its economic well-being than income, measuring income

is considered to be more feasible for obtaining routinely available poverty

statistics. The panel recommended that the official poverty measure

should define a family’s economic resources to include disposable money

income and near-money government benefits, although experts differ on

how to make some of the adjustments to cash income. Finally, an existing

survey of income is believed capable, with some modification, of providing

more accurate and comprehensive data on family economic resources

than the source currently used for poverty statistics.

Issues to address in developing a contemporary set of poverty thresholds

to represent a “minimally adequate standard of living” for families in

1

Alternative Poverty Measures (GAO/GGD-96-183R, Sept. 10, 1996).

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different circumstances include (1) what basis should be used to set the

level of the thresholds, (2) whether to accommodate changes over time in

standards of living as well as in prices, (3) how to quantify the differences

in needs between families of different size and composition, and

(4) whether and how to accommodate geographical differences in the cost

of living.

In contrast to defining family resources, additional research may lead to

consensus on some issues in selecting a set of poverty thresholds, but

other issues will require policy judgment. It is generally recognized that

determining a minimum standard of living unavoidably requires judgment,

although research can provide guidance to bracket a set of alternatives.

We found mixed views on whether the thresholds should be automatically

updated for change in family spending patterns as well as for change in

prices. The panel proposed a statistical formula derived from the literature

to develop thresholds for different family sizes, but lacking an objective

way to measure the difference in needs between families, left setting the

formula’s exact terms to policy judgment. Finally, the experts we

interviewed agreed with the panel that geographic price differences were

appropriate to incorporate in the thresholds, but they were uncertain

about whether existing methods were technically adequate to do so.

The Office of Management and Budget (OMB) has not yet begun a formal

review of the poverty measure as the NRC panel recommended, but it plans

to create a working group soon with the Bureau of Labor Statistics (BLS),

the Bureau of the Census, and other interested agencies to explore general

issues in measuring income and poverty and consider alternative measures

to be developed and tested. BLS and Census staff have initiated exploratory

work examining the current feasibility of implementing some of the

panel’s recommendations and modifying existing surveys. However, since

these agencies may have several data collection projects under way to

address issues other than poverty measurement, it is important that

proposed changes to ongoing surveys are carefully coordinated.

Background

The Official Poverty

Measure

Researchers have defined poverty in a variety of ways. It can be defined as

deprivation experienced in material terms, such as hunger or poor housing

quality; in economic terms, such as inadequate income; or in social terms,

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such as isolation from the community or feelings of low self-esteem. In

U.S. government statistics, poverty is defined as economic

deprivation—that is, lacking the economic resources to meet basic

needs—which can put families at high risk of material deprivation.

Although some might prefer to directly measure a family’s level of material

deprivation, this is impractical for an annual statistic because it is difficult

to objectively assess the quality of a family’s standard of living and then to

combine measures for various basic needs (such as food, shelter, and

clothing) into a single indicator that can be readily analyzed.

In 1969, the federal government officially adopted a poverty measure to

determine how many people across the country had incomes that were

inadequate to meet expenses for basic needs. The official measure

determines a family’s poverty status by comparing its resources, defined

as before-tax money income, with a standard income level, or “threshold,”

designated for that family’s size and composition. Information on income

received in the previous calendar year is collected from households by the

Bureau of the Census using the March Income Supplement of the Current

Population Survey (CPS), which is jointly sponsored by the Bureau of the

Census and BLS. Poverty statistics are published each year that allow

comparisons of economic well-being across families, population groups,

and regions and over time.

Thresholds for families of different size and composition were initially

defined as three times the cost of a minimum diet for a family of that size.

This approach was based on the finding of the U.S. Department of

Agriculture’s (USDA) 1955 Household Food Consumption Survey that, on

average, families of three or more persons spent one-third of their income

on food. Costs of a minimum diet for various family sizes were calculated

from USDA’s Economy Food Plan, the least costly food plan designed by

USDA.

2

 Since then, the poverty thresholds, of which there are currently 48,

have been updated annually, to adjust for price inflation nationwide using

the Consumer Price Index (CPI). In 1995—the year of the most recent

update—a family of four with cash income of less than $15,569 was

considered to be living in poverty.

Criticisms of the Poverty

Measure

The problems in the official measure of poverty are well documented. The

value of the resources a family receives from noncash government

assistance programs like the Food Stamp Program was never included in

2

The original thresholds also considered sex of the family head and farm/nonfarm residence. In 1981,

these distinctions were eliminated; also, thresholds were extended up to families of nine or more

members.

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the formal definition of income, in part because the poverty measure was

developed before the advent of such programs. In considering the 1981

Commerce Department appropriations, the Senate Appropriations

Committee criticized the official poverty statistics for ignoring the “billions

of dollars of Government in-kind benefits, such as food stamps, housing

subsidies and medical care.” In the conference committee report, the

House and Senate conferees urged the Secretary of Commerce to

“continue research and testing of techniques for assigning monetary values

to in-kind benefits, and for calculating the impact of such benefits on

income and poverty estimates.”3

 In the early 1980s, the Bureau of the

Census embarked upon research programs to examine the effects of both

government in-kind (noncash) benefits and taxes on poverty and other

measures of income distribution and has published the results since 1982.4

A 1990 review of concepts and approaches to measuring poverty

concluded that although the official poverty thresholds “represented a

reasonable approach, given existing data, . . . in the 1960s, the rather

minimal consumption data on which they were based became outdated

long ago.”5

 For example, recent surveys find that food now represents

about one-seventh rather than one-third of average family expenditures. In

addition, the report noted that the methods used to update thresholds over

time and to adjust for differences in family size and type were questionable

and sometimes inconsistent.

In 1995, NRC’s Panel on Poverty and Family Assistance published an

in-depth review of the U.S. poverty measure addressing concepts,

measurement methods, and information needs. In addition to reviewing

the literature and numerous experts’ views, with help from federal

agencies, the panel conducted data analyses to assess the effects of its

recommended poverty concept and alternative measures on the numbers

and characteristics of persons in poverty. It concluded that the official

measure of poverty required revision and recommended that OMB adopt a

revised measure.6

 Specifically, the panel recommended that new

3

U.S. Senate Report No. 949, 96th Congress, 2nd Session, Sept. 16, 1980, p. 33; and U.S. House of

Representatives Report No. 1472, 96th Congress, 2nd Session, Nov. 20, 1980, p. 9.

4

See, for example, U.S. Department of Commerce, Bureau of the Census, Estimates of Poverty

Including the Value of Noncash Benefits: 1984, Technical Paper 55 (Washington, D.C.: U.S.

Government Printing Office (GPO), 1985); Measuring the Effect of Benefits and Taxes on Income and

Poverty: 1990, CPR P-60, #176-RD (Washington, D.C.: GPO, 1991); and Poverty in the United States:

1995, CPR P-60, #194 (Washington, D.C.: GPO, 1996).

5

Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public

Policy (Washington, D.C.: The Urban Institute Press, 1990), p. 164.

6

Constance F. Citro and Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington,

D.C.: National Academy Press, 1995).

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thresholds be developed using actual consumer expenditure data to

represent a budget for basic needs and adjusting that budget to reflect the

needs of different family types and geographic differences in housing

costs. It recommended that family resources be redefined as the sum of

money income and near-money benefits, minus necessary expenses (such

as taxes), and thus the net amount available to buy the goods and services

in that poverty budget. (App. I reproduces the panel’s recommendations in

their entirety, including some issues not discussed in this report.)

More recently, a researcher criticized the reliance of the official poverty

measure on reported income, pointing out that some families are

misidentified as poor because they can increase their purchasing power by

either taking out loans or drawing on their savings to avoid material

deprivation.7

 He and others have suggested that a family’s economic

well-being is more appropriately assessed with a measure of what it

spends on goods and services than with a measure of its income.

