Poverty Measures Old and New: A Comparison

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Poverty Measures Old and New A Comparison

• Diana Pearce, Senior Lecturer Director,
• Center for Womens Welfare
• University of Washington School of Social Work

ACF Welfare Research Evaluation Conference,
Washington, DC, May 2009
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Mollie Orshansky developed the official
poverty thresholds in the 1960s to count the
poorand that continues to be its main goal
The official poverty measure should be
interpreted as a statistical yardstick rather
than a complete description of what people and
families need to live - U.S. Census Bureau

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Alternative Uses Have Led to Alternative Measures

• However, over time, the federal poverty level
  (FPL) has been used for much more than a
  statistical yardstick. Today the FPL is used to
• Determine benefit eligibility
• Allocate program resources
• Analyze program impacts
• Evaluate program effectiveness
• Measure reform success

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Two Alternatives Have Emerged

• 1 -Revision/modernization of current FPL
  National Academy of Sciences (NAS) first
  proposed in 1995 in Measuring Poverty.
• Primary Purpose Track Poverty Trends
• 2 - Basic Needs Budgets. Will use the most
  widespread of these, the Self-Sufficiency
  Standard (SSS) first calculated in 1996,
  supported by Ford Foundation grant to WOW.
• Primary Purposes Tool to Guide Resource
  Allocation, Client Counseling, Program Impact
  Evaluation.

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Comparing Two Alternatives

• Todays comparison will look at how these two
  alternatives developed
• Will look at 4 critiques of FPL, and how NAS
  SSS respond to each critique
• Will see how each measure differs in way it is
  constructed, and how, what, and how much poverty,
  it measures
• Will see the strengths and limitations of each.

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Four Critiques of the FPL

• FPL is too low
• FPL is frozen, does not reflect rising living
  standards, changes in needs
• FPL does not reflect impact of public policy
  benefits, taxes, tax credits.
• FPL does not vary by place or family composition
• How does the NAS and SSS Respond to Each Critique?

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1 FPL is too low

• FPL is so low that generally multiples of it are
  used
• For program eligibility Food Stamps/SNAP
  130FPL, WIC 185, SCHIP up to 350 of FPL
• As poverty measure Working Poor Families
  Project uses 200 FPL, as has Census Bureau
• Studies show many experience hardships well above
  FPL

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1 But NAS is also low why?

• NAS thresholds are partial thresholds
• While only food is specified in FPL, implied list
  of all other includes all costs (at the time)
• NAS thresholds only include core essentials
• Housing, Utilities, Food and Clothing, plus 20
  more for Miscellaneous. (sometimes, includes
  Health Care).
• Result for NYC NAS threshold is 28 above FPL

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1 Why NAS is low

• Rather than include health care and work-related
  costs in the threshold, actual costs are deducted
  from income.
• Deducting from income is not equivalent to adding
  to threshold, because
• Actual costs, for poor, are often less than
  needed outlays so deductions are less
• Some go without altogether so for some, no
  deduction

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1 SSS is much higher than FPL or NASwhy?

• SSS thresholds are full thresholds
• SSS includes ALL the costs of basic needs for
  families with working adults
• Housing,
• Child Care
• Food
• Health Care
• Transportation
• Taxes

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1 SSS is much higher than FPL or NASwhy?

• SSS thresholds are full thresholds
• The costs are set at minimally adequate levels,
  as defined by government yields bare bones
  budgets
• Fair Market Rents, child care subsidies, USDA
  Low-Cost Food budget
• SSS is 302 of FPL. In MS, it is about 200.

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1 SSS is much higher than FPL or NASwhy?

• SSS thresholds reflect the costs of families with
  working adults because this reflects the reality
  of poverty today
• With the 1996 welfare reform, as a society, we
  require able-bodied adults to support their
  families through work TANF has become not only
  time-limited but short term unless there is
  disability/age.
• Across six states where we have done demographic
  profiles, 80-85 of non-elderly, non-disabled
  households have a worker in them.
  (CA,CO,CT,NJ,PA,WA)

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2 FPL is frozen, does not reflect rising
living standards/changing needs

• The FPL is a hybrid measure, part absolute, part
  relative.
• FPL is an absolute in sense it is based on the
  USDA Thrifty Food Plan.
• FPL is a relative measure because the
  multiplier of 3 is based on all families
  expenditures on other items.
• But then it was frozenupdated only with CPI for
  prices, but not for consumption/ living
  standards changes

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2 NAS response make it a pure relative measure

• NAS thresholds are pegged to expenditures on core
  essentials by families at the median
• so NAS rises with living standards, which go up
  faster than prices
• However, they also will fall when living
  standards fall, as in a severe recession.
• When income falls by 10, core spending falls
  about 3, so NAS would fall somewhat.
• Result in severe recession, number below NAS
  would tend to rise a little, less than with
  absolute measure, FPL or SSS

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2 SSS response create a modified absolute
measure

• SSS thresholds are based on a publicly
  established minimum standards of goods and
  services.
• Unlike the population below the FPL, those below
  the SSS are predominantly employed.
• Result In a severe recession, the number
  below SSS would increase substantially, more than
  the FPL.

