Monthly Labor Review March 1998 39

Experimental Poverty Measurement

The last 30 years have seen fundamental

social and economic changes in the

United States. Today, there are more

working mothers, families are smaller, there are

wider varieties of goods and services, expectations about what it takes to meet one’s needs are

greater than in the past, and beliefs about what

are necessities have changed. Geographic variations in housing and the increasing importance of

government programs also have influenced families’ appraisals of the value of their disposable

incomes.1 With these and related changes have

come questions about whether the measures and

data used to produce various economic statistics

are still meaningful. Among the measures frequently criticized is that for poverty.

The most recent comprehensive examination

of poverty measurement in the United States was

conducted by the National Research Council of

the National Academy of Sciences Panel on Poverty and Family Assistance in the early 1990s. In

1995, this Panel of scholars published its findings in a report entitled Measuring Poverty: A

New Approach.2

 Included in the report are recommendations for a new poverty measure, along

with examples of ways in which the recommendations might be implemented. According to the

Panel, any new poverty measure should better

reflect social and economic changes, and should

be based on a level of family economic resources

considered necessary to provide a minimally adequate standard of living, defined appropriately

for the Nation.

Recently, a National Academy of Sciences Panel made

recommendations for a revised poverty measure;

when implemented in a test enviroment, these recommendations

yield a poverty population that looks more like the general population,

in that the poor are more likely to be white, to be married,

and to have a family member in the labor force

Thesia I. Garner,

Kathleen Short,

Stephanie Shipp,

Charles Nelson,

and

Geoffrey Paulin

The Panel’s minimally adequate standard of

living would include a basic needs commodity

bundle (food, clothing, shelter, and utilities), plus

a small additional amount to allow for other needs

(such as household supplies, personal care, and

nonwork-related transportation). Family economic resources would be defined as the sum of

money income from all sources and near-money

benefits from government transfer programs

(such as food stamps and subsidized housing) that

could be used to buy the commodities in the full

needs bundle, less expenses that could not be used

to buy these commodities.3 If a family could not

meet its needs for these commodities with its

available economic resources, it would be considered poor. (See the box on pp. 53–55 for a

summary of the general recommendations.)

In this article, we test the Panel’s basic proposed procedure and examine additional Panel

recommendations. We identify our poverty measures based on the additional recommendations

as “experimental,” in contrast to the official poverty measure and the measure published by the

Panel. For purposes of this study, we take the initial recommendations as they are presented, and

do not attempt to justify the Panel’s recommended

procedure or evaluate its advantages and disadvantages. The analysis that follows resulted from

a joint project between the Bureau of the Census

and the Bureau of Labor Statistics, the two U.S.

Government statistical agencies that are most

likely to be involved in producing any new poverty measure.4

Experimental poverty measurement

for the 1990s

See author identification on page 56.
40 Monthly Labor Review March 1998

Experimental Poverty Measurement

Background

In order to produce poverty statistics, a poverty concept must

be selected and resources defined. The concepts most often

used for poverty measurement are identified as absolute, relative, or subjective.5

 An absolute measure reflects some standard below which, it is believed, basic needs cannot be met.

Absolute measures often require a large number of judgments

about an approved set of expenditures for the poor. The current U.S. official poverty threshold is assumed to reflect some

absolute minimum.6 A relative poverty concept is based on

the relative position of households or individuals within a distribution (usually of income or expenditures) as a crucial determinant of poverty status. Such measures, which explicitly

set the poverty threshold based on judgment, are most often

used in Europe and for cross-national comparisons.7 Subjective measures are based upon the notion that the opinions of

people about their own situations (such as their feeling about

the income level minimally necessary to make ends meet)

should ultimately be the decisive factor in defining poverty.

In Belgium, subjective poverty thresholds have been used as

instruments to measure differences and changes in adequacy,

although they are not used to measure poverty officially.8

The U.S. poverty thresholds, originally developed in 1963,

were based on an explicit concept of need. Mollie Orshansky,

of the Social Security Administration, derived what became

known as the poverty thresholds from the Economy Food Plan

(developed in 1961 by the U.S. Department of Agriculture)

and data from the 1955 U.S. Department of Agriculture

Household Food Consumption Survey. The Plan was adapted

to the food patterns of lower income families, and was developed to provide a nutritionally balanced diet. (However, Gordon Fisher has observed that the Economy Food Plan was to

be for “temporary or emergency use when funds are low.”9)

The dollar costs of the food plan were produced for families

of different sizes and compositions. Minimum total living

costs were computed by multiplying the dollar value of the

minimum food plan by 3, because the average family of three

or more persons spent about one-third of its average money

income after taxes on food. This multiplier was based on the

relationship between food expenditures and total after-tax

money income of the entire population, as estimated using

data from the 1955 Household Food Consumption Survey.

The thresholds for families of other sizes were derived in a

slightly different way.10

The Panel suggested that one of the reasons the Orshansky

thresholds were adopted as official poverty measures is because of their relationship to other related measures at the

time: the original 1963 threshold for a two-adult, twochild family was very close to one-half the median after-tax

income for a four-person family, and to a subjective four-person family threshold derived from Gallup Poll data. Thus, the

U.S. poverty measure, as originally conceived, did have

components of absolute, relative, and subjective poverty

measures.11

The Social Security Administration (SSA) began publishing poverty statistics in 1963 based on Orshansky’s work. In

1965, the Office of Economic Opportunity adopted the SSA

thresholds for statistical and program planning purposes. In

August 1967, the Census Bureau took over publishing official annual statistics on the number and proportion of the poor;

these measures were based on comparisons of the SSA thresholds with estimates of families’ before-tax money income

from the March Current Population Survey. In 1969, the U.S.

Bureau of Budget (now the Office of Management and Budget) issued a statistical policy directive that gave the thresholds official status throughout the Federal Government.

As noted above, the current U.S. poverty threshold is considered an absolute threshold (although not originally developed as such) and is based on the cost of a minimum food

diet, along with a multiplier for other expenses. Each year

since 1963, when the United States officially began to produce poverty statistics, the same basic poverty concept has

been used. However, a few changes have been introduced over

time. The primary change each year is the updating of the

thresholds to reflect price changes. Among the set of original

thresholds, separate ones were produced for families headed

by women and men, and for families living in farm and nonfarm areas. The male-female and farm-nonfarm distinctions

were dropped in 1981; however, at the same time, the matrix

of thresholds was extended to include families of nine persons or more rather than seven or more.12

The definition of poverty currently used in the United

States is based on the comparison of inflation-adjusted thresholds to gross (pretax) annual money income. A family is identified as poor if its total annual gross money income is below

its annual poverty threshold. The official definition of income

for poverty measurement has not changed over time, but researchers at the Census Bureau have been experimenting with

alternative measures of income for several years.13 Such alternative income definitions have accounted for noncash benefits and the deduction of income taxes.

The Department of Health and Human Services uses the

official poverty thresholds to produce annual poverty guidelines. These guidelines are obtained by smoothing the official

thresholds for families of different size. The poverty guidelines are often used to determine the eligibility of families to

participate in government programs designed to help those

whose resources fall below some standard of need.14

In Drawing the Line: Alternative Poverty Measures and

Their Implications for Public Policy, published in 1990,

Patricia Ruggles addressed alternative concepts of poverty

and methods for measuring poverty, and also proposed methods to update and revise the poverty threshold and resource
Monthly Labor Review March 1998 41

definitions.15 The Joint Economic Committee held congressional hearings on these matters in the early 1990’s,16 in response to Ruggles’ book and her related activities on the Committee staff. As a result of those hearings, the Panel on Poverty

and Family Assistance, chaired by Robert T. Michael, was

given the responsibility to conduct the review. As noted earlier, the Panel issued its final report, entitled Measuring Poverty: A New Approach, in 1995.

17

Highlights of the Panel report

As did Ruggles, the Panel recommended revising the current

poverty measure to reflect trends in poverty over time and

differences in the incidence of poverty among different demographic groups. The new measure would retain the current

notion of poverty as reflecting material deprivation; however,

a revised set of thresholds and a revised definition of resources

would be used to identify the poor. The revised thresholds

and resource definitions would reflect social and economic

changes. This is in contrast to the method currently followed

for updating the official poverty thresholds, which allows only

for changes in prices, and not for changes in consumption patterns over time. The Panel’s aim was to propose a procedure

to follow. Rather than recommending an absolute, relative, or

subjective measure, the Panel proposed a hybrid poverty measure that includes aspects of both the absolute (budget-based)

and relative concepts.18

In general, the Panel's recommendations addressed eight

major tasks19: (1) adopting a new poverty measure; (2) setting

and updating the poverty threshold; (3) adjusting the threshold for family type and geographic differences; (4) defining

family resources; (5) identifying needed data; (6) highlighting

other issues related to poverty measurement; (7) relating poverty measurement to assistance programs; and (8) linking

States’ needs to the Panel’s proposed measure. The basic criteria for developing the poverty measure are that it should be:

• understandable and broadly acceptable to the public;

• statistically defensible (for example, internally consistent); and

• operationally feasible.20

The Panel used recent data and applied results from scientific studies in developing its recommendations. However,

Panel members did make subjective decisions at various times

in the process.21

Panel procedures and findings

Defining the thresholds. With reference to the poverty

thresholds, the Panel stated generally that22:

• The poverty thresholds should represent a budget for food,

clothing, shelter (including utilities), and a small additional

amount for other needs (such as household supplies, personal care, and nonwork-related transportation).

• A threshold for a reference family type should be developed using actual Consumer Expenditure Survey 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 differences in

housing costs among geographic areas.

Weighted expenditure data from the 1989–91 Consumer

Expenditure Interview Survey were used to produce the poverty thresholds presented in the Panel’s report. Expenditures

for a basic bundle of commodities composed of food, clothing, shelter, and utilities23 were obtained from the expenditure

survey data for a reference family type, defined to include two

adults and two children.24 The Panel criteria called for a reference family to “fall near the center of the family size distribution rather than at one of the extremes...also, it is preferable

for the reference family to be one that accounts for a relatively

large proportion of the population because its spending patterns observed in a sample survey will be the basis for the

poverty threshold....”25 The two-adult, two-child family met

these criteria.

Multipliers were applied to the basic bundle to add a small

amount for other needs, such as housekeeping supplies, personal care, and nonwork-related transportation. Two sets of

thresholds were produced, with one allowing for greater “other

needs” than the other. Thresholds for additional family types

were derived by applying an equivalence scale to reflect differences in family composition and needs. These thresholds were

then adjusted to account for differences in the cost of housing

in metropolitan and nonmetropolitan areas in the country, using data from the 1990 census. The Panel used a modified version of the Department of Housing and Urban Development

methodology for developing fair market rents to produce

interarea housing price index values. Index values were constructed for metropolitan areas in six population size categories, and for nonmetropolitan areas (not distinguished by size)

in each of the nine census regions.26 (See appendix A.)

Expenditures were defined as the transaction costs, including excise and sales taxes, for those commodities acquired

during the interview period. They included outlays for gifts,

but excluded the value of purchases or portions of purchases

directly attributable to business purposes. Also excluded were

periodic credit or installment payments on commodities already acquired. Expenditures for vehicle purchases included

the net outlays (purchase price minus trade-in value) on new

and used cars and trucks, and expenditures for other vehicles.
42 Monthly Labor Review March 1998

Experimental Poverty Measurement

7.5th percentile (based on the weighted sample sorted by the

sum of expenditures on food, clothing, shelter, and utilities)

were used to represent the 5th percentile; those between the

47.5th and 52.5th percentiles were used to represent the median, or 50th percentile. The mean expenditures for each of

the vingtiles were divided by the mean expenditures at the

computed median to produce the percentages of the median.

The Panel used the means of the vingtiles for their estimates,

rather than the percentile values for the consumer unit at each

vingtile, thereby increasing the sample size for each vingtile

and the probability that the data were consistent over time.

(We use this same procedure to construct our experimental

poverty measures.)

As noted earlier, multipliers were applied to the value of

the designated basic bundle (specified as some percentage

of the median of the basic bundle) to account for the additional costs of other needed commodities. The two bundles

considered by the Panel reflect expenditures for: (1) the basic

bundle plus those for personal care and one-half of transportation34; and (2) the basic bundle plus personal care, one-half

of transportation, education, and reading materials costs.35 In

its report, the Panel stated that “we arbitrarily chose to exclude

one-half of transportation costs because the Interview Survey

does not distinguish between work expenses, which we propose to deduct from resources, and personal transportation

for errands, vacations, etc.”36 This allocation is consistent with

other studies.37

The Panel’s determination of what to include in the additional amount was constrained by the availability of data from

the Interview portion of the expenditure survey. (Some personal care items and household supplies, which would seem

natural candidates for inclusion in the multiplier bundle, are

available only from another portion of the expenditure survey, known as the Diary survey.) However, it is also important

to note that the Panel did not intend to engage in a detailed

budget-building exercise; it simply wanted to try out a couple

of reasonable multipliers to get a feel for a reasonable range for

a small multiplier applied to a basic bundle.38 Other commodity bundles could have been assumed.