Issues in Assessing a

Family’s Economic

Well-Being

In developing, as well as evaluating, a poverty measure, certain

assumptions and choices must be made as one addresses two fundamental

decisions: first, how to define a family’s resources and, second, how to

select a threshold, or standard, to represent a “minimally adequate

standard of living.” While the two decisions are distinct, the two

definitions must be consonant with each other so that the eventual

comparison of a family’s resources with a standard is considered fair. For

example, if government medical benefits are considered as part of a

family’s resources, then need for medical care should be considered in

defining the threshold. Although many technical choices must be made in

developing a valid and practical measure of family economic well-being

for the purposes of determining poverty status, we identified three key

choices to be made:

• whether to directly measure a family’s spending on basic necessities or to

use income and other economic resources as a proxy for its ability to buy

those necessities,

• which economic resources should be considered available for meeting a

family’s basic needs, and

• whether existing data sources are adequate or should be modified to

improve the reliability of poverty estimates.

7

Nicholas Eberstadt, “A Poor Measurement,” Wall Street Journal, Vol. CCXXVII, No. 79 (Apr. 22, 1996),

p. A22, describes the research of Daniel T. Slesnick, including that reported in “Gaining Ground:

Poverty in the Postwar United States,” Journal of Political Economy, Vol. 101, No. 1 (1993), pp. 1-38.

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Should Well-being Be

Measured Through

Spending or Economic

Resources?

Some poverty researchers have proposed examining families’

consumption of goods and services, rather than their income, to assess

more directly whether they are able to obtain a minimal standard of living.

Many on the NRC panel and some of the experts we interviewed were

sympathetic with that view. The panel report noted that consumption is

more closely related conceptually to material deprivation—the core

concept underlying poverty—than is income. However, as we previously

noted, efforts to directly measure material deprivation meet with both

conceptual and practical difficulties. For example, some readily identified

deprivations, such as loss of housing, may not result from low income but

from imprudent spending or difficulties with one’s landlord. And defining

housing adequacy would require subjective judgments to select standards

for living space; cooking and plumbing facilities; and heating and, perhaps,

cooling needs. Even when expert-defined standards exist, assessing the

nutritional adequacy of a family’s diet, for example, would likely require a

costly expert assessment and the collection of detailed data on family

meals. Thus, measures of material deprivation are more often

recommended as a supplement to, than as a replacement, for data on

family resources.8

Instead, researchers who assess poverty status through consumption

typically use as their measure the dollar value of a household’s reported

spending (excluding taxes, gifts, and savings). The primary source for

these data is the Consumer Expenditure Survey (CEX), which collects

detailed data from households on their expenditures. Because we do not

know whether a family’s level of expenditures is sufficient to meet its

material needs, the dollar value of expenditures is really only a proxy for

the family’s level of material deprivation. However, some researchers still

prefer to look at what families spend rather than their income because

expenditures reflect what they were able to obtain with all their available

economic resources (including savings, assets, and credit), whereas

income is only a proxy for those resources.

There were mixed views in the field about whether income or

expenditures were more conceptually consistent with the intended uses of

the poverty measure. A perceived disadvantage of measuring family

well-being with income is that it tends to overstate the material

deprivation of families who experience a temporary economic setback and

of those low-income families who can use savings to maintain their level of

expenditures. But, precisely because families can smooth out the effects of

8

See Maya Federman and others, “What Does It Mean to Be Poor in America?” Monthly Labor Review

(May 1996) for an analysis of the living conditions and material deprivations reported by families with

incomes below the poverty level in nine national surveys.

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dips in income, expenditures tend to vary less among families and over

time than income does. Thus, for policy planning and evaluation purposes,

an expenditure-based measure might not be as sensitive an indicator of

families’ economic need as income would be. In contrast, a perceived

advantage of measuring poverty with family income is that much of

government antipoverty policy is expressed and analyzed in terms of

change in total or disposable family income. If poverty was measured on

the basis of expenditures, forecasting the effects of a change in economic

policy would require estimating how the expected change in family

income would affect a family’s expenditures, which are more difficult to

predict than income.

In the end, the NRC panel concluded, and experts we interviewed

concurred, that, at least at present, measuring poverty for official purposes

with expenditures was simply not feasible. The only available national

survey of household expenditures, the CEX, is not currently appropriate for

measuring poverty. Its sample size is too small to support the level of

detail on demographic subgroups that we now obtain from the income

surveys. Because the CEX is also expensive to administer and time

consuming to process, experts considered it prohibitively costly to greatly

expand the survey in its current form. Moreover, the panel reported

concerns about its design and response rate that raised questions for them

about its quality and appropriateness as a source for an

expenditures-based poverty measure. For example, because estimates of

different types of expenditures are currently derived from different

samples answering different surveys, the panel had questions about how

to obtain a comprehensive resource estimate for individual families. (App.

II provides more detail on this survey.) Nevertheless, because the

conceptual advantages of an expenditure measure of poverty have appeal,

the NRC panel also recommended research into improving available

expenditure data.

Which Economic

Resources Should Be

Counted as Available

Toward Meeting a Family’s

Basic Needs?

For more than a decade, critics have pointed out that the official poverty

measure’s use of gross cash income does not fully represent the resources

families actually have available to meet basic needs. Specifically, gross

cash income excludes the value of in-kind benefits (like food stamps and

public housing rental subsidies), which clearly increase the resources

available for basic needs, and fails to account for taxes and payment of

child support, which reduce available resources. Since the poverty

measure was developed, there have been significant increases in payroll

taxes and noncash government transfers for low-income families, as well

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as significant changes in income taxes, so these omissions have become

more problematic over time. The NRC panel believed that it was also

critical to take into account both in-kind benefits and tax payments in

order for the poverty measure to reflect the antipoverty effects of

government tax and assistance policies.

We found disagreement among the experts, however, about how far to go

in making these adjustments to cash income. The NRC panel recommended

adding the value of near-cash, nonmedical in-kind benefits (such as food

stamps, rental housing subsidies, school lunches, and home energy

assistance) to families’ gross money income and deducting income taxes,

Social Security taxes, payment of child support, out-of-pocket medical

expenditures, and child care and other work-related expenses (up to a

limit). One of the panel members dissented from the panel’s

recommendations on how to incorporate out-of-pocket medical expenses

and the value of public medical insurance (Medicaid and Medicare). Over

the years, efforts to find a generally acceptable method for valuing public

medical insurance have been unsuccessful, in part because the value of

insurance to recipients depends on whether they need to use it. In

addition, the dollar value of expenses covered by insurance can be so large

that it exceeds the amount of money a low-income family has available for

other needs, yet it cannot be spent on those needs. The panel’s suggestion

to deduct out-of-pocket medical expenses from income, instead of adding

the value of insurance coverage to income, avoids ascribing unrealistically

large amounts of resources to families who never made use of their

insurance and those whose insurance covered unusually high expenses.

But one panel member preferred to treat health care as another basic need

such as food, shelter, and clothing, and incorporate out-of-pocket medical

expenses as part of the family budget used to develop the thresholds.

Deciding which income adjustments to make also depends on how

accurate these adjustments can be made, at reasonable expense. The

Bureau of the Census, which has developed ways to approximate values

for food and housing assistance received and taxes paid for the families

that are surveyed to produce the poverty statistics, has used those figures

to calculate adjusted poverty rates on an experimental basis. However,

Bureau of the Census officials were not confident about the success of this

approach for some of the other recommended income adjustments

without expanding the CPS questionnaire. One expert stressed that if

estimates are used, it is important that they accurately reflect the real

choices made by lower-income families, because using average family

expenditure values could introduce bias into the poverty estimates.

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Another consideration raised by government officials in deciding whether

and how to change the way family economic resources are officially

defined for measuring poverty is the implications of such a change for

those government programs that link receipt of assistance to the official

poverty measure. Some programs determine eligibility, in part, by

comparing an applicant’s income with the poverty guidelines (which are

derived from the thresholds) or some multiple of them. Poverty guidelines

are issued annually by the U.S. Department of Health and Human Services

(HHS) by smoothing the official poverty thresholds for different size

families, increasing the levels for Alaska and Hawaii, and updating them

for price inflation.