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2 SSS modifications on absolute measure

• What is included is not frozen as with the FPL.
• SSS needs updated Needs that were once off
  market, either free to the poor (health care) or
  through unpaid labor in the home (child care) are
  now included.
• Likewise, rather than create a NEW budget list or
  measure, SSS will change, adding (e.g.,
  telephone) or subtracting (health care if there
  is national health care reform) needs as needed.

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2 SSS modifications on absolute measure

• SSS thresholds methodology of determining costs
  uses a combination of absolute and relative
  approaches.
• SSS thresholds increase at rates faster than the
  CPI, but less than the NAS, reflecting some
  increase in living standards
• on average, SSS rises about 1.5-3 more than
  just the CPI increase.

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2 SSS modifications on absolute measure
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2. SSS is modified absolute measure

• Example of Indiana in chart
• With the Midwest CPI, costs over last ten years
  rose on the average 2.74
• With the SSS (excl. taxes), costs in Lake County
  (near Chicago/Gary), costs rose 4.50 on average,
  and in Kosciusko County, they rose 5.13 on
  average.
• In NJ, the NE CPI rose average 2.78 over last
  ten years, but the SSS for Somerset County rose
  5.79 (data not shown).

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3 FPL Does not reflect impact of public
policies

• Because the FPL is a black box, one cannot
  calculate the impact of various subsidies
  replacing the cost, e.g., of housing or child
  care.
• With no limits on costs, for example, if one
  credited the value of health care against income,
  then the sicker you are, the richer you are.
• Because resources are measured post-tax, does
  not show impact of, for example, EITC.

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3 NAS response allows for impact of some
benefits, taxes/tax credits

• With the NAS, the impact of subsidies for core
  essentialsfood, housing, utilitiescan be shown.
  
• But work supports that reduce work-related
  expenses, such as child care or health care,
  cannot be shown.
• If you receive child care, you dont deduct the
  cost from income, so does not affect poverty
  status.
• Under NAS, those lacking child care subsidies and
  those receiving are equal in measured
  well-being.

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3 SSS allows for impact of all benefits, and
taxes/tax credits

• With the SSS, the impact of subsidies for any
  need can be shown not just core essentials.
• Here is an example, with left column the full
  cost in the Self-Sufficiency Standard threshold,
  and the right column how much it is reduced by
  the subsidyreducing the income needed to meet
  needs adequately by about one-third

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3 SSS allows for impact of all benefits.
Impact of Work Supports on Wage Adequacy Charles
County, MD, 2007 Single Parent with One
Preschooler and One Schoolage Child
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4 FPL does not vary by place or family
composition

• FPL is same everywhere, even though costs vary
  considerably not just housing, but child care,
  health care, even food .

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4 NAS response varies thresholds using a top
down approach

• For family composition, NAS calculates threshold
  for one four-person family at the median, then
  varies by family size and composition, using
  three parameters for an equivalence scale.
• For geographical variation, NAS varies housing
  costs component using Fair Market Rents, varying
  by region and size of place

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4 SSS varies thresholds by place and family
composition, using a bottom up approach

• For family composition and geography, SSS
  calculates thresholds by entering costs for the
  particular age child, or adult, in the particular
  place.each threshold is independent of each
  other.
• This allows for anomalies
• Expensive rural (resort) areas Marthas
  Vineyard, Aspen, Colorado
• San Francisco much more expensive than much
  larger Los Angeles

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Conclusions Differences, Strengths and Weaknesses

• 1 FPL too low
• Because the NAS thresholds are only marginally
  higher than FPL, and only actual work-related
  costs are deducted, NAS yields
• A lower count of poverty than SSS, closer to FPL
  (1-3) SSS is 2.5- 3X FPL.
• A higher count of elderly poverty (due to medical
  costs deducted), and same or lower count of
  families w/ children.