The Panel concluded from a review of its tabulations that a

reasonable range for the multiplier was 1.15 to 1.25, which

allowed for a poverty threshold that ranged from $13,700 to

$15,900 (in 1992 dollars, rounded). The lower value is 78

percent of median expenditures for the basic bundle (corresponding to the 30th percentile) times 1.15, and the upper

value is 83 percent of the median for the basic bundle (corresponding to the 35th percentile) times 1.25. The Panel chose

its multipliers to correspond with those at or below the median level of expenditures for the basic bundle. This range of

multipliers compared favorably with those estimated in other

studies,39 which range from 1.14 to 1.30. (The calculation

method is described in appendix C, using our definitions of

For owned housing, neither the purchase price of the housing

nor the mortgage principal payment was included in expenditures; however, mortgage interest and related charges were included. (The Panel noted that this definition of the shelter costs

for homeowners was used for processing convenience.27)

The Panel stated that the “...food, clothing, and shelter [including utilities] component of the reference family poverty

threshold under the proposed concept must be expressed as a

percentage of median expenditures on these categories.”28 This

requirement reflects the relative component of the hybrid poverty measure. The Panel’s procedure for creating a time series

of thresholds involves picking a percentage of median expenditures for food, clothing, and shelter (the basic bundle) and a

multiplier. The multiplier would be applied to the food, clothing, and shelter (including utilities) component of the poverty

threshold so as to allow a small fraction for other needed expenditures. With this information, a base-year threshold would

be established first, and the same percentage and multiplier

would then be used to produce the thresholds for all other

years. The only requirement for each year would be the production of median expenditures for food, clothing, shelter, and

utilities.29 The intent underlying this procedure was to drive

the change in the thresholds by changes in median spending

on food, clothing, shelter, and utilities, and not by changes

below the median.30 The Panel recommended that the thresholds be updated annually, using an average of the most recent

3 years of expenditure survey data to produce the medians.

The 3-year average approach was devised to increase the

sample size and to smooth out year-to-year changes in the

thresholds; however, this approach also produces thresholds

that lag behind changes in real consumption.31

The Panel based its analyses on data from consumer units32

participating in the Consumer Expenditure Survey in 1989–

91. (See appendix B for a description of the expenditure survey.) Each quarter, data for approximately 5,000 consumer

units are are obtained in the Interview portion of the expenditure survey. Based on the 1989–91 survey data, about 9 percent of all consumer units interviewed have the characteristics of the Panel’s reference family—that is, they are

two-adult, two-child families. The Panel assumed that the

quarterly interviews are independent, and produced annual

expenditures by multiplying each consumer unit’s record of

expenditures by 4. All expenditures were converted to 1992

constant U.S. dollars. For example, if the collection quarter

of the data occurred sometime during 1989, the 1989 expenditures were updated using the change in overall prices between 1989 and 1992.

The Panel ranked consumer units based on expenditures for

the basic bundle, and placed each consumer unit into 1 of 20

equal groups, or vingtiles,33 for which means for the basic

bundle and percentages of the median were produced. For

example, consumer units between the 2.5th percentile and the
Monthly Labor Review March 1998 43

scale value = (A + pK)f (2)

where A = the number of adults in the family;

K = the number of children, each of whom is

treated as a proportion (p) of an adult;

p = the weight assigned to each child relative to

each adult; and

f = the scale economy factor.

Specifically, the Panel recommended that p be set at 0.7,

such that the needs of a child are treated as 70 percent of those

of an adult, and that the scale economy factor, f, be set in the

range of 0.65 to 0.75. The values of the resulting scale are

consistent with the Rothbarth scales reported elsewhere by

David M. Betson and Robert T. Michael.42 The equivalence

scale implicit in the current poverty thresholds has been criticized for the way in which it varies across family size, and for

the distinction it makes between elderly and nonelderly families.43 The variation across family size is due to irregularities

in the economies of scale. Use of the scales proposed by the

Panel smoothes out these irregularities while producing thresholds that are reasonably close to the official thresholds; hence

the Panel’s assertion that its proposed method is the “most

defensible of existing methods.”44 Equivalence scales implied

by the official poverty threshold and the two scales proposed

by the Panel are presented in table 1.45 The scales recommended by the Panel improve on the current official scale but

do not “represent a great departure from the current implicit

scale for particular population groups.”46

The Panel produced three sets of

thresholds using (1) a $13,175 reference family threshold to keep the overall poverty rate at 14.5 percent; (2) a

$14,800 reference family threshold

and a scale economy factor of 0.75;

and (3) a $14,800 reference family

threshold and a scale economy factor

of 0.65. The $14,800 threshold is the

midpoint of the range noted above—

$13,700–$15,900, based on rounding—that the Panel suggested as reasonable for the thresholds in 1992.

Defining resources. As noted earlier,

under the definition of poverty currently used in this country, a family is

defined as poor if its resources, defined as its gross (pretax) annual

money income, are below the annual

poverty threshold. In making recommendations for a redefined U.S. poverty measure, the Panel advocated

sweeping changes to the definition of

expenditures as an example.) The general formula for deriving the proposed reference family threshold is

( )( ) 



 



 ∗ + ∗ = 2

M1 P1Em M2 P2Em T * housing index (1)

where T = the reference family poverty threshold;

M1 = the multiplier for a smaller additional amount;

M2 = the multiplier for a larger additional amount;

P1 = a lower percentage of expenditures;

P2 = a higher percentage of expenditures; and

Em= median expenditures for the basic bundle of

food, clothing, shelter, and utilities.

Next, the thresholds were adjusted to reflect geographic

differences in the price of housing.40 For this purpose, the

Panel used interarea housing price indexes, calculated from

1990 census data on gross rent for apartments with specified

characteristics, and adjusted to reflect the share of housing in

the proposed poverty budget.41

Equivalence scale adjustments were then made to the reference family’s threshold to account for the differing needs of

adults and children and the economies of scale of living in

larger families. After evaluating the equivalence scale implicit

in the poverty thresholds and several forms of the thresholds,

the Panel recommended a scale of the following type:

Current and alternative equivalence scales for families of selected types,

expressed relative to a value of 1.00 for a married couple with two

children

One adult2 ........................ 0.513 0.451 0.425 0.399

 Plus one child ................. .680 .637 .616 .595

 Plus two children ............ .794 .797 .784 .770

 Plus three children .......... 1.003 .942 .937 .933

 Plus four children ............ 1.159 1.075 1.081 1.087

 Plus five children ............ 1.293 1.200 1.217 1.234

Married couple ................. .660 .708 .690 .672

 Plus one child ................. .794 .861 .851 .841

 Plus two children ............ 1.000 1.000 1.000 1.000

 Plus three children .......... 1.177 1.129 1.140 1.151

 Plus four children ............ 1.318 1.251 1.273 1.295

 Plus five children ............ 1.476 1.367 1.400 1.434

1 The thresholds for single adults or unrelated individuals and for two-adult families are those for units with

the householders under age 65.

2 For the one-adult unit, includes people living alone and with others in a household not related to them.

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

National Academy Press, 1995), table 3–4, p. 181; and the authors’ own calculations. The Panel proposed

that the scale be set in the range of 0.65 to 0.75. A 0.70 scale economy factor is used in this article.

Family type

Implicit in

current official

thresholds1

0.65 scale

economy factor

0.75 scale

economy factor

0.70 scale

economy factor

Table 1. 
44 Monthly Labor Review March 1998

Experimental Poverty Measurement

resources used to determine poverty status. In deciding how

to measure resources, the Panel noted that “researchers argue

that it is preferable, for a combination of theoretical and empirical reasons, to look at what families actually consume.”47

The Panel carefully evaluated this concept,48 and concluded

that “the measurement of poverty in the United States must

continue, at least for some years, to be based on an income

definition of resources . . . we urge work on improving the

Consumer Expenditure (CE) Survey so that it would be possible to consider seriously the use of consumption- or expenditure-based definition of family resources for measuring poverty in the future.”49 Thus, the Panel recommended that

resources be defined as the sum of money income from all

sources, together with the value of near-money benefits, minus expenses that cannot be used to buy these goods and services. The new measure would be calculated as follows:50

• estimate gross money income from all public and private

sources for a family of related individuals (which is income as

defined in the current measure);

• add the value of in-kind government subsidies (such as food

stamps, public housing, rent subsidies, and school lunches);

• subtract taxes paid (Federal, State, and local income taxes,

and Social Security payroll (FICA) taxes);

• add the value of the refundable Earned Income Tax Credit

received;

• subtract child support paid;51

• for each working adult, subtract a flat amount per week

worked (adjusted annually for inflation and not to exceed earnings) to account for work-related transportation and miscellaneous expenses;

• for families in which there is no nonworking parent, subtract 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; and

• subtract medical out-of-pocket expenditures (including

health insurance premiums).

In making its resource recommendations, the Panel strove

to ensure consistency between resources and needs (as defined in the previous section to include the costs of food, clothing, shelter, utilities, and a small additional amount for other

needed consumption). Thus, for example, the value of medical assistance is not included in the recommended resource

measure because medical needs are not included in the recommended needs measure. The recommendation not to include the value of medical assistance is perhaps the most controversial of the Panel’s proposals with regard to resources;

the effect of this recommendation on the composition of poverty will have to be examined, because medical needs and benefits are by far the most important component excluded from

the Panel’s redefined measure. A question remains with respect to the economic resources of homeowners with low, or

no, mortage payments. The Panel did not believe that data

available at the time of its research were adequate to produce

values for these economic resources.52

The current poverty measure counts child support payments

as income to recipient families, but does not subtract such

payments from the income of the payers. The Panel proposed

that child support payments be treated consistently—added to

recipients’ income and subtracted from the payers’ income.

However, child support payments were not subtracted in the

Panel’s report or in this article, because the necessary information is not in the CPS data set. However, the Panel did examine

the likely effect of such a subtraction on the poverty rate using

panel data from the 1990 Survey of Income and Program Participation (SIPP). (See appendix B for a description of the SIPP.)

The Panel’s results suggested that the overall poverty rate

would increase 0.3 to 0.5 percentage point if child support were

subtracted from the payers’ income.53

Because no one data source included information on all of

the resource variables, imputed data had to be used. The basic

data used by the Panel to define resources were from public

use tapes developed from the March 1993 Supplement to the

Current Population Survey; data refer to 1992. (See appendix

B for a description of the Current Population Survey.) The

values of in-kind benefits (food stamps, school lunches, and

public and subsidized housing) and taxes (Federal and State

income taxes and Social Security payroll taxes) were from an

enhanced file prepared by the Census Bureau. The tax imputations include the refundable earned income tax credit , which

was added to the resources for all eligible households.54 The

Census Bureau imputes the value of the in-kind benefits using

an experimental market value approach.55 The total value of

food stamps, less the money spent to purchase the food stamps,

is the value added to resources.

Out-of-pocket medical expenditures were imputed using

tabulations provided by the Agency for Health Care Policy

and Research based on data from the 1987 National Medical

Expenditure Survey (NMES). (See appendix B for a description of NMES.) The data were aged to represent the 1992 population. The value of out-of-pocket medical care expenses was

imputed separately for the elderly (head was 65 years of age

or older) and the nonelderly (head was less than 65 years of

age). The explanatory variables in the model for families

headed by a nonelderly person included whether a family had

health insurance or not, family size, race of head, and annual

income. The explanatory variables included in the elderly

model were age of head (under 75 years, 75 years and older),

family size, and annual income. The Panel assumed that families that reported receiving medicaid would have no out-ofpocket medical expenditures. It randomly designated a fraction of the remaining families to have some out-of-pocket
Monthly Labor Review March 1998 45

medical expenditures. Matches were made using age and

health insurance information from both the CPS and NMES.

56

Child care expenses related to one’s working and other

work-related expenses were imputed using data from the SIPP

and regression analysis. Child care expenses were based on

data collected in a 1990 SIPP panel module, while other workrelated expenses were based on data collected in a 1987 module. For the year 1992, the Panel (as did we) subtracted an

imputed amount for annual child care expenses for families

headed by a single parent and for families with a secondary

worker in a two-earner family. The annual amount imputed

could not exceed the earnings of the parent with the lower

earnings or the value of the ceiling on eligible expenses for

the dependent care tax credit of $2,400 for one child and

$4,800 for two or more children.57 Other work-related expenses were imputed for each worker aged 18 and older for

each week worked. For 1992, an annual amount of $750 for a

52-week work year was deducted per earner; this is equivalent to $14.42 per week worked.

The Panel reported median gross money income for the

two-adult, two-child family to be $43,387 in 1992 with imputed deductions of $5,894.58

Extending the research

In this section, we describe our replication of the multipliers

produced by the Panel, and then define the experimental poverty thresholds and family resources that we used to evaluate

the impact of implementing some of the Panel’s recommendations. Minor differences between the Panel’s published multipliers and the replicated multipliers are discussed, as are differences in the definitions of thresholds and resources used.

Replication of multipliers. Using the same definition of expenditures as did the Panel, we first attempt to replicate the

multipliers that the Panel presented in table 2–6 of its report

using expenditure survey data from 1989–91. Then, we assess the stability of the thresholds by examining the expenditures for the same basic bundle of commodities using data

from 1992–94.

The reference family’s mean expenditures for the basic

bundle, composed of food, clothing, shelter,59 and utilities, are

presented by vingtile in table 2. The means presented by the

Panel using the 1989–91 data and our means using data for

the same period are quite close, but ours are more often slightly

higher.60 At the 30th percentile, the means are only $7 different, while at the 35th, they are about $80 different. The percentile means and the percentages of the median produced by

the Panel and through our replication reveal almost identical

results for 1992 using data from 1989–91. In several cases,

the percentage for each vingtile is slightly higher using the

1992–94 data (means are presented in constant 1992 dollars);

however, the differences are generally quite small when the

more recent data are used.