To aid coordination of assistance programs, it is preferable for programs

to share a common definition of “income”; one way to simplify a program’s

application process is to limit its resource definition to gross monetary

income, based on readily obtained information. The panel believed that its

disposable income definition of family resources is a substantial

improvement over the current measure, and so encouraged consideration

of, but did not directly recommend, the use of this definition by programs

that currently compare gross income to the administrative poverty

guidelines. The panel recognized that, in programs that currently employ a

fairly crude measure of gross income, implementing its proposed resource

definition would require obtaining additional data on applicants’ in-kind

benefits and expenses. The panel also recognized that this could place a

burden on both clients and administrators. As an alternative, the panel

suggested that such programs could choose to use a simplified definition

of disposable income if the programs were willing to give up some

precision in determining eligibility status in order to minimize data burden.

Are Existing Data Sources

Adequate or Should They

Be Improved?

Part of the argument for using expenditures rather than income to

measure a family’s economic well-being is the claim that many apparently

low-income households underreport their income. This claim is primarily

based on the finding that in the single national household survey that

collects extensive data on family expenditures (the CEX), low-income

families report higher levels of expenditures than income.9

 Although the

Bureau of the Census acknowledges some income underreporting in the

survey that is used to derive the official poverty statistics (the CPS), this

problem is understood to be somewhat greater in the CEX, which was not

specifically designed to measure income.

9

In comments on an earlier draft, BLS suggested another explanation for this anomaly: some families

that report low levels of income do so because of business income losses, yet they may have

expenditure levels more typical of higher-income consumers.

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The NRC panel recommended changing the data source for poverty

statistics from the CPS to the Survey of Income and Program Participation

(SIPP), which is also conducted by the Bureau of the Census. The CPS is

basically a labor force survey that is supplemented in March of each year

with a large battery of income questions used for measuring poverty. In

contrast, the SIPP was specially designed as a survey of household income

and, through both different questions and more frequent interviews,

provides more detailed and more accurate data on income than the CPS. In

addition, because the CPS survey does not collect certain data on expenses

(notably taxes, child care, and child support payments), estimates of the

likely value of such payments (that is, imputations) would be required to

make some of the recommended income adjustments. In the absence of

some of the information needed, the technical adequacy of the imputations

becomes increasingly important. Thus, many experts prefer the SIPP

because they believe it provides a more accurate report of income for

low-income people and provides most of the information required for the

additional income adjustments recommended by the panel. (App. II

provides more detail on these surveys.)

Currently, the decennial census, due to its broad coverage, is the primary

source of poverty rates for small areas such as cities and counties; yet, it

does not gather the detailed information that would be required to

implement the panel’s proposed resource definition. Officials of the

Bureau of the Census indicated that they have tested several limited

questions in the National Content Survey (the main content-testing vehicle

for the year 2000 census) on the receipt of in-kind benefits and payments

for child support but that no expansions are planned to the census

long-form questionnaire at this time. Thus, if the panel’s definition of

family resources was adopted, simulations would be required to produce

comparable estimates from the census. Differences between estimates

from the two surveys would likely result, but some comparability

problems exist currently between poverty estimates derived from the CPS

and the census.

Developments Since the

NRC Report

OMB has not yet acted on the panel’s recommendations to revise the

poverty measure but has discussed forming an interagency working group

with BLS, the Bureau of the Census, and other interested agencies to

explore general issues in measuring income and poverty and consider

alternative measures to be developed and tested. BLS has not yet begun a

comprehensive study of how to improve the CEX as a tool to measure

family resources for the purposes of determining their poverty status per

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se, as the panel recommended, but awaits direction from OMB and

additional funds to undertake such research. However, efforts are under

way to address some of this survey’s data quality problems that were

noted by the panel.

Staff of the Bureau of the Census, in a joint project with BLS staff, have

begun to examine the feasibility of implementing the panel’s

recommendations for a revised resource definition. After replicating the

panel’s procedures on the CPS, they concluded that “[t]he Panel’s

recommendation that resources be measured as disposable income places

much faith in the Census Bureau’s ability to expand data collection efforts

or do better modeling in an environment in which small annual changes in

poverty are perceived as important, since there is no national survey that

currently collects all the information necessary to portray a family’s

poverty status under the proposed measure.”10 Bureau of the Census staff

report that researchers within the Bureau are currently examining nearly

every dimension of the resource measure they employed (including the

valuation of housing subsidies and imputation of work, child care, and

out-of-pocket medical expenses) and are currently working on

implementing the resource measure in the SIPP instead of the CPS.

11

In 1996, the sample design of the SIPP was changed in order to focus on

collecting longitudinal information on change in families’ income and

behavior over time. As a result, the SIPP is no longer able to provide

nationally representative estimates of family income each year. The

Bureau of the Census has developed a proposal to supplement the SIPP’s

new sample design to ensure this survey’s ability to provide national

estimates from year to year, comparable to current practice. However,

additional funds would be required for this new design. The Bureau is also

considering an alternative process for conducting the 2010 decennial

census that would involve collecting more detailed data from samples of

respondents throughout a 10-year period rather than only once every 10

years. However, it is not clear at this time whether this process will be

adopted and, if so, whether it would include the detailed information on

family resources and expenses needed to implement a disposable income

definition. Nevertheless, because government analysts are also just

beginning to recognize the implications for existing surveys of the new

reporting requirements of the 1996 welfare reform legislation, we believe it

10Thesia I. Garner and others, “Experimental Poverty Measurement for the 1990’s,” paper presented at

the Allied Social Science meetings (New Orleans, La.: Jan. 4, 1997), pp. 28-29.

11Kathleen Short, Martina Shea, and T.J. Eller, “Work Related Expenditures in a New Measure of

Poverty,” paper presented at the American Statistical Association meetings (Chicago, Ill.: Aug. 7, 1996).

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is critical that all proposed changes to the SIPP and census be carefully

coordinated.12

Issues in Updating the

Poverty Thresholds

The current thresholds, or levels of income below which families of

different sizes are considered poor, are based on family consumption

patterns of 4 decades ago and contain certain logical inconsistencies. As a

consequence, many experts believe that the thresholds should be revised,

but there is less consensus on how to do so. Although many technical

choices will need to be made in developing thresholds, we highlight four

key choices:

• on what basis to set the level of a poverty threshold,

• whether to accommodate changes over time in standards of living as well

as in prices,

• how to quantify the difference in need among families of different size and

composition, and

• whether and how to accommodate geographical differences in the cost of

living.

How Should an

Appropriate Threshold

Level Be Identified?

The NRC panel concluded that “[a]lthough judgement enters into nearly all

aspects of the poverty measure . . . questions of the threshold concept and

level are more inherently matters of judgment than other aspects of a

poverty measure.”13 Many of the experts we interviewed believed that

scientists should not set the poverty thresholds on their own but instead

should provide information about what it means to live at one income

level or another (in terms of expenditures or living conditions) and let

policymakers make the judgment. That is, the poverty level is viewed as

essentially an arbitrary point selected to represent what society defines as

constituting a “minimally adequate standard of living.” However, the panel

noted that several sources are available to inform the selection of a

particular income level: public opinion on what level of income is believed

necessary to “get along,” the distribution of family or household income,

and poverty budgets that estimate what income levels families need to

obtain basic necessities.

From 1946 to 1989, the Gallup poll has asked the following question: “What

is the smallest amount of money a family of four (husband, wife, and two

12The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104-193, was

signed into law on Aug. 22, 1996.

13Citro and Michael, Measuring Poverty, p. 99.

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children) needs each week to get along in this community?” Denton

Vaughan’s 1993 analysis of these data found that the “get-along” amount,

while remaining below the median level of post-tax income for four-person

families, has increased over the years along with increases in median

family income. In contrast, the official poverty level, in constant dollars,

while similar to the “get-along” amount from 1947 to 1950, declined

sharply thereafter relative to both median income and the “get-along”

amount through the early 1970s. Vaughan concluded that the official

poverty threshold, by remaining fixed while real incomes and expectations

rose, “is no longer fully consistent with the standards of the American

people.”14 The NRC panel recommended against using these or similar poll

findings directly to set the poverty level because (1) responses are quite

variable, both over time and with the exact wording of the question and

(2) the knowledge that their response would be used to set the poverty

standard (and thus, perhaps, benefit levels) might affect the way in which

people respond. Indeed, a government official pointed out that precisely

because these surveys did not directly ask what level of resources families

should be guaranteed, these responses were not appropriate for setting

guidelines that would determine public assistance benefit levels. However,

opinion surveys were considered a valid way of tapping societal norms, so

experts suggested that their results be used as a confirmatory source to

help bracket figures derived from other sources.

