PPA786: Urban Policy
Class 14:
Poverty: Concepts and Evidence
PPA786, Class 14: Poverty
• Class Outline
▫ Poverty Concepts
▫ The Extent of Poverty
▫ Weaknesses in Current Poverty Measures
 Note: Much of the material for this lecture comes
from Census and HHS websites.
▫ Poverty and Inequality
PPA786, Class 14: Poverty
• Approaches to Measuring Family Poverty
▫ Absolute poverty
 Not enough income to meet a “reasonable” or
“minimally decent” standard of living.
 The approach used in the U.S.
▫ Relative poverty
 Low income relative to others, usually the median
 Used in most international comparisons
PPA786, Class 14: Poverty
Relative versus Absolute Poverty
0.000008
Share of Households
0.000007
0.000006
0.000005
0.000004
Half of Blue
Median
0.000003
Half of Teal
Median
0.000002
Absolute
Poverty Line
0.000001
0
0
50000
100000
150000
Household Income
200000
250000
PPA786, Class 14: Poverty
• Other Dimensions of Poverty
▫ Poverty and Inequality
 Poverty measures focus on the bottom of the income
distribution
 Measures of inequality summarize the entire
distribution and need not be correlated with poverty
▫ Poverty Spells
 Like many other social phenomena, poverty can be
measured with a snapshot or as a flow
 Poverty lines are snapshots; we will also look at
flows
PPA786, Class 14: Poverty
• History of the U.S. Poverty Thresholds
▫ The poverty thresholds were devised by Mollie Orshansky
and first published in 1965.
 She started with the Department of Agriculture’s “economy
food plan,” which provided a nutritionally adequate diet “for
temporary or emergency use when funds are low.”
 She combined this with a finding from the DoA’s 1955
Household Food Consumption Survey that families of 3 or
more people spent about 1/3 of their after-tax money income
on food.
 So: poverty threshold = 3 × cost of the economy food plan.
▫ Orshansky differentiated her thresholds by family size, by
farm/nonfarm status, by the sex of the family head, by the
number of family members who were children, and (for
one- and two-person units only) by aged/non-aged status.
PPA786, Class 14: Poverty
• History of the U.S. Poverty Line, Continued
▫ In 1969, Bureau of the Budget (the predecessor of the
Office of Management and Budget) decided to index
the thresholds by the Consumer Price Index and to set
the farm poverty thresholds at 85 percent rather than
70 percent of corresponding nonfarm thresholds.
▫ In 1981, the distinctions between farm and nonfarm
thresholds and between “female-headed” and “maleheaded” thresholds were eliminated.
▫ The poverty thresholds are simplified by HHS into
poverty guidelines for determining program eligibility.
PPA786, Class 14: Poverty
Poverty Thresholds for 2013 by Size of Family and Number of Related Children Under 18 Years
Related children under 18 years
Size of family unit
None
One
Two
Three Four
Five
Six
Seven ≥ Eight
One person (unrelated individual).
Under 65 years..................
12,119
65 years and over..............
11,173
Two people.........................
Householder under 65 years.........
15,600 16,057
Householder 65 years and over.
14,081 15,996
Three people......................
18,222 18,751 18,769
Four people........................
24,028 24,421 23,624 23,707
Five people.......................
28,977 29,398 28,498 27,801 27,376
Six people.......................
33,329 33,461 32,771
Seven people.......................
38,349 38,588 37,763 37,187
Eight people......................
Nine people or more.......……
Source: U.S. Census Bureau.
42,890 43,269 42,490 41,807 40,839 39,610 38,331 38,006
51,594 51,844 51,154 50,575 49,625 48,317 47,134 46,842 45,037
32,110 31,128 30,545
36,115 34,865 33,493
PPA786, Class 14: Poverty
2014 HHS Poverty Guidelines
Persons in Family or Household
Mainland
U.S.