A comparison of the Panels published expenditures, replicated expenditures, and expenditures using 199294

data

[Expenditures in constant 1992 dollars]

5th ........................... $7,041 $7,065 $7,071 45.9 46.2 46.1

10th ......................... 8,374 8,304 8,544 54.6 54.3 55.7

15th ......................... 9,275 9,297 9,594 60.4 60.8 62.5

20th ......................... 10,188 10,213 10,512 66.4 66.8 68.5

25th ......................... 11,100 11,118 11,325 72.3 72.7 73.8

30th ......................... 11,950 11,957 12,051 77.9 78.2 78.6

35th ......................... 12,719 12,796 12,798 82.9 83.7 83.4

40th ......................... 13,575 13,582 13,595 88.5 88.8 88.6

45th ......................... 14,389 14,417 14,471 93.8 94.3 94.3

50th ......................... 15,344 15,297 15,340 100.0 100.0 100.0

55th ......................... 16,282 16,292 16,230 106.1 106.5 105.8

60th ......................... 17,277 17,286 17,303 112.6 113.0 112.8

65th ......................... 18,369 18,394 18,458 119.7 120.3 120.3

70th ......................... 19,627 19,605 19,731 127.9 128.2 128.6

75th ......................... 20,989 20,911 21,250 136.8 136.7 138.5

80th ......................... 22,521 22,453 23,066 146.8 146.8 150.4

85th ......................... 24,594 24,613 25,375 160.3 160.9 165.4

90th ......................... 27,580 27,536 28,487 179.7 180.0 185.7

95th ......................... 34,094 34,345 35,456 222.2 224.5 231.1

100th ....................... 114,942 52,207 56,383 749.1 341.3 367.6

Table 2. 

Percentile

Basic bundle 1 expenditures

Published,

198991

Replicated,

198991 199294 Published,

198991

Replicated.

198991 199294

NOTE: Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

Data are percentile values of expenditures by two-adult, two-child families

on the Panel’s basic bundle. The published values are from Connie F. Citro and

Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington,

National Academy Press, 1995), table 2–6. (See appendix C for method used

to calculate multipliers.)

Percent of median
46 Monthly Labor Review March 1998

Experimental Poverty Measurement

Table 3 shows the multipliers produced by the Panel

based on the 1989–91 data, our replication results, and the multipliers based on the 1992–94 data. In brief, the expenditures

for the basic bundle are used in combination with expenditures

for larger bundles to estimate the multipliers at each vingtile

for each year. As noted earlier, one of the larger bundles allows

for expenditures on transportation and personal care, while the

other allows for these expenditures plus those for education

and reading. For the replication and the 1992–94 comparison,

transportation expenditures are defined to include the net purchase price of new and used vehicles, as are the expenditures

produced for table 2–6 of the Panel report.

In table 3, the three columns identified as R1 refer to the

multipliers based on the smaller of the larger bundles, while

the R2 columns refer to the multipliers derived when the largest bundle is assumed. As with the means of the basic bundles,

the Panel’s and our replication multipliers appear to be quite

similar. For the 30th and 35th percentiles, the multipliers are

within 0.02 point of each other. (1.19 and 1.20 for the Panel

and 1.19 and 1.18 in our replication). The multipliers using

the 1992–94 data also differ little.

Differences between the Panel’s published report and our

replicated results for 1989–91 are due to corrections and improvements in the expenditure survey data base. For example,

summary expenditure variables back to 1980, for which consistent definitions across time are used, have recently been

added to that data base. Minor discrepancies between the

Panel’s results and our estimates may also exist because of the

speed and volume of the data analysis that BLS originally completed for the Panel. Based on our comparison of the Panel’s

percentile means and percentage median results with our replication, we feel fairly confident that we are correctly following the procedure used by the Panel.

Defining the thresholds. In this section, we review results

we obtained following two of the Panel’s suggestions61 that

were not implemented in its report because of time considerations. These suggestions deal with the ways in which shelter

costs for homeowners are incorporated in the thresholds and

transportation expenditures are defined. We also examine the

sensitivity of the Panel’s assumptions with respect to the multipliers and to the “economies of scale” factor assumed for

larger households. We take an incremental approach in producing our experimental thresholds.

First, we produce thresholds using the same multipliers

(1.15 and 1.25) and the same percentages of median expenditures (0.78 and 0.83) that the Panel used, but we apply a different equivalence scale factor. This same averaging procedure is used to construct the other experimental thresholds

described below. To simplify the analysis, we use an economies-of-scale factor of 0.7 to obtain the thresholds for family

types other than the one consisting of two adults and two chilMultiplier of a smaller bundle (R1) compared with that of a larger bundle (R2)

5th ........................... 1.18 1.20 1.18 1.20 1.21 1.27

10th ......................... 1.22 1.21 1.19 1.25 1.23 1.21

15th ......................... 1.21 1.21 1.20 1.23 1.24 1.22

20th ......................... 1.18 1.19 1.18 1.19 1.22 1.22

25th ......................... 1.18 1.18 1.18 1.20 1.20 1.21

30th ......................... 1.19 1.19 1.17 1.23 1.22 1.21

35th ......................... 1.20 1.18 1.17 1.26 1.21 1.20

40th ......................... 1.15 1.19 1.17 1.18 1.22 1.20

45th ......................... 1.16 1.17 1.16 1.20 1.20 1.19

50th ......................... 1.14 1.16 1.17 1.21 1.20 1.20

55th ......................... 1.17 1.16 1.15 1.17 1.20 1.20

60th ......................... 1.15 1.15 1.16 1.19 1.18 1.18

65th ......................... 1.13 1.15 1.16 1.18 1.18 1.20

70th ......................... 1.15 1.14 1.15 1.16 1.18 1.19

75th ......................... 1.15 1.16 1.14 1.20 1.19 1.18

80th ......................... 1.15 1.15 1.14 1.18 1.18 1.17

85th ......................... 1.13 1.14 1.14 1.16 1.17 1.18

90th ......................... 1.14 1.14 1.14 1.17 1.17 1.18

95th ......................... 1.12 1.13 1.13 1.16 1.16 1.17

100th ....................... 1.09 1.11 1.10 1.13 1.14 1.13

Table 3.

Percentile

R1

Published,

198991

Replicated,

198991 199294 Published,

198991

Replicated.

198991 199294

R2

NOTE: Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

R1 = 1 + 1/2* Transportation share + Personal care share.

R2 = 1 + 1/2* Transportation share + Personal care share + Education share

+ Reading materials share.

The published values are from Connie F. Citro and Robert T. Michael, eds.,

Measuring Poverty: A New Approach (Washington, National Academy Press,

1995), table 2–6. (See appendix C for method used to calculate multipliers.)
Monthly Labor Review March 1998 47

dren;62 the Panel produced thresholds using scale factors of

both 0.65 and 0.75.63 Making this adjustment results in thresholds that we refer to as “Bundle 1 thresholds.”

Second, we follow the Panel’s recommendation to replace

the shelter costs for homeowners with a rental equivalence

value that accounts for the flow of services from owner-occupied housing. The same multipliers and scale factor are applied as for “Bundle 1 thresholds.” We refer to this second set

of thresholds as “Bundle 2 thresholds.”

Third, we produce thresholds that are based on the estimated multipliers at the 30th and 35th mean percentiles (these

correspond to 78 and 83 percent of the median), rather than

the multipliers of 1.15 and 1.25 assumed by the Panel in the

report. The range for the estimated multipliers is slightly narrower than the range proposed by the Panel, but the estimated

multipliers are still within the suggested range. To estimate

the multipliers used here, we took an outlays approach to transportation expenditures, rather than the Panel’s original approach of including the total purchase price of a vehicle.64

Thresholds allowing for expenditures for both the larger and

smaller bundles are produced. This set of thresholds is referred

to as “Multiplier A1 thresholds” and “Multiplier A2 thresholds.” A1 refers to the smaller of the two larger bundles, and

A2 to the larger of the two. Shelter costs are defined as for the

Bundle 1 experimental thresholds.

Fourth, we build upon the last set of thresholds but define

the shelter costs for homeowners to be their rental equivalence; outlays for transportation expenditures again are assumed (as for Multiplier A1 and A2 thresholds). The estimated

multipliers based on this bundle of commodities are applied,

still using the 78th and 83rd percentage of the median approach. The same scale factor (0.7) is used. We refer to this

last set of thresholds as “Multiplier A4 thresholds” and “Multiplier A5 thresholds.” Here, A4 refers to the smaller of the

two bundles, and A5 refers to the larger of the two.

Each set of thresholds is constructed for 1990 through 1995,

using expenditure data from the Interview portion of the 1987–

94 Consumer Expenditure Survey. The 3-year moving average approach, with CPI-U adjustment to account for price

changes over time, is followed. For each set of thresholds, the

Official poverty thresholds for selected family types, and thresholds based on basic bundles 1 and 2, 199095

[In current dollars for each year]

Threshold 19902 19912 19922 19932 19942 19952

Official poverty threshold

Singles ........................................ $6,652 $6,932 $7,143 $7,363 $7,547 $7,763

Married couple ............................ 8,509 8,865 9,137 9,414 9,661 9,933

Plus one child .......................... 10,520 10,963 11,293 11,631 11,929 12,267

Plus two children ..................... 13,254 13,812 14,228 14,654 15,029 15,455

Plus three children ................... 15,598 16,254 16,743 17,245 17,686 18,187

Plus four children ..................... 17,464 18,199 18,747 19,308 19,802 20,364

Plus five children ...................... 19,561 20,384 20,998 21,626 22,180 22,809

Bundle 1 threshold3

Singles ........................................ 5,847 6,089 6,282 6,480 6,638 6,843

Married couple ............................ 9,498 9,892 10,205 10,527 10,783 11,117

Plus one child .......................... 11,719 12,204 12,591 12,988 13,304 13,715

Plus two children ..................... 13,771 14,341 14,796 15,262 15,634 16,117

Plus three children ................... 15,699 16,349 16,868 17,399 17,823 18,374

Plus four children ..................... 17,531 18,256 18,836 19,429 19,902 20,517

Plus five children ...................... 19,283 20,082 20,719 21,371 21,892 22,569

Bundle 2 threshold3

Singles ........................................ 6,059 6,298 6,436 6,573 6,693 7,382

Married couple ............................ 10,191 10,592 10,823 11,055 11,256 11,993

Plus one child .......................... 12,763 13,266 13,556 13,845 14,097 14,796

Plus two children ..................... 15,172 15,770 16,114 16,458 16,758 17,387

Plus three children ................... 17,459 18,147 18,543 18,939 19,284 19,822

Plus four children ..................... 19,650 20,425 20,870 21,316 21,704 22,134

Plus five children ...................... 21,762 22,620 23,114 23,607 24,037 24,347

1

 Thresholds derived from calculation: ((1.15*mean of amount that is 78

percent of the basic bundle expenditures median)+ (1.25 * mean of amount

that is 83 percent of the basic bundle expenditures median))/2;

equivalence scale =(A+.7K)0.7

2 For each year, the prior 3 years of expenditure survey data were updated

to the current year, using the CPI-U , to produce the thresholds for the current

year. For example, to produce the thresholds for 1992, 1989–91 expenditure

survey data were updated to 1992 dollars using the change in the CPI from

1989, 1990, and 1991 to 1992, for each year, respectively.

3

 Bundle 1 and 2 thresholds based on basic Bundles 1 and 2 respectively.

Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

Homeowners’ shelter expenditures include mortgage interest and related

charges but not reductions in mortgage principals.

Basic Bundle 2 = Food + Clothing + Shelter + Utilities.

Here homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which

the house could be rented.

Table 4.
48 Monthly Labor Review March 1998

Experimental Poverty Measurement

basic bundle of expenditures for the

reference two-adult, two-child family is calculated. The basic bundle

definition changes only with respect

to shelter. The alternative transportation expenditure definition affects

the thresholds through the multipliers. As before, the basic bundle is

used to rank families, and then to

divide the families into vingtiles.

The resulting means and estimated

multipliers are used in conjunction

with the scale factor to produce the

thresholds.

In the present study, we assess the

impact of the Panel’s recommendations primarily by examining poverty rates resulting from the use of

the different sets of thresholds. However, for illustrative purposes, we

present Bundle 1 and Bundle 2

thresholds for singles and couples

with and without children in table 4,

to demonstrate the impact on the

thresholds of introducing one of the

Panel’s recommendations. Over the

1990–95 period, the two-adult, twochild thresholds increase by 17.0

and 14.6 percent for Bundles 1 and

2, respectively, in line with the 16.6-

percent increase in the official

threshold. For each year and family

group, the thresholds are higher

when rental equivalence (reflected

in Bundle 2) is used as the shelter

expenditure for homeowners. However, increases in the official threshold, the Panel’s thresholds, and our

experimental thresholds are similar

over the limited period covered. The

thresholds presented in table 4 are

not adjusted for geographic differences in housing costs; however,

interarea adjustments in the price of

housing are made for each set of experimental thresholds used to produce the poverty rates presented in

table 5.