Alternatively, poverty can be treated as a relative notion and the poor

defined as all those with income below a particular point on the

distribution of family or household income, such as the bottom fifth or

those below a point representing 50 percent of the median income. This

approach emphasizes the socially defined aspect of poverty, that “[t]hose

whose resources are significantly below the resources of other members

of society, even if they are able to eat and physically survive, are not able

to participate adequately in their relationships, and therefore are not able

to participate fully in society.”15 The NRC panel noted that relative

thresholds are easy to understand and calculate, are thus often used in

international comparisons of poverty, and are self-updating.

The panel also noted that some find the relative, arbitrary, and

self-updating features of relative thresholds to be drawbacks, instead. For

example, creating a purely relative poverty level (such as the bottom fifth

14Denton R. Vaughan, “Exploring the Use of the Public’s Views to Set Income Poverty Thresholds and

Adjust Them Over Time,” Social Security Bulletin, 56(2) (summer 1993), p. 37.

15Citro and Michael, Measuring Poverty, p. 125. See also Peter Townsend, The International Analysis of

Poverty (Hemel Hempstead, England: Harvester-Wheatsheaf, 1992).

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of the distribution) was unappealing because it would mean that the

statistic would no longer serve as a measure of progress against poverty.

Every year, no matter how much family incomes improved, one fifth of the

population would automatically be defined as poor. That problem can be

avoided, however, by defining the threshold as a percentage of median

income, which would not require a particular proportion of the population

to be labeled as poor.

The third major approach to setting a poverty threshold is to develop some

form of poverty budget based on expert judgment of families’ needs, the

observed expenditures of low-income families, or some combination of

the two. Poverty budgets based on expert judgments “have the appeal of

being based on the notion of minimum standards of physical needs,” but

“large elements of relativity and subjective judgment invariably enter the

process” because few established standards exist to guide the choice of

what to include in these budgets.16 The dilemma is that there are many

different ways to meet basic nutritional needs, for example, but to cost out

a poverty budget, the expert must select one nutritionally adequate diet

over another, which requires subjective judgment. Therefore, in practice,

experts must base their judgments on either their own beliefs about the

needs of low-income families or on observations of families’ spending

patterns.

The primary choice in developing a poverty budget is whether to specify in

detail a comprehensive poverty-level family budget or to cost out one or a

few categories of spending that can then be multiplied by a factor to

represent the rest of a family’s needs. Comprehensive detailed budgets

that attempt to mimic an entire family’s budget have the advantage of

appearing to be absolute rather than relative and provide a concrete

picture of what it would look and feel like to live at that particular income

level. But the experts also cautioned that a carefully detailed budget was

very burdensome to create and required a substantial number of

subjective judgments to justify (such as about what to include and at what

cost).

In contrast, a budget based on specifying one or two budget categories,

such as food, paired with a multiplier to cover the rest of a family’s needs,

is much simpler to create, but using a large multiplier can distort the

measure over time if it is not reassessed. This is precisely what happened

with the official poverty measure. The original formula (three times the

cost of a poverty food budget) no longer reflects contemporary family

16Citro and Michael, Measuring Poverty, p. 107.

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consumption patterns because costs of different budget categories have

changed differentially. Food costs have not risen as much as other costs

since the 1950s and standards of living have climbed, so food now

represents about one-seventh rather than one-third of family budgets.

Thus, a literal update of the original poverty measure would multiply the

current cost of a poverty food budget by seven rather than by three.

To ground the thresholds in families’ basic needs yet avoid the numerous

judgments involved in detailing a comprehensive budget, the NRC panel

recommended developing a budget for a four-person reference family for

the three categories of food, clothing, and shelter needs from actual family

expenditure data, along with a small multiplier to account for other needs.

It recommended basing the budget on a fixed proportion of the median

expenditures of two-adult, two-child families on these basic needs. It

further recommended that that proportion and the multiplier be selected

in concert with both expert judgment and public opinion concerning what

constitutes a minimally acceptable standard of living. As one expert

argued, since poverty is, in the end, a social construct, triangulation

between threshold levels generated through expert judgment, family

expenditure data, and public opinion polling is most likely to achieve the

desired consensus.

Another consideration in deciding whether and how to revise the poverty

thresholds is the implications of such a change for those government

programs that link receipt of assistance to the administrative poverty

guidelines. Some programs providing cash, in-kind benefits, or services to

low-income persons have as one of their income eligibility criteria that

their income be compared with the poverty guidelines or some multiple of

them; others have their own income standards. Currently, the

administrative poverty guidelines issued by HHS are a simplified version of

the poverty thresholds. If changes to the poverty thresholds were made,

OMB officials indicated that the administrative guidelines would not

necessarily be affected, unless a separate decision was made that revised

measures were more appropriate for those programs that use the

guidelines. Nevertheless, even changing the level of these poverty

guidelines would only have direct caseload and budget implications for

some programs, and only if the newly eligible people applied for services.

This is because only some of the programs that link eligibility to the

poverty guidelines are entitlement programs, that is, they must provide

benefits to all eligible applicants (for example, Medicaid, food stamps,

School Lunch, and School Breakfast). In others, legislatively set budget

limits determine how many eligible people who apply for services will

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actually be assisted and how many will be put on waiting lists. The NRC

panel recommended that program agencies carefully review the proposed

measure to determine whether it is appropriate as an eligibility standard

and whether it may need to be modified to better serve program

objectives. “Other considerations, such as funding constraints and

competing use of scarce tax dollars, may dictate that assistance program

benefits be set at a level below the statistical poverty thresholds.”17

Should the Thresholds

Accommodate Changes

Over Time in Standards of

Living as Well as in Prices?

No matter what level is selected to represent the income needed to

purchase a “minimum adequate standard of living,” some mechanism is

needed to maintain its currency over time. Currently, the thresholds are

updated annually for price inflation, but we found mixed views on whether

to also update them regularly for real changes in income levels or

expenditures. As noted before, by not reestimating the food share of

families’ budgets, the current method’s adjustment of the 1960s’ thresholds

for price inflation alone is believed to have misestimated the effect of

changes in the cost of living on the entire poverty budget.18

In support of routinely adjusting for changes in standards of living, the

panel noted that, historically, the levels of estimated minimum

standards—whether from expert budgets, programmatic standards, or

public opinion polling—have in fact risen over time with real (that is,

inflation-adjusted) growth in both income and consumer expenditures.

Additionally, of course, it would be administratively simpler to have a

routine mechanism for updating the thresholds, rather than wait until

serious concerns arise to instigate a major reevaluation and revision. To

keep the thresholds current, the NRC panel proposed updating them

annually to reflect changes in median family expenditures on food,

clothing, and shelter, with the amount averaged over the previous 3 years

to reduce the thresholds’ volatility over the cycles of the economy.

However, other experts were concerned that such annual adjustments

would turn the poverty measure into a relative standard that would no

longer provide a stable target for assessing government programs’

progress. Moreover, they were concerned that, in the short run, a relative

threshold tied to median income (or expenditures) could end up yielding

perverse results. For example, in an economic recession, as median

17Citro and Michael, Measuring Poverty, p. 320.

18There have been discussions about moving the CPI toward a more comprehensive measure of cost of

living, but it is too early to know whether such changes, if implemented, would address experts’

concerns.

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expenditures declined, so would the poverty threshold, potentially leading

to lower rather than higher poverty rates. NRC’s proposed updating

mechanism would not create a truly relative measure because the

threshold would be updated on the basis of families’ expenditures on food,

clothing, and shelter, which represent about 45 percent of total

expenditures for four-person households and do not tend to rise as fast as

income. Additionally, updating thresholds with median expenditures

averaged over the past 3 years would moderate the effect of year-to-year

economic fluctuations.

How Should the

Thresholds Reflect

Differences in Need

Among Families of

Different Size?