Alaska
Hawaii
1
$11,670
$14,580
$13,420
2
$15,730
$19,660
$18,090
3
$19,790
$24,760
$22,760
4
$23,850
$29,820
$27.430
5
$27,910
$34,900
$33,100
6
$31,970
$39.980
$36,770
7
$36,030
$45.060
$41,440
8
$40,090
$50,140
$46,110
For each additional person, add
$4,060
$5,808
$4,670
PPA786, Class 14: Poverty
• Poverty Guidelines and Program Eligibility
▫ HHS: Community Services Block Grant, Head Start, LowIncome Home Energy Assistance, Children's Health
Insurance Program
▫ Department of Agriculture: Food Stamps (now SNAP),
Special Supplemental Nutrition Program for Women,
Infants, and Children (WIC), the National School Lunch
and School Breakfast programs
▫ Department of Energy: Weatherization Assistance
▫ Department of Labor: Job Corps, Senior Community
Service Employment Program, National Farmworker Jobs
Program
▫ Legal Services Corporation: Legal services for the poor
PPA786, Class 14: Poverty
• Poverty Guidelines and Program Eligibility,
Cont.
▫ Certain recent provisions of Medicaid use the poverty
guidelines, but most of the program does not.
▫ Major means-tested programs that do NOT use the poverty
guidelines for eligibility include Temporary Assistance for
Needy Families, Supplemental Security Income, the Earned
Income Tax Credit, HUD’s means-tested housing assistance
programs, and the Social Services Block Grant.
▫ Some state and local governments use the federal poverty
guidelines in some of their own programs.
 Examples include state health insurance programs, financial
guidelines for child support enforcement, and determination of
legal indigence for court purposes.
PPA786, Class 14: Poverty
• Extent of Poverty in the U.S. (Census)
▫ The official poverty rate in 2012 was 15.0%
(versus 15.1 in 2010), and 46.5 million people were
in poverty.
▫ Poverty rates in 2012 were 12.7% for non-Hispanic
Whites, 27.2% for Blacks, 25.6% for Hispanics,
and 11.7% for Asians—all down slightly from 2011.
▫ The poverty rate for children under 18 years old
was 21.8% and the rate for the elderly was 9.1%.
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
Poverty Rates, 1973-2012
40
35
30
25
20
15
10
5
0
1972
1976
1980
1984
1988
White
1992
Black
1996
2000
Hispanic
2004
2008
2012
PPA786, Class 14: Poverty
• Dynamics of Poverty, 2004 to 2006 (Census)
▫ About 28.9% of people were poor for at least 2
months between 2004 and 2006, but only 2.8%
were poor every month of the 3-year period.
▫ Of those who were poor in 2004, 68.6% remained
poor in 2005 and 58.4% were poor in 2006. Of
those who were not poor in 2004, only 3.5%
became poor in 2005 and 4.2% were poor in 2006.
▫ Based on a monthly poverty measure, the median
spell length in the 2004-2006 period was 4.5
months.
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
Source: Smeeding (2008)
PPA786, Class 14: Poverty
• Weaknesses of the U.S. Poverty Line (NAS
Panel)
▫ It excludes in-kind benefits, such as food stamps and housing
assistance, when counting family income.
▫ It ignores the cost of earning income, including child care
costs, when calculating the net income.
▫ It disregards regional variation in the cost of living (housing).
▫ It ignores direct tax payments, such as payroll and income
taxes, when measuring family income.
▫ It ignores differences in health insurance coverage and
medical care needs.
▫ It has never been updated to account for changing consumption
patterns of U.S. households. For example, expenditures for food
accounted for about one-third of family income in the 1950s, but
they now account for as little as one-seventh.
PPA786, Class 14: Poverty
• Correcting the U.S. Poverty Line
▫ Correcting for in-kind benefits, the costs of earning
income, tax payments, and health/insurance does not
have a large impact on the poverty rate, because their
effects are offsetting.
▫ Correcting for the declining share of food consumption
would be a huge deal: Current poverty thresholds
would have to be multiplied by 7/3!
▫ Correcting for the higher cost of housing in urban
areas would be a huge deal: Housing costs are many
times higher in large cities than in rural areas.
▫ That’s why the last two corrections, both of which
make perfect sense, are unlikely to be implemented!