Defining resources. The resource

measure used for this analysis is

very similar to the one presented in

Poverty rates of persons by selected characteristics, 199095

[In percent]

Age

All ages:

1990 ..................................... 13.5 18.3 21.7

1991 ..................................... 14.2 19.1 22.4

1992 ..................................... 14.8 19.9 23.1

1993 ..................................... 15.1 20.6 23.4

1994 ..................................... 14.6 19.2 21.7

1995 ..................................... 13.8 18.4 21.1

Children (under 18 years):

1990 ..................................... 20.7 25.4 30.0

1991 ..................................... 21.8 26.6 30.8

1992 ..................................... 22.4 27.1 31.0

1993 ..................................... 22.7 27.9 31.4

1994 ..................................... 21.8 25.8 28.9

1995 ..................................... 20.8 24.3 27.7

Persons aged 18 to 64 years:

1990 ..................................... 10.8 14.9 17.7

1991 ..................................... 11.4 15.6 18.4

1992 ..................................... 11.9 16.3 19.1

1993 ..................................... 12.4 17.1 19.4

1994 ..................................... 11.9 16.0 18.0

1995 ..................................... 11.4 15.4 17.7

Elderly (over 64 years):

1990 ..................................... 12.2 20.2 24.3

1991 ..................................... 12.4 20.5 24.8

1992 ..................................... 12.9 22.5 26.4

1993 ..................................... 12.2 22.5 25.7

1994 ..................................... 11.7 21.0 24.0

1995 ..................................... 10.5 20.9 24.2

Race and ethnicity

White:

1990 ..................................... 10.7 15.7 18.9

1991 ..................................... 11.3 16.3 19.3

1992 ..................................... 11.9 17.1 20.1

1993 ..................................... 12.2 17.7 20.2

1994 ..................................... 11.7 16.7 19.0

1995 ..................................... 11.2 16.3 18.7

Black:

1990 ..................................... 31.9 34.8 39.6

1991 ..................................... 32.7 35.9 41.1

1992 ..................................... 33.4 37.1 41.3

1993 ..................................... 33.1 37.4 42.0

1994 ..................................... 30.6 32.6 35.8

1995 ..................................... 29.3 30.8 35.3

Hispanic origin2

:

1990 ..................................... 28.1 40.3 46.4

1991 ..................................... 28.7 41.6 47.0

1992 ..................................... 29.6 41.5 47.8

1993 ..................................... 30.6 43.2 47.8

1994 ..................................... 30.7 41.7 45.9

1995 ..................................... 30.3 41.0 45.8

Work experience

Worker in the family:

1990 ..................................... 8.9 13.9 17.1

1991 ..................................... 9.3 14.5 17.5

1992 ..................................... 9.7 15.0 17.9

1993 ..................................... 9.9 15.6 18.2

1994 ..................................... 9.6 14.4 16.6

1995 ..................................... 9.5 13.9 16.5

Family type

Married couple:

1990 ..................................... 6.9 12.2 15.3

1991 ..................................... 7.3 12.9 15.7

1992 ..................................... 7.7 13.7 16.5

Characteristic and year Official Bundle1 Bundle 2

Table 5.

Thresholds1
Monthly Labor Review March 1998 49

the Panel report. For each year of

data, 1990–1995, we use the corresponding March CPS file as the

base to define resources. The values of in-kind government subsidies and taxes paid, imputed by the

Census Bureau and added to the

March CPS microdata for each year,

are employed in the calculation of

resources. Work-related expenses

(including child care expenses) and

medical out-of-pocket expenses are

imputed using the methods employed in the Panel’s report, with

adjustments for price changes.

A few measurement notes and

caveats with respect to the resource

definition and data should be mentioned at this point. In showing the

effect of the recommended measure on poverty, the Panel report

made imputations for work-related

expenses, child care expenses, and

out-of-pocket medical expenses;

these have been highlighted earlier. We made these same imputations for 1992. To extend the estimates back to 1990 and

forward to 1995, we use the same methods as those employed

by the Panel for 1992, and adjust the dollar amounts for different years based on (1) the CPI-U for child and work expenses

and (2) the medical CPI-U for medical expenditures. Medical

expenditures over time also reflect changes in the cost of medicare part B coverage.65 Other methods of updating amounts

(or the use of updated models rather than updated dollar

amounts) would have resulted in slightly different results.

Much of the analysis shown in the next section is based on

1992 data because we feel most confident about the imputations in this, the base year for the estimates.

There are several reasons that the 1992 resource estimates

are different from those used by the Panel. First, they reflect

refinements made to the medical out-of-pocket expenditures

by including part B medicare costs,66 which were excluded

from the Panel’s imputation. Second, the Panel estimates are

based on a public use file that caps values at the upper range

of the income distribution in a procedure called topcoding;

the use of topcoded income amounts can have a small effect

on these estimates, primarily through the imputations employed in the measure. Third, there was a minor programming error in the files given to the Panel by the Census Bureau that resulted in the misclassification of some spouses.

Fourth, there are some random elements in the imputations.

And fifth, the March 1993 file used here was revised using

1990 census population controls; the estimates in the Panel

report used the 1980 census controls. In this discussion, we

do not present average resources for the population, but only

the impact of using different thresholds and the results of testing our resource measure.

The resource definition used to define poverty is enormously important, as even minor changes in the definition

could have a large effect on the composition of the poverty

population. For example, it would appear that an implicit assumption in the Panel’s resource recommendation is that the

“current money income” resource definition understates the

poverty rate of working families (in that it fails to account for

taxes and work-related expenses that reduce the disposable

income of workers relative to that of nonworkers) and overstates the poverty rate of nonworkers (in that it fails to account for the noncash benefits that nonworkers are more likely

to receive). While it is easy to speculate how an alternate resource definition might change our view of who is poor, the

fact is that, given the extent of differences between the current

and proposed measure, the only way to really understand the

effects of the Panel’s proposals is to simulate them and compare the results with estimates based on the official definition

in a process described below.

Results based on the experimental measures

In this section, we try to answer two questions: (1) Would the

Panel’s proposed measure change our view of how poverty

rates for different demographic groups have changed over

Characteristic and year

ContinuedPoverty rates by selected characteristics, 199095

[In percent]

Official Bundle 2

1993 .................................. 8.0 14.2 16.6

1994 .................................. 7.4 13.1 15.2

1995 .................................. 6.8 12.4 14.7

Female householder:

1990 .................................. 37.2 41.6 47.1

1991 .................................. 39.7 43.6 48.7

1992 .................................. 39.0 42.8 47.1

1993 .................................. 38.7 43.5 48.0

1994 .................................. 38.6 40.8 44.5

1995 .................................. 35.5 38.8 42.9

1

 Official thresholds for each year are used. Budget 1 and Budget 2 thresholds derived from the calculation:

((1.15*mean of amount that is 78 percent of basic bundle expenditures median)+(1.25 * mean of amount that

is 83 percent of basic bundle expenditures median))/2; equivalence scale =(A+.7K)0.7 .

Bundle 1 and 2 thresholds are based on basic Bundles 1 and 2, respectively.

Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

Homeowners’ shelter expenditures include mortgage interest and related charges, but not reductions in mortgage principals.

Basic Bundle 2 = Food + Clothing + Shelter + Utilities.

Here, homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which the house could be rented.

2

 May be of any race.

Table 5.

 Thresholds1

Bundle 1
50 Monthly Labor Review March 1998

Experimental Poverty Measurement

Distribution of the poverty population by selected characteristics, 1992

Total persons ........................ 256,549 256,549 256,549 — — —

Total poor persons ....................... 38,014 51,114 59,281 100.00 100.00 100.00

Children (under 18 years) ............ 15,294 18,518 21,198 40.23 36.23 35.76

Persons aged 18–64 years .......... 18,793 25,764 30,041 49.44 50.40 50.68

Elderly (over 64 years) ................ 3,928 6,831 8,043 10.33 13.36 13.57

White ........................................... 25,259 36,375 42,833 66.45 71.16 72.25

Black ........................................... 10,827 12,030 13,397 28.48 23.54 22.60

Other ........................................... 1,929 2,709 3,051 5.07 5.30 5.15

Non-Hispanic ............................... 30,422 40,471 47,027 80.03 79.18 79.33

Hispanic ...................................... 7,592 10,643 12,254 19.97 20.82 20.67

No worker in household ............... 17,067 18,666 20,432 44.90 36.52 34.47

Worker in household ................... 20,947 32,448 38,850 55.10 63.48 65.54

Married ........................................ 13,304 23,674 28,596 45.94 57.10 59.23

Female householder .................... 14,205 15,597 17,172 49.05 37.62 35.57

Other ........................................... 1,452 2,188 2,514 5.01 5.28 5.21

Number (thousands) Percent of the poor

 Thresholds1 Thresholds1

Official Bundle 1 Bundle 2 Official Bundle 1 Bundle 2

Table 6. 

1Thresholds derived from calculation:

((1.15*mean of amount of 78 percent of basic bundle expenditures median)+

(1.25 * mean of amount that is 83 percent of basic bundle expenditures

median))/2; equivalence scale =(A+.7K)0.7 .

Bundle 1 and 2 thresholds based on basic Bundles 1 and 2, respectively.

Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

Homeowners’ shelter expenditures include mortgage interest and related

charges, but not reductions in mortgage principals.

Basic Bundle 2 = Food + Clothing + Shelter + Utilities.

Here, homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which

the house could be rented.

Official poverty rates compared with rates based on experimental measures for selected demographic groups,

1992

Total persons ............................ 14.8 18.1 19.0 19.9 23.1 3.3 4.2 5.1 8.3

Relatively high poverty rates

Children ........................................... 22.4 26.4 26.4 27.1 31.0 2.7 2.7 3.1 5.7

Hispanic .......................................... 29.6 41.0 40.9 41.5 47.8 5.7 5.7 6.0 9.1

Black ............................................... 33.4 35.6 36.8 37.1 41.3 1.0 1.5 1.6 3.5

Female householder ........................ 39.0 – – 42.8 47.1 – – 1.4 3.1

Relatively low poverty rates

Married couples ............................... 7.7 – – 13.7 16.5 – – 11.6 17.1

Worker in family ............................... 9.7 13.7 14.1 15.0 17.9 6.2 6.8 8.1 12.7

White ............................................... 11.9 15.3 16.1 17.1 20.1 4.3 5.3 6.5 10.3

Aged 18–64 ..................................... 11.9 – – 16.3 19.1 – – 5.5 8.9

Elderly ............................................. 12.9 14.6 18.0 22.5 26.4 1.9 5.8 10.9 15.5

Table 7. 

1 Standardized percentage-point difference = (current total population poverty rate/current rate for group) *actual percentage-point change of the experimental poverty rate less the official poverty rate.

2 NAS1 uses scale economy factor 0.75; NAS2 uses scale economy factor

0.65. The standardized changes are slightly different from those published,

because the official poverty rates are slightly different. See Connie F. Citro and

Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington,

National Academy Press, 1995), table 5–8, p. 265.

3 B1 and B2 are the poverty rates based on basic Bundles 1 and 2 thresholds, respectively. (See the text for estimation methodology.)

Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

Homeowners’ shelter expenditures include mortgage interest and related

charges but not reductions in mortgage principal.

Basic Bundle 2 = Food + Clothing + Shelter + Utilities.

Here, homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which the

house could be rented.

NOTE: Dash indicates data not available.

Poverty rate (in percent) Percentage-point difference (standardized)1

Official NAS12 NAS22 B13 B23 NAS12 NAS22 B13 B23
Monthly Labor Review March 1998 51

time? and (2) Would the proposed measure change our view

of who is poor? In tables 5 and 6, the official poverty rates for

different demographic groups for 1990 through 1995 are compared with the poverty rates that we produced following the

Panel’s proposed methods (threshold Bundles 1 and 2). Table

7 shows, for selected demographic groups, three sets of poverty rates for 1992: the official rates, the rates produced by the

Panel (NAS1 and NAS2) , and the rates we produced using

threshold Bundles 1 and 2 (B1 and B2). Also shown are standardized changes in the rates compared with the official rates.

In table 6, we present the distribution of the poverty population for 1992 as defined by these groups. Table 8 shows the

distribution of the poverty population when Multipliers A1,

A2, A4, and A5 thresholds are assumed.

Poverty rates. At this very early stage of analysis of the likely

effects of the Panel’s recommendations, it is probably not wise

to focus too much on the level of poverty rates, but rates are

 Alternative estimates and distributions of the poverty population by selected characteristics, 1992

Reference family:

Threshold .................................. $14,228 $14,796 $14,773 $15,206 $16,114 $15,821 $16,159

Poverty rate of persons ............. 14.8 19.9 19.9 21.0 23.1 22.4 23.2

Total ...................................... 256,549 256,549 256,549 256,549 256,549 256,549 256,549

Total poor .................................. 38,014 51,114 50,943 53,822 59,281 57,484 59,530

Children (under 18 years) ............. 15,294 18,518 18,448 19,403 21,198 20,612 21,273

Persons aged 18 to 64 years ........ 18,793 25,764 25,683 27,148 30,041 29,088 30,183

Elderly (over 64 years) ................. 3,928 6,831 6,811 7,271 8,043 7,784 8,074

White ............................................ 25,259 36,375 36,253 38,518 42,833 41,386 43,049

Black ............................................ 10,827 12,030 11,997 12,463 13,397 13,114 13,418

Other ............................................ 1,929 2,709 2,693 2,841 3,051 2,983 3,063

Non-Hispanic ................................ 30,422 40,471 40,318 42,611 47,027 45,628 47,216

Hispanic ....................................... 7,592 10,643 10,624 11,211 12,254 11,856 12,314

No worker in household ................ 17,067 18,666 18,623 19,316 20,432 20,089 20,467

Worker in household .................... 20,947 32,448 32,319 34,506 38,850 37,394 39,063

Married ......................................... 13,368 23,674 23,561 25,353 28,596 27,572 28,751

Female householder ..................... 19,981 15,597 15,563 16,097 17,172 16,794 17,216

Other ............................................ 4,666 2,188 2,188 2,325 2,514 2,422 2,528

 Total poor .................................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Children (under 18 years) ................ 40.2 36.2 36.2 36.1 35.8 35.9 35.7

Persons aged 18 to 64 years ........... 49.4 50.4 50.4 50.4 50.7 50.6 50.7

Elderly (over 64 years) .................... 10.3 13.4 13.4 13.5 13.6 13.5 13.6

White ............................................... 66.5 71.2 71.2 71.6 72.3 72.0 72.3

Black ............................................... 28.5 23.5 23.5 23.2 22.6 22.8 22.5

Other ............................................... 5.1 5.3 5.3 5.3 5.1 5.2 5.1

Non-Hispanic ................................... 80.0 79.2 79.1 79.2 79.3 79.4 79.3

Hispanic .......................................... 20.0 20.8 20.9 20.8 20.7 20.6 20.7

No worker in household ................... 44.9 36.5 36.6 35.9 34.5 34.9 34.4

Worker in household ........................ 55.1 63.5 63.4 64.1 65.5 65.1 65.6

Married ............................................ 45.9 57.1 57.0 57.9 59.2 58.9 59.3

Female householder ........................ 49.1 37.6 37.7 36.8 35.6 35.9 35.5

Other ............................................... 5.0 5.3 5.3 5.3 5.2 5.2 5.2

Official Bundle 1 Multiplier A1 Multiplier A2 Bundle 2 Multiplier A4 Multiplier A5

Thresholds

Table 8. 