Thresholds for different types of families were initially developed in an

effort to ensure the equivalence of the poverty level, conceptually, across

families whose different circumstances implied different needs. The USDA

food plans were developed to reflect presumed differences in the food

needs of children and elderly individuals and those of nonelderly adults,

and the thresholds were developed to accommodate the economies of

scale enjoyed by larger families compared with smaller ones. However, it

was pointed out in 1990 that the initial equivalence scales (that is, the set

of differences between thresholds for different families) were not entirely

systematically based on variation in family consumption patterns and the

data that were used are now out of date. Additionally, the scales exhibit

some abnormalities in terms of natural economies of scale for different

family sizes.

Analysts want the thresholds to reflect only those sources of variation in

family needs for which empirical evidence of sizable systematic variation

exists. While elderly people do have different consumption patterns from

the nonelderly, evidence that the elderly have consistently lower income

needs is limited. Thus, the panel proposed dropping the distinction made

in the current method that provides a lower threshold for elderly

individuals living alone than that for nonelderly adults. In response to a

legal challenge, the distinction between female and male heads of

households was removed in 1981.

A large body of research has developed a variety of approaches for

creating equivalence scales to represent the variation in needs among

different family types. However, no single approach can be clearly

demonstrated to be more accurate than the others because of conceptual

difficulties in assessing whether two families of different types are equally

well-off. For example, although married couples with one child may spend

less on food outside the home than those without children, we have no

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measure of whether they are equally well-off. Thus, it is difficult to identify

the extent of economies of scale from simply comparing different families’

expenditure patterns. Moreover, in any consumption-based analysis, care

must be taken to avoid simply institutionalizing the status quo. If larger

families also tend to have lower incomes than smaller families, their

smaller per capita spending could represent the effects of their lower

income rather than lower needs.

In the absence of an objective procedure for determining the relative costs

of living for families of different sizes and composition, the NRC panel

proposed using a statistical formula to produce thresholds for various

combinations of adults and children so that the resultant equivalence scale

would at least be logical and internally consistent. The panel developed a

formula reflecting the general form of the varied formulas in the literature,

which treats the cost per child as a fixed proportion of the cost per

additional adult and provides for the scale economies of larger families. It

also made suggestions for the choice of the actual terms of the formula.

These choices need to be carefully examined because, by raising or

lowering the thresholds for different families from what they are now, the

demographic profile of people defined as living in poverty can be

substantially changed. For example, the panel found that applying one of

the proposed scales while retaining the current threshold for a two-adult,

two-child family would reduce the threshold for single people and thus

increase the poverty rate for that group.

Should Thresholds Reflect

Geographic Differences in

Cost of Living and, if so,

How?

Another important source of variation in family circumstances that affects

the cost of meeting families’ basic needs is geography. It has long been

recognized that, “because some parts of the country have higher prices

than other parts, families that live in relatively expensive areas actually

may need higher incomes to maintain the same level of consumption as

lower income families in less expensive places.”19 The experts we

interviewed agreed that it was conceptually appropriate to adjust the

poverty thresholds to account for reliable differences across areas in the

cost of living but were unsure about whether adequately reliable data

would be available to do so. Another noted that such a change could cause

the Congress to consider the effects that such a change would have on the

distribution of funds to states and localities from federal programs whose

distribution formulas currently consider the differences in poverty rates

between areas.

19Ruggles, Drawing the Line, p. 82.

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Long-standing data and conceptual problems have prevented any

adjustment of poverty measures for geographic differences in cost of living

in the past and may continue to do so. Currently, no standard index of

comparative prices exists that reflects variation both within and across

regions and that covers all areas of the country. Previous efforts to

develop such an index have been stymied by lack of comprehensive and

comparable price data on samples large enough to provide reliable

estimates for areas within regions, as well as by the problem of how to

adjust for differences in local preferences or standards of living. That is,

while it seems reasonable to account for differences in types of

expenditures that are directly related to the climate, such as heating costs,

some other differences, such as food preferences, may also represent

differences in quality that are related to differences in income levels

between areas.

As an alternative to a comprehensive interarea price index, the NRC panel

proposed adjusting the poverty thresholds with an interarea price index

for shelter, because shelter costs show considerable geographical

variation and are a major component of consumer spending. The NRC panel

proposed developing an interarea housing cost index for metropolitan

areas of various population sizes within nine regions and developed an

experimental one themselves, using a modified version of the “fair market

rent” methodology developed by the U.S. Department of Housing and

Urban Development (HUD). To administer rental housing subsidies, HUD

sets “fair market rents” at the 45th percentile of the rent distributions in

metropolitan areas and nonmetropolitan counties for apartments that

meet specified quality standards and that are occupied by recent movers.20

 The NRC panel applied this methodology to rental housing data from the

1990 census to develop index values for metropolitan and nonmetropolitan

areas. We previously reported, however, that experts have criticized the

use of the HUD method for creating an interarea price index for adjusting

poverty thresholds because HUD’s estimates do not cover all types of rental

housing; fail to adjust for interarea differences in the quality of housing;

and, of course, capture only one component of the cost of living.21

While experts agreed it was rationally justified to adjust the thresholds for

geographic cost-of-living differences, we found little consensus on which

methodology would be both reasonably accurate and practical for creating

20The data sources for the HUD rent distributions include the decennial census, the American Housing

Survey, and local-area random digit dialing telephone surveys.

21Poverty Measurement: Adjusting for Geographic Cost-of-Living Difference (GAO/GGD-95-64, Mar. 9,

1995).

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and maintaining such an index. One concern is that no single data source,

including the decennial census, had both adequately reliable data on

metropolitan and nonmetropolitan areas within regions and the detail on

housing characteristics required to accurately distinguish differences in

prices from those in quality. Another concern is that housing prices may

differ as much within metropolitan areas as they do between them.

Moreover, because housing markets can experience large changes within a

10-year period, developing a method to produce reliable updates between

decennial censuses is important to ensure that the geographic adjustments

do not create more error than they were intended to reduce. However,

there was no consensus among the experts we interviewed that a solution

to the periodic updating problem had been found.

Developments Since the

NRC Report

Staff of BLS, in a joint project with the Bureau of the Census, have begun

exploratory work to examine the feasibility of implementing the panel’s

proposals for developing poverty thresholds should they be asked to do

so. Applying the panel’s recommended procedures to expenditure data

from 1987 to 1994, they found the thresholds seem to be stable over time.

However, in testing alternative valuation procedures, they found that

replacing a homeowner’s shelter costs with a rental equivalence value

produced higher thresholds and thus higher poverty rates.22 They report

that BLS researchers are currently examining (or planning to examine)

numerous issues related to the panel’s recommendations, including other

methods to estimate the service flows from owned housing and vehicles,

the impact of using data from consumer units reporting a full year of

expenditures, and which Consumer Price Index to use to update the basic

bundle of expenditures.

Professor David Betson, a member of the panel, has continued research on

the evidence underlying the current and alternative equivalence scales and

the consequences of alternative scales for who is considered poor. In a

preliminary summary, he reports that several different sets of scales are

consistent with the research on spending on children but yield quite

different results for single adults. Yet, with limited research evidence on

the scale relating one and two adults, additional research will be required

to choose among these scales.23

22Thesia I. Garner and others, “Experimental Poverty Measurement.”

23David M. Betson, “Is Everything Relative? The Role of Equivalence Scales in Poverty Measurement”

(unpublished paper, dated March 1996, available from the author at the Department of Economics,

University of Notre Dame, South Bend, Ind.).

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Additionally, BLS has been conducting some experimental work on

interarea indexes of price differences that may help resolve concerns

regarding the quality of available data for adjusting the thresholds for

geographical differences in the cost of living. Specifically, BLS is using

sophisticated statistical techniques to isolate the relative differences in

prices among geographic locations when, as is done in developing the CPI,

price information is collected for similar but not identical items across

localities. If these techniques are deemed successful, an interarea price

index could be developed and regularly updated from BLS’ existing data

sources. However, the CPI sample would still need to be increased to

produce estimates for rural areas.

Conclusions Some of the issues involved in updating the poverty measure seem to be

fairly well resolved in the scientific community. Although a family’s

economic resources are only a proxy for its ability to obtain an adequate

standard of living, they clearly provide the most reliable data for assessing

and comparing families’ ability to meet their needs. Similarly, we found

agreement that the measure of a family’s economic resources should

include near-money government benefits and exclude income and payroll

taxes.

