Alternative Measures of Poverty
The official poverty measure is a flawed reflection of how differences in the economy, policy, and behavior, both over time and between geographical areas, affect low-income households in the United States.
To help account for these missing factors, a variety of alternative methods of calculating poverty-level incomes have been proposed. These include the government’s 2011 release of the Supplemental Poverty Measure, which takes into account resources received through non-cash government assistance programs; food, clothing, shelter, and utilities expenditures; income after tax payments and credits; work expenses and medical expenses; and child support payments.
Under the supplemental measure, the U.S. poverty rate was 13.9% in 2017.
Other alternative measures of poverty include the National Academy of Science’s and Economic Policy Institute’s family budget-based measurements. To determine the income level needed to secure a “safe and decent, yet modest, living standard,” the EPI determines the costs of basic family budget items such as housing, food, child care, transportation, health care, and taxes.
According to an analysis of alternative poverty measurements by the Brookings Institution’s Hamilton Project, family budget approaches generally result in poverty thresholds about twice the official poverty level. The EPI does not calculate a national poverty threshold. However, looking at local area data used in the think tank’s family budget calculator, a family of four would require at least three times the federal poverty annual income threshold of around $24,000 to attain a modest yet adequate standard of living in the majority of urban areas analyzed.
Another approach to determining financial need is a relative poverty threshold, pegged to a percentage of current median income levels. Across the European Union, poverty rates are determined by counting all those living in households with incomes that are equal to or less than 60% of the respective national median income.
To better reflect the needs of their community, some localities have devised their own, more effective, poverty measures. For example, the New York City government poverty measure considers the higher cost of housing in New York City as well as other factors. Under this measure, the poverty threshold in New York City for a two-adult, two-child family in 2015 was $31,756, versus the comparable official threshold of $24,036. New York’s poverty rate by this measure was 19.9% in 2015, versus the official rate of 18.4% that year.
Another reason the official measure likely grossly underestimates poverty in the United States is that a great deal has changed since the benchmark for family expenses was set in the 1960s.
Since then, a range of necessary expenses have reduced the resources available to families. Out-of-pocket medical care costs rose rapidly in the 1990s, especially for elderly and disabled individuals. In the late 1990s and early 2000s, and again in the late 2010s, housing prices rose rapidly. These factors have had a limited effect on the poverty threshold in the current measure.
While the Household Food Consumption Survey found in 1955 that a typical family spends approximately one-third of its budget on food, today the Consumer Expenditure Survey and the USDA’s Economic Research Service show that a family spends between 9.7% (ERS) and 12.6% (CES) on food.