Characteristic

NOTE: Official poverty thresholds for 1992 used.

Bundle 1 and Bundle 2 thresholds derived using methods outlined in text.

Basic Bundle 1 = Food + Clothing + Shelter + Utilities.

Homeowners’ shelter expenditures include mortgage interest and related

charges, but not reductions in mortgage principals.

Basic Bundle 2 = Food + Clothing + Shelter + Utilities.

Here homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which the

house could be rented.

Multiplier A1 thresholds derived using multipliers of 1.21 and 1.19; Multiplier

A2 thresholds derived from multipliers of 1.24 and 1.23.

Multiplier A4 thresholds derived using multipliers of 1.19 and 1.17; Multiplier

A5 thresholds derived from multipliers of 1.21 and 1.20.

 Percent distribution

Persons in families (in thousands)
52 Monthly Labor Review March 1998

Experimental Poverty Measurement

important as a starting point from which to examine the composition of, and trends in, the poverty population. Bundle 1

(B1) thresholds for 1992 (the base year for the Panel’s estimates) yield a poverty rate for the total population of 19.9 percent, 5.1 percentage points above the official poverty rate of

14.8 percent. ( See table 7.) The B1 poverty rates are similar to,

although slightly higher than,67 those produced by the Panel

(NAS1 and NAS2), while B2 poverty rates are higher.

Over the 1990–95 period, rates under the official and proposed methodologies behave similarly, with increases over the

1990–93 period and declines over the 1993–95 period. (See

table 5.) The official rate rose from 13.5 to 15.1 percent between 1990 and 1993 and fell to 13.8 percent by 1995. The

experimental rates rose from 18.3 to 20.6 percent from 1990

to 1993 and fell to 18.4 percent by 1995. Under each scenario

(Bundle 1 and 2 thresholds), the 1995 rate is similar to the

1990 rate. Rates based on Bundle 2 thresholds are higher for

each year than are the rates based on Bundle 1 thresholds.

These results suggest that poverty rates change with the business cycle.68 However, over the 1993–94 period, poverty rates

dropped for blacks and for persons living in families with a

female householder, regardless of the bundle used in the analysis. This drop is due to the addition of the earned income tax

credit in the resource measure.

Obviously, there are many factors that account for differences between the official and modified poverty rates, such as

the concentration of income around the poverty threshold, the

level of noncash transfer program participation, tax burdens,

and medical expenditures. So it is not surprising that the levels of difference between the official and experimental poverty rates are not uniform across demographic groups. In order to explore these differences, we follow the Panel’s method

of examining the differences in poverty rates in terms of standardized percentage-point changes. The changes are standardized so that results for each group are comparable with those

for the total population. The standardized changes are summarized in table 7.

Generally, the differences in poverty rates are small for

groups with very high official poverty rates and larger for

groups with lower poverty rates. Let us examine this relationElements of the current and proposed poverty measures 1

Element Current measure Proposed measure

Threshold concept Food times a large multiplier for all other Food, clothing, shelter, utilities, plus a small

 expenses amount for other expenses

1992 level (two-adult, two-child family) $14,228 Suggested range of $13,700–$15,900

Updating method Update 1963 level each year for price changes Update each year by change in spending on

food, clothing, and shelter over previous 3

years by two-adult, two-child families

Threshold adjustments:

By family type Separately developed thresholds by family Reference family threshold adjusted by use of

type; lower thresholds for elderly singles and equivalence scale, which assumes children

couples need less than adults and economies of scale

for larger families

 By geographic area No adjustments Adjusting for housing cost by region and size

of metropolitan area

Family resource definition (to compare with Gross (before-tax) money income from all Gross money income, plus value of nearthreshold to determine poverty status) sources money in-kind benefits (such as food stamps),

minus income and payroll taxes and other

nondiscretionary expenses (such as child care

and other work-related expenses; child support

payments to another household; out-of-pocket

medical care expenses, including health insurance premiums)

Data source (for estimating income) March Current Population Survey Survey of Income and Program Participation

Period of measurement Annual Annual, supplemented by shorter term and

longer term measures

Economic unit of analysis Families and unrelated individuals Families (including cohabiting couples) and

unrelated individuals

1Reproduced from Connie F. Citro and Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington, National Academy Press, 1995),

table 1.1, p. 41.

Exhibit 1.
Monthly Labor Review March 1998 53

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

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 (such as household supplies, personal care, and nonwork-related transportation).

• A threshold for a reference family type should be developed using actual Consumer Expenditure Survey data and

updated annually to reflect changes in expenditures for

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

(such as 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 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, twochild 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).

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, twochild) 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 a family (that is, the number of

adults plus 0.70 times the number of children) and then 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-ofhousing 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.

Summary of the recommendations

of the Panel on Poverty and Family Assistance1
54 Monthly Labor Review March 1998

Experimental Poverty Measurement

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 costof-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-ofliving differences.

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 (SIPP) 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.

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 current 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, and so forth), 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 survey for the purpose of developing poverty

thresholds, for permitting the measurement of poverty on

the basis of a consumption or expenditure concept of family resources at some future date, and for other analytic
Monthly Labor Review March 1998 55

ship by comparing the poverty rates using Bundle 1 thresholds for 1992 with the official thresholds. In standardized

terms, the black poverty rate is only 1.6 points higher; for persons in families maintained by women, the change is 1.4 percentage points. One exception to this rule is for persons of

Hispanic origin. Their official poverty rate is relatively high

(29.6 percent), as is their revised poverty rate (41.5 percent);

and their standardized change is 6 percentage points.

For groups with a lower official incidence of poverty, the

percentage increase in the rates based on the experimental

thresholds is relatively large. The standardized change in poverty rates for persons aged 18 to 64 yields a rate that is 5.5

percentage points higher than the official rate. The rate for those

over 64 years of age is 10.9 percentage points higher, and the

white poverty rate is 6.5 percentage points above the official

poverty rate. The percentage-point change in the poverty rate

for families with at least one worker is 8.1, and that for married

couples is 11.6.

The changes are in the same direction when threshold

Bundle 2 poverty rates and the official poverty rate are compared. However the changes in percentage points are larger

because threshold Bundle 2 is larger than threshold Bundle 1.

Composition of the poverty population. The effect of the differences in levels between the official and revised poverty rates

is evident in table 6. Here, the composition of the poverty population under the official and experimental poverty measures is

examined, based on results for 1992. As one might expect,

there are differences in the composition of the poverty population when the proposed measures are applied. For example,

under the official poverty definition, the following groups of

persons make up a greater percentage of the poor than when

Bundle 1 thresholds are assumed (this same general result applies when Bundle 2 thresholds are assumed): children (40.2

versus 36.2 percent), blacks (28.5 versus 23.5 percent), nonHispanics (80 versus 79.2 percent), persons living in families

with no workers (44.9 versus 36.5 percent), and those living in

households headed by women (49.1 versus 37.6 percent). In

contrast, all other groups noted in table 6 make up a greater

percentage of the poor when the experimental measures are

used. We observe increases for the elderly (based on rates of

10.3 and 13.4 percent) and for persons living in married-couple

families (based on rates of 45.9 and 57.1 percent). Also note1

Adapted from Citro and Michael, Measuring Poverty, pp. 4–15.

purposes related to the measurement of consumption, income, and savings.

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 resources 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 beforetax 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 there of)

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 is 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.

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.
56 Monthly Labor Review March 1998

Experimental Poverty Measurement

worthy is the increase in the percentage of the poor living in

families in which there is at least one worker present, which

rises from 55.1 to 63.5 percent of the poor.

Does the new poverty measure change our view of who is

poor? The answer is that it yields a poverty population that

looks more like the total population. Due to the subtraction of

work-related expenses, we see relatively more persons in families with a worker, more persons aged 18 to 64 years, and more

persons in married-couple families among the poor. We also

see relatively fewer persons in families that receive cash or

near-cash government transfers. Persons in families with children, in families with no workers, and in female-householder

families are relatively less likely to be classified as poor. It is

clear that, as we have interpreted the Panel’s proposal, the composition of the poverty population changes quite a bit.

Other thresholds. Table 8 shows the results of changing the

multipliers from 1.15 and 1.25 to the computed multipliers, in

order to account for additional “other” expenditures. The estimates, relating to 1992, are presented in terms of population

characteristics; as in earlier sections of the analysis, 78 and 83

percent of median expenditures are the basis for deriving the

thresholds. As a point of reference, the dollar values for each of

the thresholds for the reference family in 1992 also are presented in the table.

The thresholds that we use in the two preceding sections

(Bundle 1 and Bundle 2 thresholds, with multipliers of 1.15

and 1.25), the number of persons living in families with resources below the thresholds, and the percentage distributions

for selected demographic groups are very similar to the rates

based on Multiplier thresholds A1 and A4. (See the top panel

of table 8 for the number of persons under the thresholds, and

the bottom panel for the percentage distributions.)

The addition of expenditures for education and reading (reflected in Multiplier thresholds A2 and A5) shifts the overall

poverty rates up only slightly (bottom panel of table 8), from

19.9 to 21.1 and 22.4 to 23.2 for Multipliers A1 versus A2

thresholds and Multiplier A4 versus A5 thresholds. Bundle 2

thresholds (with a rental equivalence approach to shelter costs

for homeowners) and Multipliers A4 and A5 thresholds result

in higher overall poverty rates than those based on Bundle 1

thresholds and Multipliers A1 and A2 thresholds.

In examining the percentage distribution of the poverty

population for 1992 by selected characteristics, we find that

the percentages of the poor for most of the groups are similar

when Bundle 1 and 2 thresholds, and the respective Multiplier thresholds, are assumed. However, differences do result.

For example, if we compare the percentages based on Bundle

1 and 2 thresholds, we find a decrease for blacks (23.5 versus

22.6 percent), for persons living in families with no workers

(from 36.5 to 34.5 percent), and for persons living in femaleheaded households (37.6 versus 35.6 percent). The same definitional change results in increases in the percentage distributions for persons living in families with at least one worker

(63.5 versus 65.5) and for persons living in married-couple

families (57.1 versus 59.2 percent).

These differences across subgroups are similar to those presented in the Panel’s report and closely match expectations,

given the construction of the resource measure. One small but

notable difference between the two sets of estimates is that

poverty rates for the elderly under our experimental measures

are higher than those reported; this is due to the inclusion of

medicare part B premiums in the medical out-of-pocket

amounts deducted from income.

OUR FINDINGS REVEAL that poverty thresholds constructed according to the recommendations of the National Academy of

Sciences Panel on Poverty and Family Assistance seem to be

stable over time and across various definitions of the minimum expenditure bundle. Similarly, poverty rates based on

these thresholds appear to behave in a reasonable manner, both

over time and across variously defined budgets, and in fact,

not all that differently from those derived using the official

definition of poverty currently in use. Generally, the poverty

rates follow trends over time similar to the official poverty

measure and are always higher, both over time and across

thresholds and subgroups, than rates based on the official measure. Differences across subgroups are stable over time, and

we see a poverty population that looks more like the total

population in terms of demographic and socioeconomic characteristics. These results are in line with expectations posited

in the Panel’s report—that is, the poor are more likely to be

white, to be married, and to have a member of the family in

the work force.

FOOTNOTES

AUTHOR'S IDENTIFICATION: Thesia I. Garner is a research economist in the

Division of Price and Index Number Research, Bureau of Labor Statistics.

Stephanie Shipp was the branch chief of Information and Analysis in the

Division of Consumer Expenditure Surveys, Bureau of Labor Statistics, when

this research was conducted; she currently is assistant division chief for Labor Force and Transfer Program Characteristics, Housing and Household

Economic Statistics Division, Bureau of the Census. Kathleen Short is chief

of the Branch of Poverty and Health Statistics, Housing and Household Economic Statistics Division, Census Bureau. Charles Nelson is assistant chief

for Income and Poverty, Housing and Household Economic Statistics Division, Census Bureau. Geoffrey Paulin is an economist in the Division of

Consumer Expenditure Surveys, Branch of Information and Analysis, Bureau of Labor Statistics. All views expressed in this paper are those of the

authors and do not reflect the views or policies of the Bureau of Labor Statistics, the Bureau of the Census, or BLS or Census staff members.