But additional discussion and research may be needed for experts to reach

consensus on other issues, such as how to incorporate government

medical assistance in a measure of disposable income and how to

accommodate geographical differences—and changes—in the cost of

living. Even though some adjustments are clearly preferable conceptually,

not all will be considered worth the effort and expense required.

Updating the thresholds, in contrast, poses issues for which scientific

evidence can only bracket a set of alternatives. Determining what

constitutes a minimally adequate standard of living is, in essence, a social

judgment that should reflect both societal and experts’ views. A broader

discussion would also seem to be appropriate for the issue of whether to

incorporate changes over time in standards of living as well as in prices.

Agency Comments

and Our Response

The Bureau of the Census, within the U.S. Department of Commerce; BLS,

within the Department of Labor; and the Office of Information and

Regulatory Affairs (OIRA), within OMB, provided written comments on a

draft of this report. Both OIRA and the Bureau of the Census stated that the

report was a good summary of the important issues regarding

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improvements in the official measure of poverty. But OIRA also believed

that in considering these issues, it should also be noted that broadening

the definition of income to include noncash transfers and the net effect of

direct taxes is bound to lower the measured poverty rate unless the

thresholds are adjusted to reflect a higher level of economic well-being.

Each agency provided some technical comments and corrections that we

have incorporated, as appropriate, throughout the text. BLS focused its

comments on issues surrounding the use of the CEX. BLS noted that it is

engaged in ongoing efforts to improve the CEX collection instrument to

ensure that its data are of the highest quality but thought criticism of it

was overstated in several places. We have changed the text to clarify that

these comments pertained to use of the survey to measure individual

families’ economic well-being, a purpose outside its current mission. The

agencies’ comments appear in appendixes III, IV, and V.

We are sending copies of this report to the Chairman, Senate Committee

on Finance; the Secretary of Commerce and the Director of the Bureau of

the Census; the Secretary of Labor and the Commissioner of BLS; the

Director of OMB and the Administrator of the Office of Information and

Regulatory Affairs; and interested congressional committees. We will also

make copies available to others on request.

If you have any questions concerning this report or need additional

information, please call me on (202) 512-7215 or Stephanie Shipman,

Assistant Director, on (202) 512-4041.

Sincerely yours,

Jane L. Ross

Director, Income Security Issues

Page 23 GAO/HEHS-97-38 Alternative Poverty Measures
Contents

Letter 1

Appendix I 

Recommendations of

the National Research

Council’s Panel on

Poverty and Family

Assistance

26

Appendix II 

The CEX, CPS, and

SIPP Surveys

33

Appendix III 

Comments From the

Bureau of Labor

Statistics

37

Appendix IV 

Comments From the

Bureau of the Census

40

Appendix V 

Comments From the

Office of Information

and Regulatory Affairs

42

Bibliography 44

Related GAO Products 48

Page 24 GAO/HEHS-97-38 Alternative Poverty Measures
Contents

Abbreviations

BLS Bureau of Labor Statistics

CEX Consumer Expenditure Survey

CPI Consumer Price Index

CPS Current Population Survey

GPO Government Printing Office

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

NRC National Research Council

OIRA Office of Information and Regulatory Affairs

OMB Office of Management and Budget

SIPP Survey of Income and Program Participation

USDA Department of Agriculture

WIC Special Supplemental Food Program for Women, Infants and

Children

Page 25 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

Reprinted with permission from C. Citro and R. Michael, eds., Measuring

Poverty: A New Approach (Washington, D.C.: National Academy Press,

1995), pp. 4-15.

Recommendation 1.1 The official U.S. measure of poverty should be revised to reflect more

nearly the circumstances of the nation’s families and changes in them over

time. The revised measure should comprise a set of poverty thresholds and

a definition of family resources—for comparison with the thresholds to

determine who is in or out of poverty—that are consistent with each other

and otherwise statistically defensible. The concepts underlying both the

thresholds and the definition of family resources should be broadly

acceptable and understandable and operationally feasible.

Recommendation 1.2 On the basis of the criteria in Recommendation 1.1, the poverty measure

should have the following characteristics:

• The poverty thresholds should represent a budget for food, clothing,

shelter (including utilities), and a small additional amount to allow for

other needs (e.g., household supplies, personal care, non-work-related

transportation).

• A threshold for a reference family type should be developed using actual

consumer expenditure data and updated annually to reflect changes in

expenditures on food, clothing, and shelter over the previous 3 years.

• The reference family threshold should be adjusted to reflect the needs of

different family types and to reflect geographic differences in housing

costs.

• Family resources should be defined—consistent with the threshold

concept—as the sum of money income from all sources together with the

value of near-money benefits (e.g., food stamps) that are available to buy

goods and services in the budget, minus expenses that cannot be used to

buy these goods and services. Such expenses include income and payroll

taxes, child care and other work-related expenses, child support payments

to another household, and out-of-pocket medical care costs, including

health insurance premiums.

Recommendation 1.3 The U.S. Office of Management and Budget should adopt a revised poverty

measure as the official measure for use by the federal government.

Appropriate agencies, including the Bureau of the Census and the Bureau

Page 26 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

of Labor Statistics, should collaborate to produce the new thresholds each

year and to implement the revised definition of family resources.

Recommendation 1.4 The Statistical Policy Office of the U.S. Office of Management and Budget

should institute a regular review, on a 10-year cycle, of all aspects of the

poverty measure: reassessing the procedure for updating the thresholds,

the family resource definition, etc. When changes to the measure are

implemented on the basis of such a review, concurrent poverty statistics

series should be run under both the old and new measures to facilitate the

transition.

Recommendation 2.1 A poverty threshold with which to initiate a new series of official U.S.

poverty statistics should be derived from Consumer Expenditure Survey

data for a reference family of four persons (two adults and two children).

The procedure should be to specify a percentage of median annual

expenditures for such families on the sum of three basic goods and

services—food, clothing, and shelter (including utilities)—and apply a

specified multiplier to the corresponding dollar level so as to add a small

amount for other needs.

Recommendation 2.2 The new poverty threshold should be updated each year to reflect changes

in consumption of the basic goods and services contained in the poverty

budget: determine the dollar value that represents the designated

percentage of the median level of expenditures on the sum of food,

clothing, and shelter for two-adult/two-child families and apply the

designated multiplier. To smooth out year-to-year fluctuations and to lag

the adjustment to some extent, perform the calculations for each year by

averaging the most recent 3 years’ worth of data from the Consumer

Expenditure Survey, with the data for each of those years brought forward

to the current period by using the change in the Consumer Price Index.

Recommendation 2.3 When the new poverty threshold concept is first implemented and for

several years thereafter, the Census Bureau should produce a second set

of poverty rates for evaluation purposes by using the new thresholds

updated only for price changes (rather than for changes in consumption of

the basic goods and services in the poverty budget).

Page 27 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

Recommendation 2.4 As part of implementing a new official U.S. poverty measure, the current

threshold level for the reference family of two adults and two children

($14,228 in 1992 dollars) should be reevaluated and a new threshold level

established with which to initiate a new series of poverty statistics. That

reevaluation should take account of both the new threshold concept and

the real growth in consumption that has occurred since the official

threshold was first set 30 years ago.

Recommendation 3.1 The four-person (two adult/two child) poverty threshold should be

adjusted for other family types by means of an equivalence scale that

reflects differences in consumption by adults and children under 18 and

economies of scale for larger families. A scale that meets these criteria is

the following: children under 18 are treated as consuming 70 percent as

much as adults on average; economies of scale are computed by taking the

number of adult equivalents in the family (i.e., the number of adults plus

0.70 times the number of children), and then by raising this number to a

power of from 0.65 to 0.75.

Recommendation 3.2 The poverty thresholds should be adjusted for differences in the cost of

housing across geographic areas of the country. Available data from the

decennial census permit the development of a reasonable cost-of-housing

index for nine regions and, within each region, for several population size

categories of metropolitan areas. The index should be applied to the

housing portion of the poverty thresholds.

Recommendation 3.3 Appropriate agencies should conduct research to determine methods that

could be used to update the geographic housing cost component of the

poverty thresholds between the decennial censuses.

