Notes on the Calculation of Poverty

Poverty is a central concern in social work.  This post provides information about the calculation of poverty rates.  This information serves as background for other posts in which I present perspectives on certain aspects or experiences of poverty:  in leisure, for example, and among men, and in homelessness.

Each year, the U.S. Census Bureau reports official poverty thresholds.  These thresholds are based upon family pretax income and upon the size of the family unit and the number of children.  Specifically, the thresholds take account of the number of people, including children, in the family unit.  So, for example, in 2011, the poverty threshold for a single individual of age 65+ was $10,788, and on the other extreme the poverty threshold for a family unit of nine or more people, consisting of eight or more children, was $43,487.  For a single individual under age 65, the poverty threshold was $11,702; for two adults with one child, or for one adult with two children, the threshold was about $18,100.

As a point of comparison, 30 years earlier, in 1981, the poverty threshold for a single individual under 65 was $4,729; the threshold for a family of three, with one or two children, was about $7,300.  So the poverty threshold rose about 250% over the past 30 years.  (To do the calculation, apply each year’s COLA to the adjusted amount from the previous year, or just use the U.S. Bureau of Labor Statistics’s CPI Inflation Calculator.)  That substantially matches the cumulative Cost-of-Living Adjustments (COLAs) calculated by the U.S. Social Security Administration (SSA) over that period.  The SSA’s COLA calculations reflect estimated changes in a Consumer Price Index (CPI) applicable to urban wage earners and clerical workers.  Such calculations are similar but not exactly identical to those used by the Census Bureau.

As the Census Bureau warns, its poverty thresholds were originally developed in the early 1960s; they neglect numerous variables; and thus they “are intended for use as a statistical yardstick, not as a complete description of what people and families need to live.”  Poor or wealthy people, people with health issues, and others may experience changes in the cost of living that are not reflected in the Census Bureau’s estimates.  For instance, the cost of gasoline may be a much greater part of a rural budget than of an urban one.  Heating and air conditioning expenses are much greater in some places, and in some kinds of dwellings.  These sorts of concerns apply in many different kinds of situations:  the budgets of some people in low- or high-income groups might be affected by costs and trends in relevant tastes and addictions; people whose budgets are unusually dependent upon the price of technology may benefit from price deflation reported each month by Statistics Canada’s Computer and Peripherals Price Indexes.  Inflation affects upper- as well as lower-income households.  For instance, people whose budgets include gold purchases may have encountered above-average inflation due to rapid rises in the price of gold in recent years.

Others have adjusted and supplemented the Census Bureau thresholds.  Notably, the U.S. Department of Health and Human Services (HHS) issues annual poverty guidelines.  These guidelines, intended primarily as a simplification, produce results similar to those cited above.  For instance, the HHS poverty guideline for a single individual under age 65 was $4,310 in 1981 and $10,890 in 2011.  Many other government agencies use HHS guidelines in their own eligibility criteria, although often their use demonstrates that they find the HHS poverty guidelines unrealistically low.  For example, the Supplemental Nutrition Assistance Program (SNAP, formerly called Food Stamps) is available to those whose pretax income does not exceed 165% of the HHS guidelines.  In 2012, referring again to the family configurations cited above, SNAP was thus available to single individuals with incomes up to about $18,400 and to families of three with incomes up to about $31,500.  There is legislative concern, in other words, that people with incomes below those levels may struggle to afford food while meeting the other costs of life in America.

There have been criticisms of the income-based approach.  Haveman and Mullikin (n.d., p. 3) cite alternate bases for a poverty measure.  If an economic measure is desired, they suggest, annual cash income is not the only candidate, and may not be the best:  one could also look at annual consumption or capacity for self-reliance.  Moreover, given research indicating that the typical person’s sense of well-being tends to be calculated relatively (i.e., with reference to how others are doing), one might consider the claim, by Amartya Sen (1983, quoted by Haveman & Mullikin, p. 2), that poverty is that level below which “one cannot participate adequately in communal activities, or be free of public shame.”  The criterion of shame need not be allowed to justify intervention on behalf of someone who must settle for a Toyota rather than a BMW; for instance, it is possible to identify levels of income below which people become targets of general ostracism and mistreatment.

Indeed, if one focuses on legal or medical rather than automotive services, it is reasonable to point out that a society that deprives even its middle-class constituents of services essential to life and well-being does essentially arrange to impoverish them in favor of the few who can afford full service.  Looking at it the other way around, it is possible to reduce the experience of relative poverty, not only by helping the poor, but also by bringing the rich more into line with the society in which they live.  Middle-class people may not be among “the poor,” officially speaking, but they certainly are among the disadvantaged in ways of profound importance to life, liberty, and the pursuit of happiness.  And there are signs of some pushback.  In a development that one could hardly have imagined a few years ago, people in the media have lately been reminding the public that the top marginal income tax rate in the U.S. after World War II – when the U.S. was desperately worried about the big government of the Soviet Union – was over 90%.  And there are indications that that was good for the country.

As these remarks anticipate, the income-based approach to defining poverty does have the drawback of focusing on individual rather than social welfare.  At the individual level, the test seems to be whether people will die prematurely at a shocking rate.  That is, for the most part, we do not let the poor starve, though it may be the soup kitchen rather than the government that helps them get through the week.  We do, however, allow people to die unnecessarily of inadequate health care, as just noted, and we are not overly concerned about giving their children conditions in which they can thrive.  A focus on what is best for the society, rather than on the individual, would probably make some major changes from current policy.  For one thing, it has not made sense, year after year, to convert potentially productive young people into expensive liabilities who sit uselessly in prison and become dangerous after release.  Poverty, in this perspective, is a problem to be addressed by society, not by the individual, and on the basis of what is most efficient, not on ideologies emphasizing the bootstrapping ability of the individual or the compassion of the observer.

So the poverty rate does depend on how poverty is defined.  It can be defined in a variety of ways; therefore, one should expect different reports of how much poverty there is.  By the official measure, the rate has fluctuated from about 12% in good times to about 15% in bad times, including the present.  Given a current population of about 314 million, that means about 47 million people below the poverty lines cited above.  Each additional percentage point means another 3 million people; hence, one of the alternate rates calculated by the Census Bureau puts the percentage at around 16%, and the number closer to 50 million.

According to Wikipedia, the U.S. poverty rate in 2008 was supposedly similar to that in France, except that poor people in the latter had universal health care.  That comparison touches upon the fact, addressed in more detail in another recent post, that many factors go into making a place a good home.  Some measures that incorporate some of those factors include the Human Development Index and the Human Poverty Index.  The latter attempts to incorporate elements of survival, knowledge, and standard of living.  In an Organization for Economic Co-operation and Development (OECD) working paper that examined data from the late 1990s, when the U.S. economy was relatively strong, Förster and d’Ercole (2005, p. 23) pulled together several of the considerations described above, in a calculation that relative poverty in the U.S. could run closer to 24% of the population.  In their approach, relative poverty would probably be considerably higher now.

These remarks have concentrated on the economic side.  As such, they have grossly understated psychosocial aspects of poverty.  Life can be unbearable even for those who, despite wealth or good prospects, encounter severe humiliation or abuse.  That is, the quality and survivability of one’s life depends on much more than whether there is food on the table or even whether the neighborhood is physically safe.  Concepts of emotional and spiritual poverty apply even to seemingly privileged environments.  This is not to take away from the pressing realities of hunger and other aspects of poverty as commonly understood; it is just that the good life is a worthy goal, and yet can be surprisingly difficult to achieve.

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