ACKNOWLEDGMENT: The authors thank David Johnson for assistance in

interpreting the National Academy of Sciences recommendations for the

thresholds, and Richard Bavier, Nicholas Bull, Connie Citro, Gordon Fisher,

Nancy Gordon, Brent Moulton, Patricia Ruggles, Kathleen Scholl, Adriana

Silberstein, Keith Waehrer, Mark Wasserman, Dan Weinberg, Anthony Yezer,

and Lester Zeager for comments and suggestions. Earlier versions of this
Monthly Labor Review March 1998 57

the Effect of Benefits and Taxes on Income and Poverty: 1986, Current Population Reports, Series P-60, No. 164-RD-1 (Bureau of the Census, 1988);

Poverty in the United States 1995 (Bureau of the Census, 1996); Citro and

Michael, Measuring Poverty; and Ruggles, Drawing the Line.

14 Gordon Fisher, “Poverty Guidelines for 1992,” Social Security Bulletin,

spring 1992.

15 Ruggles, Drawing the Line.

16 See The War on Poverty, Hearings Before the Joint Economic Committee, Congress of the United States, 102nd Congress, First Session, July 25,

Sep. 25, and Nov. 19, 1991, S. HRG. 102–631 (Washington, U.S. Government Printing Office, 1992).

17 See Citro and Michael, Measuring Poverty.

18 One measure that Statistics Canada uses to determine the low income

status of families, similar to family poverty, is the set of “low-income cutoffs” (LICO’s). The LICO’s are based on a hybrid approach, in the sense that a

specific set of commodities is assumed as necessary, but the proportion and

implicit allowance for other spending are determined in a relative manner.

See Citro and Michael, Measuring Poverty, pp. 127–28.

19 The entire report can be found on the Census Bureau Web site: hhtp://

www.census.gov/hhes/www/povmeas.html

20 Citro and Michael, Measuring Poverty, p. xvii.

21 Since the Panel’s report was published, other studies have examined

these issues. See, for example, U.S. General Accounting Office: (a) Controlled correspondence, GAO/GGD-96-183R (Washington, 1996); and (b)

Poverty Measurement: Issues in Revising and Updating the Official Definition, GAO/HEHS-97-38, April 1997. (2) Brookings Institution and Institute

for Research on Poverty: (a) “Summary of Meeting on Alternative Poverty

Measure Strategy” (The Brookings Institution, Apr. 8, 1997); (b) Gary

Burtless, Tom Corbett, and Wendell Primus, “Improving the Measurement of

American Poverty,” unpublished paper, Apr. 8, 1997; and (c) Wendell Primus,

“Implementing a New Measure of Poverty: State of Current Research and

Analytical Work,” unpublished paper, Feb. 13, 1997.

Since the publication of the Panel’s report, working groups also have met

to share information about current work related to poverty measurement. See

Memorandum from Katherine Wallman (Office of Management and Budget), “Initial Meeting of Steering Group to Improve the Measurement of Income and Poverty,” Mar. 26, 1997; and Burtless, Corbett, and Primus, “Improving the Measurement.”

22 Citro and Michael, Measuring Poverty, pp. 4–5. 23 The basic bundle is composed of food, apparel, shelter, and utilities,

which are defined as follows:

Food includes food purchased for home use and away, and excludes alcohol and tobacco and other nonfood items purchased at grocery stores.

Clothing includes expenditures for all types of clothing, including uniforms and sewing materials.

Shelter includes rent, and, for homeowners, mortgage interest (shelter does

not include principal payment), taxes, maintenance, and repairs.

Utilities include fuels (such as natural gas and electricity), telephone, and

public services (such as water and sewer).

24 For the Panel’s report, the reference family was specifically defined as

including a married couple with two of their own children.

25 Citro and Michael, Measuring Poverty, p. 101.

26 Ibid., pp. 194–99.

27 Ibid., p.148 28 Ibid.

29 The Panel members describe their approach in this way because they

considered it to be conceptually more understandable than simply applying

the year-to-year change in median expenditures for food, clothing, shelter,

and utilities to a starting-year threshold. Both approaches are the same algebraically and produce the same results. (See Citro, discussant, 1996 Society

of Government Economists Conference Session on Inequality and Poverty.)

30 For example, if percentiles were used to define the thresholds, a situation could result in which a recession reduced median expenditures somewhat, but more dramatically lowered the expenditure level at the 30th perarticle were presented during the 1996 Society of Government Economists

Conference, Session on Inequality and Poverty; the 1996 Southern Economics Association Meetings, Session on Income, Inequality, and Poverty; and

the 1997 Allied Social Sciences Association–Society of Government Economists Meetings, Session on Measures of Well-Being from the Consumer Expenditure Surveys. Thanks are extended to participants in these sessions for

their suggestions. The responsibility for errors remains with the authors.

1

 Gordon Fisher refers to such developments as changes in social processes. He notes that with technological advances and increases in levels of

living, new consumption items are introduced. With the introduction of new

items and more widespread acceptance and use of these items, the belief

about what are necessities changes. Changes in the way our society is organized also can contribute to changes in our expectations (for example, greater

dependence on private rather than public transportation), as can changes in

social policy (such as changes in the minimum quality acceptable for public

housing). See Gordon Fisher, “Relative or Absolute—A New Light on the

Behavior of Poverty Lines Over Time,” Newsletter of the Government Statistics Section and the Social Statistics Section of the American Statistical

Association, Summer 1996, pp. 10–12.

2

 Connie F. Citro and Robert T. Michael, eds., Measuring Poverty: A

New Approach (Washington, National Academy Press, 1995).

3

 These deductions would include income and payroll taxes, child care

and other work-related expenses, child support to another household, and

out-of-pocket medical care costs. See Citro and Michael, Measuring Poverty, pp. 4–5.

4

 Estimation of the thresholds work is being conducted primarily by the

Bureau of Labor Statistics and estimation of resources by the Census

Bureau.

5

 For more information concerning these measures, see Citro and Michael,

Measuring Poverty; Aldi J.M. Hagenaars, Perception of Poverty (Amsterdam, North Holland, 1986); and Patricia Ruggles, Drawing the Line: Alternative Poverty Measures and Their Implications for Public Policy (Washington, The Urban Institute Press, 1990). Examples of studies focusing on

relative and subjective measures include Thesia I. Garner and Klaas de Vos,

“Income sufficiency v. poverty: Results from the United States and the Netherlands,” Journal of Population Economics, vol. 8, 1995, pp. 117–34; R.

Morisette and Susan Poulin, Income Satisfaction Supplement. Summary of

Four Survey Years, Labour and Household Surveys Analysis Division Staff

Report (Ottawa, Canada, Statistics Canada, 1991); and Karel Van den Bosch,

Tim Callan, J. Estivill, P. Hausman, B. Jeandidier, R. Muffels, and J.

Yfantopoulos, “A Comparison of Poverty in Seven European Countries and

Regions, Using Subjective and Relative Measures,” Journal of Population

Economics, vol. 6, issue 3, pp. 235–59.

6 Poverty in the United States: 1991, Current Population Reports, Consumer Income Series, P-60, no. 181(Bureau of the Census, 1992).

7

 See A.J.M. Hagenaars, Klaas de Vos, and M.A. Zaidi, Poverty Statistics

in the Late 1980s: Research Based on Micro-Data (Luxembourg, Eurostat,

1997); “Income Distribution and Poverty in EU12–1993,” in Statistics in

Focus—Population and Social Conditions, 1997–6 (Luxembourg, Eurostat,

1997); Commission of the European Communities, Final Report from the

Commission to the Council on the First Programme of Pilot Schemes and

Studies to Combat Poverty (Brussels, 1981); and Peter Townsend, Poverty

in the United Kingdom (Harmondsworth, Penguin Books, 1979).

8

 Karel Van den Bosch, personal communication, June 1996 and December 1996.

9

 Gordon M. Fisher, “The Development and History of the Poverty Thresholds,” Social Security Bulletin, Winter 1992.

10 See Fisher, “The Development and History”; and Citro and Michael,

Measuring Poverty, p. 109.

11 Connie Citro, discussant of an earlier version of this article when it was

presented as a paper during the 1996 Society of Government Economists

Conference Session on Inequality and Poverty, Nov. 22, 1996.

12 Fisher, “The Development and History,” p.10.

13 Also see: Estimates of Poverty Including the Value of Noncash Benefits: 1984, Technical Paper 55 (Bureau of the Census, 1985); Measuring
58 Monthly Labor Review March 1998

Experimental Poverty Measurement

centile. It would not be desirable for the poverty threshold or standard of

need to reflect this greater reduction. (See Citro, discussant, 1996 Society of

Government Economists Conference Session on Inequality and Poverty.)

31 Citro and Michael, Measuring Poverty, table 2-7, p. 156.

32 A consumer unit comprises either (1) all members of a particular household who are related by blood, marriage, adoption, or other legal arrangements; (2) a person living alone or sharing a household with others or living

as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent; or (3) two or more

persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by the three major expense

categories: housing, food, and other living expenses. To be considered financially independent, at least 2 of the 3 major expense categories have to be

provided entirely or in part by the respondent.

33 A vingtile is 1/20 of some total. For example, the fourth vingtile of an

income distribution is the same as the first quintile or the second decile.

34 Transportation expenditures were defined by the Panel to include vehicle finance charges, expenses for gasoline and motor oil, maintenance and

repairs, vehicle insurance, public transportation (including airfares), and vehicle rentals, licenses, and other charges. In addition, transportation included

the total purchase price (minus the trade-in value) of new and used vehicles.

Personal care includes products for hair, oral hygiene, and shaving; cosmetics and bath products; electric personal care appliances; other personal

care products; and personal care services.

35 Education includes tuition, fees, textbooks, supplies, and equipment

for public and private nursery schools, elementary schools, high schools,

colleges, universities, and other schools.

Reading materials includes subscriptions for newspapers, magazines, and

books through book clubs, purchase of single copy newspapers, and magazines, newsletters, books, encyclopedias, and other reference books.

36 Citro and Michael, Measuring Poverty, p. 151.

37 In constructing the cost of raising a child, the Department of Agriculture

used data from a 1990 study by the Department of Transportation, which

found that employment-related transportation activities account for about 40

percent of travel costs for families with children. See Center for Nutrition

Policy and Promotion, Expenditures on Children by Families, 1995 Annual

Report (U.S. Department of Agriculture, 1996), p. 5; and Federal Highway

Administration, 1990 Nationwide Personal Transportation Study (U.S. Department of Transportation, 1994).

38 Citro, discussant, 1996 Society of Government Economists Conference

Session on Inequality and Poverty.

39 For example see: Trudi J. Renwick, “Budget-Based Poverty Measurement: 1992 Basic Needs Budgets for American Families,” Proceedings of

the Social Science Statistics Section of the American Statistical Association

(Alexandria, VA, American Statistical Association, 1993), pp. 573–82; Urban Family Budgets and Comparative Indexes for Selected Urban Areas,

USDL 82–139 (Bureau of Labor Statistics, 1982); and John E. Schwarz and

Thomas J. Volgy, Forgotten Americans (New York, W. W. Norton and Company, 1992).

40 As did the Panel, we adjusted the thresholds for estimated differences in

the cost of housing by size of metropolitan area within nine regions of the

country; the cost-of-housing index values are relative to 1.00 for the United

States as a whole; see Appendix A. (The thresholds shown in table 4 are not

adjusted for geographic differences.)

41 For a description of the housing adjustment, see Citro and Michael,

Measuring Poverty, pp. 194–99, 249, 252–53.

42 See citations in Citro and Michael, Measuring Poverty, p. 177.

43 The Rothbarth method uses expenditures on adult goods as an indicator

of the standard of living. For example, a married couple with a child must

cut their budget in certain areas because the child brings needs but no resources. Certain adult expenditures, such as those for alcohol, tobacco, and

adult clothing, should decline when a child is added to the family. If the

reduction in income that caused the same decline in expenditures can be

calculated, then the amount of income diverted to the child, and hence its

cost, has been computed. The decline in expenditures in adult goods shows

the amount of money that parents have diverted to the child, which is the

information needed. It does not show a decline in living standards associated

with the addition of a child.

44 Citro and Michael, Measuring Poverty, p. 176. See also David M. Betson,

“‘Is Everything Relative?’ The Role of Equivalence Scales in Poverty Measurement,” unpublished paper, March 1996. Available from the author at the

Department of Economics, University of Notre Dame, South Bend, IN.

45 For example, a second person adds 0.29 to the scale, a third adds 0.24, a

fourth adds 0.43, and a fifth person adds 0.31. In some cases, single-parent

families have higher thresholds than married-couple families of the same

size, which implies that children cost more than adults for some families.

(See Citro and Michael, Measuring Poverty, p. 165).

46 Citro and Michael, Measuring Poverty, p. 180. The proposed scale with

a scale economy factor of 0.65 results in thresholds that are close to the official thresholds. The scales implicit in the official poverty thresholds for oneadult units and for one-adult, two-child families are greater than the scales

based on the 0.65 scale economy factor; others are lower for the one-adult

family types. The implicit scales are greater than the 0.65 economy factorbased scales for two adults with no children and for two adults with two

children; others are lower for the two-adult family types.

47 Citro and Michael, Measuring Poverty, p. 210; also see GAO congressional correspondence for a discussion of a consumption-based poverty measure, GAO/GGD-96-183R (General Accounting Office, 1996).

48 See Citro and Michael, Measuring Poverty, pp. 210–14, and p. 279.

49 Citro and Michael, Measuring Poverty, p. 214. The sample size for the

Consumer Expenditure Survey is to increase by 50 percent beginning in fiscal year 1999.

50 Based on briefing materials prepared for Citro and Michael, Measuring

Poverty and the Panel’s primary report (p.10).

51 Child support paid was not subtracted in the Panel’s study or in this

study.