Recommendation 3.4 Appropriate agencies should conduct research to improve the estimation

of geographic cost-of-living differences in housing as well as other

components of the poverty budget. Agencies should consider

improvements to data series, such as the BLS area price indexes, that have

the potential to support improved estimates of cost-of-living differences.

Page 28 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

Recommendation 4.1 In developing poverty statistics, any significant change in the definition of

family resources should be accompanied by a consistent adjustment of the

poverty thresholds.

Recommendation 4.2 The definition of family resources for comparison with the appropriate

poverty threshold should be disposable money and near-money income.

Specifically, resources should be calculated as follows:

• estimate gross money income from all public and private sources for a

family or unrelated individual (which is income as defined in the current

measure);

• add the value of near-money nonmedical in-kind benefits, such as food

stamps, subsidized housing, school lunches, and home energy assistance;

• deduct out-of-pocket medical care expenditures, including health

insurance premiums;

• deduct income taxes and Social Security payroll taxes;

• for families in which there is no nonworking parent, deduct actual child

care costs, per week worked, not to exceed the earnings of the parent with

the lower earnings or a cap that is adjusted annually for inflation;

• for each working adult, deduct a flat amount per week worked (adjusted

annually for inflation and not to exceed earnings) to account for

work-related transportation and miscellaneous expenses; and

• deduct child support payments from the income of the payer.

Recommendation 4.3 Appropriate agencies should work to develop one or more “medical care

risk” indexes that measure the economic risk to families and individuals of

having no or inadequate health insurance coverage. However, such

indexes should be kept separate from the measure of economic poverty.

Recommendation 5.1 The Survey of Income and Program Participation should become the basis

of official U.S. income and poverty statistics in place of the March income

supplement to the Current Population Survey. Decisions about the SIPP

design and questionnaire should take account of the data requirements for

producing reliable time series of poverty statistics using the proposed

definition of family resources (money and near-money income minus

certain expenditures). Priority should be accorded to methodological

research for SIPP that is relevant for improved poverty measurement. A

particularly important problem to address is population undercoverage,

particularly of low-income minority groups.

Page 29 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

Recommendation 5.2 To facilitate the transition to SIPP, the Census Bureau should produce

concurrent time series of poverty rates from both SIPP and the March CPS

by using the proposed revised threshold concept and updating procedure

and the proposed definition of family resources as disposable income. The

concurrent series should be developed starting with 1984, when SIPP was

first introduced.

Recommendation 5.3 The Census Bureau should routinely issue public-use files from both SIPP

and the March CPS that include the Bureau’s best estimate of disposable

income and its components (taxes, in-kind benefits, child care expenses,

etc.) so that researchers can obtain poverty rates consistent with the new

threshold concept from either survey.

Recommendation 5.4 Appropriate agencies should conduct research on methods to develop

poverty estimates from household surveys with limited income

information that are comparable to the estimates that would be obtained

from a fully implemented disposable income definition of family

resources.

Recommendation 5.5 Appropriate agencies should conduct research on methods to construct

small-area poverty estimates from the limited information in the decennial

census that are comparable with the estimates that would be obtained

under a fully implemented disposable income concept. In addition, serious

consideration should be given to adding one or two questions to the

decennial census to assist in the development of comparable estimates.

Recommendation 5.6 The Bureau of Labor Statistics should undertake a comprehensive review

of the Consumer Expenditure Survey to assess the costs and benefits of

changes to the survey design, questionnaire, sample size, and other

features that could improve the quality and usefulness of the data. The

review should consider ways to improve the CEX for the purpose of

developing poverty thresholds, for making it possible at a future date to

measure poverty on the basis of a consumption or expenditure concept of

family resources, and for other analytic purposes related to the

measurement of consumption, income, and savings.

Page 30 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

Recommendation 6.1 The official poverty measure should continue to be derived on an annual

basis. Appropriate agencies should develop poverty measures for periods

that are shorter and longer than a year, with data from SIPP and the Panel

Study of Income Dynamics, for such purposes as program evaluation.

Such measures may require the inclusion of asset values in the family

resource definition.

Recommendation 6.2 The official measure of poverty should continue to use families and

unrelated individuals as the units of analysis for which thresholds are

defined and resources aggregated. The definition of “family” should be

broadened for purposes of poverty measurement to include cohabiting

couples.

Recommendation 6.3 Appropriate agencies should conduct research on the extent of resource

sharing among roommates and other household and family members to

determine if the definition of the unit of analysis for the poverty measure

should be modified in the future.

Recommendation 6.4 In addition to the basic poverty counts and ratios for the total population

and groups—the number and proportion of poor people—the official

poverty series should provide statistics on the average income and

distribution of income for the poor. The count and other statistics should

also be published for poverty measures in which family resources are

defined net of government taxes and transfers, such as a measure that

defines income in before-tax terms, a measure that excludes means-tested

government benefits from income, and a measure that excludes all

government benefits from income. Such measures can help assess the

effects of government taxes and transfers on poverty.

Recommendation 7.1 Agencies responsible for federal assistance programs that use the poverty

guidelines derived from the official poverty thresholds (or a multiple) to

determine eligibility for benefits and services should consider the use of

the panel’s proposed measure. In their assessment, agencies should

determine whether it may be necessary to modify the measure—for

example, through a simpler definition of family resources or by linking

eligibility less closely to the poverty thresholds because of possible

budgetary constraints—to better serve program objectives.

Page 31 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix I 

Recommendations of the National Research

Council’s Panel on Poverty and Family

Assistance

Recommendation 8.1 The states should consider linking their need standard for the Aid to

Families With Dependent Children program to the panel’s proposed

poverty measure and whether it may be necessary to modify this measure

to better serve program objectives.

Page 32 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix II 

The CEX, CPS, and SIPP Surveys

The following is a summary of the description of the three surveys in Citro

and Michael, Measuring Poverty, pp. 391-420.

The Consumer Expenditure Survey (CEX) is a continuing survey of

households that primarily collects data on consumer expenditures through

a quarterly Interview Survey and a 2-week Diary Survey about the U.S.

civilian noninstitutionalized population, including military in civilian

housing, students in college housing, and group homes. The CEX is

sponsored by the Bureau of Labor Statistics (BLS) and conducted by the

Bureau of the Census. The Interview Survey sample size is 6,800 consumer

units interviewed in-person at 3-month intervals for 5 quarters; each

month, one-fifth of the sample is new, and one-fifth is completing its final

interview. The Diary Survey sample is an additional 6,000 consumer units,

each of which records daily expenditures for 2 consecutive weeks.

Consumer units are defined as a single person living alone or sharing a

household with others but financially independent; family members

sharing a household; two or more persons living together who share

responsibility for two of three major expenses—food, housing, and other

expenses. The respondent is any member of the consumer unit aged 16 or

older with most knowledge of the unit’s finances. BLS makes use of data

from both the Interview and Diary Surveys to develop a total picture of

expenditures. Researchers who analyze expenditure data typically work

with the Interview Survey, from which users can construct annual data on

expenditures and income.

The CEX Interview Survey includes data on demographic characteristics

and work experience and job characteristics in the prior 12 months of unit

members aged 14 and over. Detailed expenditure data are collected

quarterly on rent, housing assistance subsidies, mortgage and home equity

loan payments, and other home ownership costs such as condominium

fees; expenses of telephone, utilities, and fuels, and home and household

equipment maintenance and repair; purchases of household equipment,

appliances, furnishings, clothing, watches, and jewelry; lease payments for

and purchases of vehicles; vehicle maintenance, repair, parts and

accessories, licensing, and other operating expenses; premiums for health

and other insurance; coverage by Medicaid and Medicare; medical and

health expenditures and reimbursements; educational expenses; trips and

their expenses; and gifts for people outside the family. Global or usual

expenditures are obtained for books, subscriptions, membership, and

entertainment expenses; expenses for supermarkets and food stores,

liquor, tobacco, and food away from home; food stamp benefits and other

meals provided free; selected services and goods (for example,

Page 33 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix II 

The CEX, CPS, and SIPP Surveys

laundromats); miscellaneous expenses (including babysitting); and

occupational expenses and contributions (including alimony, child

support, and charitable contributions). An inventory is taken of major

household appliances and features of the dwelling unit, including

descriptions of each owned property, and the rental value of the owned

home. Data are obtained on financial assets, including credit balances and

finance charges paid, and changes in financial assets. Data on income for

the prior 12 months are obtained on wages, self-employment, Social

Security, and Supplemental Security Income for each member aged 14 and

over; and, for the household as a whole, on workers’ compensation and

veterans’ benefits, public assistance, and interest and dividend income;

income from trusts, pensions, and annuities; net income or loss from

roomers or rental property; and income from alimony, child support, or

other contributions from persons outside the consumer unit. Data are also

obtained on taxes paid through paycheck deductions, additional federal

and state income taxes, property and other taxes, and other taxes not

reported elsewhere (sales taxes are included in the component

expenditures).