PPA786, Class 14: Poverty
• Metro vs. Nonmetro Poverty, Joliffe (2006)
▫ Adjusting poverty thresholds with a fair market rent (FMR)
index results in a reversal of the nonmetro-metro poverty
profile.
▫ With no adjustment for cost-of-living differences, the
prevalence of poverty is higher in nonmetro areas than in
metro areas over the last 12 years.
▫ When the FMR index is used to adjust for cost-of-living
differences, the prevalence, depth, and severity of poverty
are higher in metro areas than in nonmetro areas.
 In 2001, for example, the prevalence of nonmetro poverty was
28% higher than in metro areas. Once adjusted for cost-ofliving differences, this is reversed and the prevalence of poverty
in nonmetro areas is 12% lower than in metro areas.
PPA786, Class 14: Poverty
P0=standard poverty measure; P1=poverty gap; P2=poverty gap squared.
PPA786, Class 14: Poverty
• Supplemental Poverty Measure
(Census)
▫ In response to these problems, the Census now
calculates a Supplemental Poverty Measure that
accounts for some of them.
▫ The Census also continues to work on alternative
measures that deal with even more of these
problems.
▫ The features of the new measure are outlined on
the following slide.
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
• Material Hardship
▫ We measure poverty primarily because it links to an
issue of great interest to many: the quality of life
experienced by our most disadvantaged citizens.
▫ Another approach to this issue, covered in the
Sullivan, Turner, Danziger reading is material
hardship, defined as experiencing food insufficiency,
utility shut-off, eviction, or homelessness.
▫ Some of their analyses also consider experiencing a
disconnected phone, a lack of winter clothing for a
mother or her children, and the need for a doctor or
dentist without the required funds or insurance.
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
• Determinants of Material Hardship
▫ Average disposable income over several years (not current
income) is significantly related to hardship.
 A 10 percent increase in average income is associated with a 1.1
percentage point decrease in the likelihood of experiencing any
of four hardships—a drop of about 3.4 percent at the mean.
 Thus, for a minimum wage worker, the receipt of the maximum
EITC (a 40 percent earnings subsidy) on a permanent basis
would be associated with a 16 percent reduction in the
likelihood of hardship.
▫ Social programs might better target benefits at those facing
the greatest risk of hardship by considering factors
associated with low long-run income.
PPA786, Class 14: Poverty
• Predicting Material Hardship
▫ Other observable factors, such as meeting the diagnostic
screening criteria for a mental health disorder, are strongly
associated with the risk of hardship.
 A woman meeting the screening criteria for a mental health
disorder is more than 10 percentage points more likely to
experience material hardship than others.
▫ According to S/T/D, welfare agencies, training programs,
and service providers should consider gathering
information on long-run income or mental health, in
addition to information on current income.
 This information could be used to predict hardship and to
recommend associated treatment or prevention programs.
PPA786, Class 14: Poverty
• Inequality and Poverty
▫ Increases in poverty are usually associated with
increases in inequality, but these two concepts are
not perfectly correlated.
▫ Inequality is usually measured either by the ratio
of incomes in a high percentile of the income
distribution to incomes in a low percentile,
▫ Or by a summary statistic called a Gini coefficient.
PPA786, Class 14: Poverty
Measuring Inequality: The Gini Coefficient
Source: Wikipedia
PPA786, Class 14: Poverty
Author: Gorman
PPA786, Class 14: Poverty
PPA786, Class 14: Poverty
Increase in Inequality (McCall & Percheski, Ann. Rev. of Sociology, 2010)
PPA786, Class 14: Poverty
Causes of Inequality (Pre-Recession)
• Heathcote, Perri, and Violante (J. Econ. Dynamics,
2010), found (pre-crash)
▫ “a large and steady increase in wage inequality between
1967 and 2006.
▫ Changes in the distribution of hours worked sharpen the
rise in earnings inequality in the first half of the sample, but
mitigate rising inequality in the second half.
▫ Taxes and transfers compress the level of income
inequality, especially at the bottom of the distribution, but
have little overall effect on the trend.
▫ Consumption data suggest that access to financial markets
has reduced both the level and growth of economic
inequality since 1980.”