52 Citro and Michael, Measuring Poverty, p. 71.

53 Op. cit., pp. 244, 267.

54 About 85 percent of eligible households receive the earned income tax

credit. (See John Karl Scholz, “Tax Policy and the Working Poor: The Earned

Income Tax Credit,” Focus, Winter 1993–94, pp. 1–12).

55 For the most recent estimates of the government subsidies and taxes

paid and their potential impact on poverty rates, see Poverty in the United

States: 1995.

56 Citro and Michael, Measuring Poverty, pp. 254–55.

57 Ibid., p. 255.

58 Ibid., 257

59 For homeowners, shelter expenditures include those for mortgage interest, taxes, maintenance, and repairs; shelter does not include payments for

reduction of the mortgage principal.

60 The value presented by the Panel for the 100th vingtile is more than

double our mean. To obtain our mean for this vingtile, we average the expenditures over the 97.5th and 100th percentile range; the Panel’s value is the

top value in the data file for the reference family, not the mean for any range.

61 Based on the Panel’s report or the 1993 Maritato memorandum.

62 Scale = (A+.7K)0.7.

63 The average of the two scale factors 0.65 and 0.75 is used for convenience.

64 As noted earlier, the Panel followed this approach for ease in processing

and because of the quick turnaround required to produce the estimates.

65 Panel member David Betson is conducting research to revise the estimates for medical out-of-pocket expenditures. His study will be released by

the National Academy of Sciences in the near future.

66 David M. Betson, “Poor Old Folks: Have Our Methods of Poverty Measurement Blinded Us to Who Is Poor?” unpublished paper (South Bend, IN,

University of Notre Dame, October 1995).

67 The B1 poverty rate for the elderly is much higher than the NAS1 and

NAS2 poverty rates because the Part B medicare costs are included in the

resource definition used in this research, but are not included in the National

Academy of Sciences resource definition.
Monthly Labor Review March 1998 59

68 The stability may be due to the way in which the resource measure is

constructed. Some of the elements are updates based on price indexes. If

these elements had been updated based on actual data, a more erratic trend in

the poverty rates might be observed. 69 To standardize the changes in poverty rates, the ratio of the current poverty rate for the total population to the rate for the group is applied to the

Appendix A: Regional cost-of-housing index values

Cost-of-housing index values (relative to 1.00 for the United States as a whole) by region (census

division) and size of metropolitan area1

Region and population size

New England (Connecticut, Maine, Massachusetts,

New Hampshire, Rhode Island, Vermont)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants 1.128

Metropolitan areas:

250,000–500,000 inhabitants 1.128

500,000–1,000,000 inhabitants 1.148

1,000,000–2,500,000 inhabitants 1.141

2,500,000 inhabitants or more 1.209

Middle Atlantic (New Jersey, New York, Pennsylvania)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .908

Metropolitan areas:

250,000–500,000 inhabitants .997

500,000–1,000,000 inhabitants 1.020

1,000,000–2,500,000 inhabitants .975

2,500,000 inhabitants or more 1.187

East North Central (Illinois, Indiana, Michigan,

Ohio, Wisconsin)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .896

Metropolitan areas:

250,000–500,000 inhabitants .959

500,000–1,000,000 inhabitants .987

1,000,000–2,500,000 inhabitants .995

2,500,000 inhabitants or more 1.059

West North Central (Iowa, Kansas, Minnesota, Missouri,

Nebraska, North Dakota, South Dakota)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .861

Metropolitan areas:

250,000–500,000 inhabitants .962

500,000–1,000,000 inhabitants .981

1,000,000–2,500,000 inhabitants 1.028

2,500,000 inhabitants or more —

South Atlantic (Delaware, District of Columbia,

Florida, Georgia, Maryland, North Carolina,

South Carolina, Virginia, West Virginia)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .899

Metropolitan areas:

250,000–500,000 inhabitants .961

500,000–1,000,000 inhabitants 1.007

1,000,000–2,500,000 inhabitants 1.043

2,500,000 inhabitants or more 1.119

Region and population size

East South Central (Alabama, Kentucky, Mississippi,

Tennessee)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .827

Metropolitan areas:

250,000–500,000 inhabitants .935

500,000–1,000,000 inhabitants .947

1,000,000–2,500,000 inhabitants —

2,500,000 inhabitants or more —

West South Central (Arkansas, Louisiana, Oklahoma,

Texas)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .858

Metropolitan areas:

250,000–500,000 inhabitants .911

500,000–1,000,000 inhabitants .942

1,000,000–2,500,000 inhabitants .962

2,500,000 inhabitants or more 1.005

Mountain (Arizona, Colorado, Idaho, Montana,

Nevada, New Mexico, Utah, Wyoming)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .888

Metropolitan areas:

250,000–500,000 inhabitants .976

500,000–1,000,000 inhabitants 1.039

1,000,000–2,500,000 inhabitants 1.003

2,500,000 inhabitants or more —

Pacific (Alaska, California, Hawaii, Oregon, Washington)

Nonmetropolitan areas and metropolitan

areas under 250,000 inhabitants .969

Metropolitan areas:

250,000–500,000 inhabitants 1.018

500,000–1,000,000 inhabitants 1.028

1,000,000–2,500,000 inhabitants 1.104

2,500,000 inhabitants or more 1.217

NOTE: Housing cost indexes are calculated from 1990 census data on gross rent for

two-bedroom apartments with specified characteristics; index values are drawn from the

45th percentile of the gross rent distributions, as described in the text of the article.

Dash indicates data not available or no such areas in the region.

1 Table reproduced from Connie F. Citro and Robert T. Michael, eds., Measuring

Poverty: A New Approach (Washington, National Academy Press, 1995), table 5–3, pp.

252–53.

TableA-1. 

actual percentage-point change for that group. This procedure standardizes

the percentage-point changes by treating each group as if it had the same

poverty rate as all people. The Panel used this method because “it is awkward to speak of percentage changes in a percentage.” See Citro and Michael,

Measuring Poverty, p. 262.

Index

value

Index

value
60 Monthly Labor Review March 1998

Experimental Poverty Measurement

Appendix C: Computing the multipliers

The expenditures for two basic bundles of commodities are computed, and the multipliers are then applied to produce thresholds.

Basic bundle 1 is defined in the same way as the Panel's basic bundle,

with expenditures defined as in standard Consumer Expenditure

Survey tabulations and publications. For basic bundle 2, the definition of shelter expenditures changes to reflect a rental equivalence

value for homeowners’ shelter costs. To obtain the multipliers used

with both basic bundles 1 and 2, an outlays approach is used to

define transportation expenditures. Here, the total purchase prices

of vehicles are not included in the computation, but the expenditures

paid out of pocket each year are.

The shares of each basic bundle, in combination with larger

bundles, are used to estimate the multipliers at each vingtile value

for each year. One of the larger bundles allows for expenditures on

transportation and personal care, while the other larger bundle allows for these expenditures plus those for education and reading.

The estimated multipliers, using basic bundle 1 and the larger budgets, are referred to as A1 (based on the smaller of the two larger

bundles) and A2 (based on the larger of the two larger bundles) below and in the main text and tables. The estimated multipliers based

on basic bundle 2 expenditures and the two corresponding larger

budgets are referred to as A4 and A5. The methodology is described

below.

Multipliers based on basic bundle 1

To produce the multipliers, the expenditures for the basic bundle,

expanded bundles (B1–B3), and ratios of the basic bundle to the

expanded bundles are computed for each consumer unit. Consumer

units are then ranked into 20 equal groups, or vingtiles, based on

their expenditures for basic bundle 1. Then the mean shares for B1

through B3 are computed for each vingtile using the microdata.

These mean shares are used to estimate the multiplier by vingtile at

the aggregate level.

Appendix B: Description of data sources

Consumer Expenditure Survey

The Consumer Expenditure Survey (CE) has two components—an

Interview Survey and a Diary Survey. Interview survey data are used

for this study. About 5,000 consumer units participate in the Interview Survey each quarter. Consumer units are interviewed five times,

at 3-month intervals for 1 year. Data from the first interview are used

to “bound” expenditures for subsequent interviews and are not used

in estimation. The sample is a rotating panel in which 20 percent of

the sample are interviewed for the first time each quarter while 20

percent are interviewed for the last time. The Interview Survey covers about 95 percent of total expenditures.

As part of the evaluation of CE data, BLS compares its estimates of

aggregate consumer expenditures and income with independent

sources of data. Comparisons are made with the Personal Consumption Expenditures component of the National Income and Product

Accounts, the National Health Accounts, the Current Population Survey, and other data resources. When differences in definitions and

populations are accounted for, the CE data compare reasonably well

with both the levels and changes over time of the other data sources.

(See Consumer Expenditure Survey, 1992–93, Bulletin 2462 (Bureau of Labor Statistics, September 1995).)

Current Population Survey

The Current Population Survey (CPS) is conducted by the Bureau of

the Census for the Bureau of Labor Statistics. Each year, the March

Supplement or Annual Demographic Supplement is used to collect

income data. At various other times during the survey cycle, supplementary questions are asked concerning various topics. The population covered includes the civilian noninstitutional population of the

United States and members of the Armed Forces in the United States

living off post or with their families on post, but excludes all other

members of the Armed Forces. The sample is about 60,000 households, including families and unrelated individuals; data are reported

for more than 150,000 persons. Coverage does not include residents

of U.S. territories or other areas outside the 50 States and the District of Columbia. During the 1993–95 period, three changes were

introduced in the CPS: (1) for the 1993 survey, 1990 census population controls were introduced; (2) for the 1994 survey, the procedure

for interviewing was converted from paper and pencil to Computer

Assisted Personal Interviewing (CAPI); and (3) for the 1995 survey, a

new sample based on the 1990 census design was introduced.

Survey of Income and Program Participation

The Survey of Income and Program Participation (SIPP) is a continuing panel survey, begun in 1983, that is sponsored and conducted by

the Bureau of the Census. The design in effect until 1994 introduced

a new sample panel each February. In 1994 and 1995, there were no

panels introduced. In 1996, a nonoverlapping design was implemented. Each sample of households is interviewed every 4 months.

Panels undergo eight interviews. The sample covers the U.S. civilian noninstitutionalized population and members of the Armed

Forces living off post or with their families on post. Sample size has

varied from 12,500 to 23,500 households per panel; the 1996 panel

is composed of 36,700 households. The reporting unit is the household, with unrelated individuals and families also identified.

National Medical Expenditure Survey

The 1987 National Medical Expenditure Survey is a nationally representative survey of the civilian noninstitutionalized population in

the United States. The survey was designed to provide estimates of

insurance coverage and the use of services, expenditures, and sources

of payment. The household component involved four rounds of personal and telephone interviews at 4-month intervals, with a short

telephone interview constituting a supplementary fifth round. Ninetyfour percent of those completing the first interview, or about 37,000

persons in approximately 15,000 households, participated in all four

rounds of interviewing.
Monthly Labor Review March 1998 61

Basic bundle1 = food + clothing + shelter + utilities

 B1 = Basic bundle 1 + transportation (outlays)

 B2 = B1 + personal care

 B3 = B2 + education + reading

Mean shares:

 ShareB1 = Basic bundle1/B1

 ShareB2 = Basic bundle1/B2

 ShareB3 = Basic bundle1/B3

Multiplier A1 is computed as:

Half of transportation (outlays) share = 0.5*((1/ShareB1) – 1)

Personal care share = (1/ShareB2) – (1/ShareB1)

A1 = 1 + half of transportation (outlays) share + personal care

share

or

A1 = 1 + (0.5*((1/ShareB1) – 1)) + ((1/ShareB2) – (1/ShareB1)).

Multiplier A2 is computed as:

Half of transportation (outlays) share = 0.5*((1/ShareB1) – 1)

Personal care, education, and reading share = (1/ShareB3) – (1/

ShareB1)

A2 = 1 + half of transportation (outlays) share + (personal care +

education + reading) share

or

A2 = 1 + (0.5*((1/ShareB1) – 1)) + ((1/ShareB3) – (1/ShareB1)).

 Note that the multipliers will differ if they are estimated at the

micro level rather than at the macro, or aggregate, level. We, as did

the Panel, computed the shares at the micro level and then computed

average of these shares. The remaining calculations are at the aggregate level for each vingtile. We are using the mean values of the

ShareB1–B3 variables when we calculate the shares A1 and A2.

Multipliers based on basic bundle 2

The same methodology to obtain the multipliers applies when basic

bundle 2 is used. Here, rental equivalence replaces shelter expenditures for homeowners, and transportation expenditures are defined

as outlays.

The basic bundle, expanded bundles (B4–B6), and ratios of the

basic bundle to the expanded bundles are computed for each consumer unit. The mean shares for B4 through B6 are computed for

each vingtile. The mean shares are then used to estimate the multiplier by vingtile, as above.

Basic bundle 2 = food + clothing + rent for renters + rental equivalence for homeowners + utilities

 B4 = Basic bundle 2 + transportation (outlays)

 B5 = B4 + personal care

 B6 = B5 + education + reading

Mean shares:

 ShareB4 = Basic bundle 2/B4

 ShareB5 = Basic bundle 2/B5

 ShareB6 = Basic bundle 2/B6

Multiplier A4 is computed as:

Half of transportation (outlays) share = 0.5*((1/ShareB4) – 1)

Personal care share = 0.5*(1/ShareB5) – (1/ShareB4)

A4 = 1 + half of transportation (outlays) share + personal care

share

or

A4= 1 + (0.5*((1/ShareB4) – 1)) + ((1/ShareB5) – (1/ShareB4)).