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Conclusions Strengths and Weaknesses

• 2 FPL Frozen
• As NAS is a relative measure, strength is
  tracking trends over time that reflect overall
  changes in living standards as well as price
  changes.
• ButNAS goes down as well as up as overall
  expenditures reflect economic recessions and
  expansions.
• SSS is modified absolute measure, does not
  reflect rising living standards as well.

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Conclusions Strengths and Weaknesses

• 3 FPL does not show impact of taxes, tax
  credits or subsidies
• NAS can show impact of subsidies that offset
  core essential costs-housing, food, utilities,
  while SSS can show impact of all subsidies,
  including work-related costs such as child care.
• NAS can show impact of taxes tax credits,
  before and after transfers, but not individual
  effects.

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Conclusions Strengths and Weaknesses

• 4 FPL has no geographic inadequate family
  composition variation
• While both NAS and SSS varies thresholds by
  family composition and geography, the NAS top
  down formulas create fewer and more regular
  variation.
• SSS bottom up approach adds child age
  variation, has many more thresholds, but they
  reflect geographical family irregularities, and
  change more quickly.

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For further informationEmail
pearce_at_u.washington.eduWebsiteswww.selfsuffici
encystandard.orgwww.wowonline.org
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What is the Self-Sufficiency Standard?

• DEFINITION OF SELF-SUFFICIENCY

• CALCULATED FOR 37 STATES

• The Self-Sufficiency Standard defines how much
  income a family of a certain composition in a
  given place needs to adequately meet their basic
  needs without public or private assistance.

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The Standard addresses the major shortcomings of
the FPL
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Percentage of Standard Needed to Meet Basic
NeedsOne Adult, One Preschooler, and One
Schoolage ChildOklahoma County, OK 2009
(Preliminary)
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The Self-Sufficiency Wage for Oklahoma City, OK
Compared to Other U.S. Cities, 2009
(Preliminary)One Adult with One Preschooler and
One Schoolage Child
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It changes our understanding of the number of
families with inadequate incomes.

• Households below the Standard
• ? ? ? ? ?
• Households below the FPL
• ? ? ? ? ? ?
• ? ? ? ? ? ?

• Results from Overlooked Undercounted for WA
  State

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It changes our understanding of who lacks
adequate income.
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How the Standard is Used

• Using the Standard transforms how organizations
  help families reach the goal of economic
  self-sufficiency.

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Tool for Setting Eligibility Levels

• The Self-Sufficiency Standard demonstrates that
  people can work full time, earn more than the
  federal poverty guidelines, and still lack
  sufficient income to meet basic needs. The bottom
  line is that we need to help people make the
  transition from welfare to self-sufficiency and
  not just to work.
• Tony Ross, President of the United Way of
  Pennsylvania

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Tool for Counseling Education

• Self-sufficiency looks different for every
  familyits not arbitrary. Thats one reason this
  report is important for people in poverty,
  policymakers and employment programs such as
  ours.
• Kris Stadelman, CEO of the Workforce
  Development Council Seattle-King County

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Tool for Benchmarking Evaluation

• Working hard should move families out of
  poverty, not keep them poor. The State
  Self-Sufficiency Standard strategically outlines
  by county how much employees need to be making in
  order to break the cycle of dependency and find a
  path to self-sufficiency.
• Estelle B. Richman, Secretary of the
  Pennsylvania Department of Public Welfare

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Tool for Planning

• "The Self-Sufficiency Standard illustrates in
  real terms that low-wage employment does not
  necessarily generate economic security.
• Amanda Feinstein, Senior Program Officer,
  Walter and Elise Haas Fund

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Tool for Wage Setting

• Whether youre talking about a living wage for
  human services workers, affordable housing, or a
  stronger commitment for government to help on
  child care issues, theyre all impacted by this
  (SSS).
• -Rep. Jarrett Barrios (D-Cambridge)

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Tool for Researchers Analysts

• We use the Self-Sufficiency Standard to educate
  policymakers and the public about the needs of
  low-income households. It is a very useful and
  credible tool for examining and contrasting the
  impacts of budget and policy proposals.
• Mike Herald, Legislative Advocate, Western
  Center on Law and Poverty

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Tool for Everyday Use

• The Standard has proven to be an invaluable tool
  in the fight for social justice.
• Connie M. Pascale, Legal Services of New
  Jersey

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A Tool for Working Families

• This is a true indicator of what it takes to
  survive.
• -Karlyn Jorosch, a single mother of three
  children

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For further informationEmail
pearce_at_u.washington.eduWebsitewww.selfsufficie
ncystandard.org