The Current Population Survey (CPS) is a monthly survey of households

that collects primarily labor force data about the U.S. civilian

noninstitutionalized population. BLS sponsors the core of the CPS, which is

designed to provide monthly unemployment rates. The Bureau of the

Census sponsors the March Income Supplement to the CPS, in which

respondents are asked supplementary questions about money income

received in the previous calendar year. The CPS sample size is about 60,000

households; households are considered in the sample for 4 months, out of

the sample for 8 months, and in again for 4 months. The sample is updated

continually to account for new residential construction and periodically to

incorporate information from the decennial census. The March CPS

supplement includes military people living in civilian housing and an

additional sample of 2,500 housing units that contained at least one adult

of Hispanic origin as of the preceding November interview.

The core CPS interview elicits information on demographic characteristics

and labor force participation (such as hours worked, reason for part-time

work, industry, and occupation in which subjects worked in the prior

week, usual hours, and usual earnings). The March CPS supplement

includes information on labor force participation and job history in the

prior calendar year for each household member aged 15 or older; private

and public health insurance coverage; annual income for each household

member aged 15 or older by detailed source—about 30 types of regular

Page 34 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix II 

The CEX, CPS, and SIPP Surveys

cash income, including wages and salaries; net self-employment income;

Social Security and other government program cash benefits; child

support; alimony; private, government, and military pensions; retirement

and insurance payments; money from relatives or friends; interest and

dividend income; and Pell grants and other educational financial aid; and

participation in noncash benefits programs, such as energy assistance,

food stamps, public housing, and School Lunch.

The Survey of Income and Program Participation (SIPP) is a continuing

panel survey conducted and sponsored by the Bureau of the Census. The

sample covers the U.S. civilian noninstitutionalized population and

members of the armed forces living off post or with their families on post.

The reporting unit is the household, and the respondents are household

members aged 15 or older. Up until 1996, each sample of households

(panel) was interviewed every 4 months for 32 months, and the sample

size varied from 12,500 to 23,500 households per panel; new panels were

introduced every year. Under the SIPP’s current design, a new panel will be

introduced every 4 years (that is, with no overlap across panels) and

interviewed every 4 months for 48 months, and the panel size will be

increased to 37,000 households.

The current SIPP core interview elicits the following: demographic

characteristics; monthly information on labor force participation, job

characteristics, and earnings; monthly information on public and private

health insurance coverage; detailed monthly information on sources and

amounts of income from public and private transfer payments and on

noncash benefits; and information for the 4-month period on income from

assets. In total, about 65 separate sources of cash income are identified for

each household member aged 15 or over, together with benefits from 7

in-kind programs; for a few sources, annual amounts are obtained in

special interview supplements called “topical modules.” Data are also

collected, once or twice in each panel, on a wide range of subjects,

including annual income and income taxes; educational financing and

enrollment; eligibility for selected programs (including expenditures on

shelter, out-of-pocket medical care costs, and dependent care); housing

costs and financing; individual retirement accounts; and wealth (assets,

including property, and liabilities).

Comparisons Between the

CPS and SIPP

The SIPP obtains somewhat more detailed information on topics relevant to

measuring poverty than the CPS does. For example, the March CPS

supplement asks no questions about any type of tax payment. The Bureau

Page 35 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix II 

The CEX, CPS, and SIPP Surveys

of the Census, instead, models federal and state income taxes and payroll

taxes of each household for its experimental poverty estimates. The SIPP

includes twice for each panel questions about tax payments for the

previous year. However, its questions on such topics as tax liability and

adjusted gross income have high nonresponse rates, primarily because

only one-third of respondents use their tax forms to answer the questions,

as they are asked to do. In addition, the CPS asks whether a household

received benefits from the School Lunch Program or housing assistance

the previous year but asks about the amounts received only for food

stamps and energy assistance. The SIPP, on the other hand, obtains

monthly information on the number of people who receive and benefit

amounts for food stamps and the Special Supplemental Food Program for

Women, Infants and Children (WIC); information every 4 months about

energy assistance and the School Lunch and Breakfast programs; and

information twice a panel about public housing and subsidized housing.

Finally, whereas the CPS does not ask questions about expenses for

medical care or child care, the SIPP obtains detailed information on these at

least once each panel.

The National Research Council (NRC) panel, in reviewing research on data

quality in the two surveys, found that the SIPP is favored on some

indicators, such as item nonresponse rates and amounts of Social Security

and other income types collected (in comparison with independent

estimates), while the March CPS supplement fares better on household

nonresponse rates and the amount of wages and salaries collected. Citro

and Michael report that “[o]verall, however, SIPP appears to be doing a

better job at measuring income, particularly at the lower end of the

income distribution. SIPP’s more frequent interviews and detailed probing

for receipt of different income sources appear to be identifying more

recipients of many income types than the March CPS, although the dollar

amounts reported are not always more complete in SIPP than in the CPS.”24

As a consequence, SIPP poverty estimates are consistently several points

below those from the March CPS. In addition, the panel and Bureau of the

Census officials we interviewed felt that the SIPP, because of its focus on

income and program participation, was in a better position than the CPS to

provide both higher quality information on income and the other

information on family expenditures needed for a revised definition of

family resources for measuring poverty.

24Citro and Michael, Measuring Poverty, p. 411.

Page 36 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix III 

Comments From the Bureau of Labor

Statistics

Now on p. 11.

Now on p. 8.

Now on p. 10.

Page 37 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix III 

Comments From the Bureau of Labor

Statistics

Now on p. 10.

Page 38 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix III 

Comments From the Bureau of Labor

Statistics

Now on p. 21.

Now on p. 21.

Added to app. II.

Page 39 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix IV 

Comments From the Bureau of the Census

Now on p. 1.

Now on p. 3.

Now on p. 4.

Now on p. 6.

Now on p. 11.

Page 40 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix IV 

Comments From the Bureau of the Census

Now on p. 11.

Now on p. 11.

Now on p. 12.

Now on p. 12.

Now on p. 12.

Now on p. 21.

Now on p. 21.

Page 41 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix V 

Comments From the Office of Information

and Regulatory Affairs

Now on pp. 3 and 11.

Now on pp. 10 and 16.

Page 42 GAO/HEHS-97-38 Alternative Poverty Measures
Appendix V 

Comments From the Office of Information

and Regulatory Affairs

Now on p. 23.

Now on p. 17.

Page 43 GAO/HEHS-97-38 Alternative Poverty Measures
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Page 47 GAO/HEHS-97-38 Alternative Poverty Measures
Related GAO Products

Alternative Poverty Measures (GAO/GGD-96-183R, Sept. 10, 1996).

Poverty Measurement: Adjusting for Geographic Cost-of-Living Difference

(GAO/GGD-95-64, Mar. 9, 1995).

Federal Aid: Revising Poverty Statistics Affects Fairness of Allocation

Formulas (GAO/HEHS-94-165, May 20, 1994).

Poverty Trends, 1980-88: Changes in Family Composition and Income

Sources Among the Poor (GAO/PEMD-92-34, Sept. 10, 1992).

Noncash Benefits: Methodological Review of Experimental Valuation

Methods Indicates Many Problems Remain (GAO/PEMD-87-23, Sept. 30, 1987).

(973823) Page 48 GAO/HEHS-97-38 Alternative Poverty Measures
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