Multiplier A5 is computed as:

Half of transportation (outlays) share = 0.5*((1/ShareB4) – 1)

Personal care share = (1/ShareB6) – (1/ShareB4)

A5 = 1 + half of transportation (outlays) share + (personal care +

education + reading) share

or

A5 = 1 + (0.5*((1/ShareB4) – 1)) + ((1/ShareB6) – (1/ShareB4)).
62 Monthly Labor Review March 1998

Experimental Poverty Measurement
Monthly Labor Review March 1998 63

Poverty rates by selected characteristics, 199095

[In percent]

Age

All ages:

1990 ..................................... 13.5 18.3 21.7

1991 ..................................... 14.2 19.1 22.4

1992 ..................................... 14.8 19.9 23.1

1993 ..................................... 15.1 20.6 23.4

1994 ..................................... 14.6 19.2 21.7

1995 ..................................... 13.8 18.4 21.1

Children (under 18 years):

1990 ..................................... 20.7 25.4 30.0

1991 ..................................... 21.8 26.6 30.8

1992 ..................................... 22.4 27.1 31.0

1993 ..................................... 22.7 27.9 31.4

1994 ..................................... 21.8 25.8 28.9

1995 ..................................... 20.8 24.3 27.7

Persons aged 18 to 64 years:

1990 ..................................... 10.8 14.9 17.7

1991 ..................................... 11.4 15.6 18.4

1992 ..................................... 11.9 16.3 19.1

1993 ..................................... 12.4 17.1 19.4

1994 ..................................... 11.9 16.0 18.0

1995 ..................................... 11.4 15.4 17.7

Elderly (over 64 years):

1990 ..................................... 12.2 20.2 24.3

1991 ..................................... 12.4 20.5 24.8

1992 ..................................... 12.9 22.5 26.4

1993 ..................................... 12.2 22.5 25.7

1994 ..................................... 11.7 21.0 24.0

1995 ..................................... 10.5 20.9 24.2

Race and ethnicity

White:

1990 ..................................... 10.7 15.7 18.9

1991 ..................................... 11.3 16.3 19.3

1992 ..................................... 11.9 17.1 20.1

1993 ..................................... 12.2 17.7 20.2

1994 ..................................... 11.7 16.7 19.0

1995 ..................................... 11.2 16.3 18.7

Black:

1990 ..................................... 31.9 34.8 39.6

1991 ..................................... 32.7 35.9 41.1

1992 ..................................... 33.4 37.1 41.3

1993 ..................................... 33.1 37.4 42.0

1994 ..................................... 30.6 32.6 35.8

1995 ..................................... 29.3 30.8 35.3

Hispanic origin2

:

1990 ..................................... 28.1 40.3 46.4

1991 ..................................... 28.7 41.6 47.0

1992 ..................................... 29.6 41.5 47.8

1993 ..................................... 30.6 43.2 47.8

1994 ..................................... 30.7 41.7 45.9

1995 ..................................... 30.3 41.0 45.8

Work experience

Worker in the family:

1990 ..................................... 8.9 13.9 17.1

1991 ..................................... 9.3 14.5 17.5

1992 ..................................... 9.7 15.0 17.9

1993 ..................................... 9.9 15.6 18.2

1994 ..................................... 9.6 14.4 16.6

1995 ..................................... 9.5 13.9 16.5

Family type

Married couple:

1990 ..................................... 6.9 12.2 15.3

1991 ..................................... 7.3 12.9 15.7

1992 ..................................... 7.7 13.7 16.5

Characteristic and year Thresholds1 Bundle 1 Official Bundle 2

Table 5.
64 Monthly Labor Review March 1998

Experimental Poverty Measurement

Characteristic and year

Poverty rates by selected characteristics, 199095

[In percent]

Thresholds1 Bundle 1 Official Bundle 2

1993 ...................................... 8.0 14.2 16.6

1994 ..................................... 7.4 13.1 15.2

1995 ..................................... 6.8 12.4 14.7

Female householder:

1990 ..................................... 37.2 41.6 47.1

1991 ..................................... 39.7 43.6 48.7

1992 ..................................... 39.0 42.8 47.1

1993 ..................................... 38.7 43.5 48.0

1994 ..................................... 38.6 40.8 44.5

1995 ..................................... 35.5 38.8 42.9

1

 Official thresholds for each year are used. Budget 1 and Budget 2 thresholds derived from the calculation:

((1.15*mean of amount that is 78 percent of basic bundle expenditures median)+(1.25 * mean of amount that

is 83 percent of basic bundle expenditures median))/2; equivalence scale =(A+.7K)0.7 .

Bundle 1 and 2 thresholds are based on basic Bundles 1 and 2, respectively.

Basic Bundle 1=Food+Clothing+Shelter+Utilities.

Homeowners’ shelter expenditures include mortgage interest and related charges, but not reductions in mortgage principals.

Basic Bundle 2=Food+Clothing+Shelter+Utilities.

Here, homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which the house could be rented.

2

 May be of any race.

Table 5.
Monthly Labor Review March 1998 65

Current and alternative equivalence scales for families of selected

types, expressed relative to a value of1.00 for a family of two adults and

two children

One adult2 ........................ 0.513 0.451 0.425 0.399

 Plus one child ................. .680 .637 .616 .595

 Plus two children ............ .794 .797 .784 .770

 Plus three children .......... 1.003 .942 .937 .933

 Plus four children ............ 1.159 1.075 1.081 1.087

 Plus five children ............ 1.293 1.200 1.217 1.234

Married couple ................. .660 .708 .690 .672

 Plus one child ................. .794 .861 .851 .841

 Plus two children ............ 1.000 1.000 1.000 1.000

 Plus three children .......... 1.177 1.129 1.140 1.151

 Plus four children ............ 1.318 1.251 1.273 1.295

 Plus five children ............ 1.476 1.367 1.400 1.434

1

 The thresholds for single adults or unrelated individuals and for two-adult families are those for units with

the householders under age 65.

2

 For the one-adult unit, includes people living alone and with others in a household not related to them.

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

National Academy Press, 1995), Table 3-4, p. 181;and the authors’ own calculations. The Panel proposed that

the scale be set in the range of 0.65 to 0.75. A 0.70 scale economy factor is used in this article.

Family type

Implicit in

current official

thresholds1

0.65 scale

economy factor

0.75 scale

economy factor

0.70 scale

economy factor

Table 1. 
66 Monthly Labor Review March 1998

Experimental Poverty Measurement

Official poverty thresholds for selected family types, and thresholds based on basic bundles 1 and 2, 199095

[In current dollars for each year]

Threshold 1990 1991 1992 1993 1994 1995

Official poverty threshold

Singles ........................................ $6,652 $6,932 $7,143 $7,363 $7,547 $7,929

Married couple ............................. 8,509 8,865 9,137 9,414 9,661 10,205

Plus one child .......................... 10,520 10,963 11,293 11,631 11,929 12,267

Plus two children ...................... 13,254 13,812 14,228 14,654 15,029 15,455

Plus three children ................... 15,598 16,254 16,743 17,245 17,686 18,187

Plus four children ..................... 17,464 18,199 18,747 19,308 19,802 20,364

Plus five children ..................... 19,561 20,384 20,998 21,626 22,180 22,809

Bundle 1 threshold

Singles ........................................ 5,847 6,089 6,282 6,480 6,638 6,843

Married couple ............................. 9,498 9,892 10,205 10,527 10,783 11,117

Plus one child .......................... 11,719 12,204 12,591 12,988 13,304 13,715

Plus two children ...................... 13,771 14,341 14,796 15,262 15,634 16,117

Plus three children ................... 15,699 16,349 16,868 17,399 17,823 18,374

Plus four children ..................... 17,531 18,256 18,836 19,429 19,902 20,517

Plus five children ..................... 19,283 20,082 20,719 21,371 21,892 22,569

Bundle 2 threshold3

Singles ........................................ 6,059 6,298 6,436 6,573 6,693 7,382

Married couple ............................. 10,191 10,592 10,823 11,055 11,256 11,993

Plus one child .......................... 12,763 13,266 13,556 13,845 14,097 14,796

Plus two children ...................... 15,172 15,770 16,114 16,458 16,758 17,387

Plus three children ................... 17,459 18,147 18,543 18,939 19,284 19,822

Plus four children ..................... 19,650 20,425 20,870 21,316 21,704 22,134

Plus five children ..................... 21,762 22,620 23,114 23,607 24,037 24,347

1 Thresholds derived from calculation ((1.15*mean of amount that is 78

percent of the basic bundle expenditures median)+ (1.25 * mean of amount

that is 83 percent of the basic bundle expenditures median))/2; equivalence

scale =(A+.7K)0.7

2 For each year, the prior 3 years of expenditure survey data were updated

to the current year, using the CPI-U , to produce the thresholds for the current

year. For example, to produce the thresholds for 1992, 1989–91 expenditure

survey data were updated to 1992 dollars using the change in the CPI from

1989, 1990, and 1991 to 1992, for each year respectively. 3 Bundle 1 and 2 thresholds based on basic bundles 1 and 2 respectively.

Basic bundle 1=Food+Clothing+Shelter+Utilities. Homeowners’ shelter expenditures include mortgage interest and related charges but not reductions

in mortgage principals.

Basic bundle 2=Food+Clothing+Shelter+Utilities. Here homeowners’ shelter expenditures are defined as the rental equivalence value reported when

the respondent is asked for what amount could the house be rented.

Table 4. 
Monthly Labor Review March 1998 67

Distribution of the poverty population by selected characteristics, 1992

Total ..................................... 256,549 256,549 256,549

Total poor .................................... 38,014 51,114 59,281 00.00 100.00 100.00

Children (under 18 years) ............ 15,294 18,518 21,198 40.23 36.23 35.76

Persons aged 18–64 years .......... 18,793 25,764 30,041 49.44 50.40 50.68

Elderly (over 64 years) ................ 3,928 6,831 8,043 10.33 13.36 13.57

White ........................................... 25,259 36,375 42,833 66.45 71.16 72.25

Black ........................................... 10,827 12,030 13,397 28.48 23.54 22.60

Other ........................................... 1,929 2,709 3,051 5.07 5.30 5.15

Non-Hispanic ............................... 30,422 40,471 47,027 80.03 79.18 79.33

Hispanic ...................................... 7,592 10,643 12,254 19.97 20.82 20.67

No worker in household ............... 17,067 18,666 20,432 44.90 36.52 34.47

Worker in household ................... 20,947 32,448 38,850 55.10 63.48 65.54

Married ........................................ 13,304 23,674 28,596 45.94 57.10 59.23

Female householder .................... 14,205 15,597 17,172 49.05 37.62 35.57

Other ........................................... 1,452 2,188 2,514 5.01 5.28 5.21

Number (thousands) Percent of the poor

Thresholds1 Thresholds1

Official Bundle 1 Bundle 2 Official Bundle 1 Bundle 2

Table 6. 

1*Thresholds derived from calculation

((1.15*mean of amount of 78 percent of basic bundle expenditures median)+

(1.25 * mean of amount that is 83 percent of basic bundle expenditures

median))/2; equivalence scale =(A+.7K)0.7 .

Bundle 1 and 2 thresholds based on basic Bundles 1 and 2 respectively.

Basic Bundle 1=Food+Clothing+Shelter+Utilities.

Homeowners’ shelter expenditures include mortgage interest and related

charges, but not reductions in mortgage principals.

Basic Bundle 2=Food+Clothing+Shelter+Utilities.

Here homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for what amount the

housecould be rented.
68 Monthly Labor Review March 1998

Experimental Poverty Measurement

Official poverty rates compared to rates based on experimental measures for selected demographic groups,

1992

Total ......................................... 14.8 18.1 19.0 19.9 23.1 3.3 4.2 5.1 8.3

Relatively high poverty rates

Children ........................................... 22.4 26.4 26.4 27.1 31.0 2.7 2.7 3.1 5.7

Hispanic .......................................... 29.6 41.0 40.9 41.5 47.8 5.7 5.7 6.0 9.1

Black ............................................... 33.4 35.6 36.8 37.1 41.3 1.0 1.5 1.6 3.5

Female householder ........................ 39.0 – – 42.8 47.1 – – 1.4 3.1

Relatively low poverty rates

Married couples ............................... 7.7 – – 13.7 16.5 – – 11.6 17.1

Worker in family ............................... 9.7 13.7 14.1 15.0 17.9 6.2 6.8 8.1 12.7

White ............................................... 11.9 15.3 16.1 17.1 20.1 4.3 5.3 6.5 10.3

Age 18–64 ....................................... 11.9 – – 16.3 19.1 – – 5.5 8.9

Elderly ............................................. 12.9 14.6 18.0 22.5 26.4 1.9 5.8 10.9 15.5

Table 7. 

1 Standardized percentage-point difference = (current total population poverty rate/current rate for group) *actual percentage-point change of the experimental poverty rate less the official poverty rate.

2 NAS1 uses scale economy factor 0.75; NAS2 uses scale economy factor

0.65. The standardized changes are slightly different from those published

because the official poverty rates are slightly different. See Connie F. Citro

and Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington, National Academy Press, 1995), table 5–8, p. 265.

3 B1 and B2 are the poverty rates based on basic Bundles 1 and 2 thresholds respectively. (See the text for estimation methodology.)

Basic Bundle 1=Food+Clothing+Shelter+Utilities.

Homeowners’ shelter expenditures include mortgage interest and related

charges but not reductions in mortgage principal.

Basic Bundle 2=Food+Clothing+Shelter+Utilities.

Here, homeowners’ shelter expenditures are defined as the rental equivalence value reported when the respondent is asked for the amount for which the

house could be rented.

Poverty rate (in percent) Percentage-point difference (standardized)1

Official NAS12 NAS22 B13 B23 NAS12 NAS22 B13 B23