The Poverty of Poverty Measures

How poor do you have to be to be poor? That is the question that is asked in many places around the world. The World Bank definition of living below $2/day is arbitrary, but it makes the point that a large proportion of the human population has very little in the way of resources. In the United States, as in most developed countries, there is an officially established poverty line that typically determines eligibility for government-subsidized benefits. In the United States, the official definition of poverty has been criticized since it was first formulated in the 1960s and in response to that the Census Bureau has spent 16 years developing a new "supplemental poverty measure." It is supplemental because it will not replace the official definition (at least not yet), but nonetheless has the goal of offering a more realistic picture of poverty in America. The Economist this week summarized the most recent results:

Census officials hope the new indicator will provide a better understanding of America’s poor, by measuring both the needs of families and the effect of government help. The SPM estimates the cost of food, clothing, shelter and utilities, then adds a further 20% for other expenses. This threshold is adjusted for the cost of living in different regions and for whether a family owns or rents its home. To assess a household’s ability to pay for basic expenses, the SPM counts cash income as well as food stamps, tax credits and other government support, minus tax payments, work expenses and out-of-pocket medical costs.

Final figures are due to be published in the autumn, but preliminary results were released this month. In 2009 15.7% of Americans were poor, compared with 14.5% in the official measure (see chart). The share of those in extreme poverty fell, relative to the official measure, thanks to the inclusion of government support. The poverty rate dropped in rural areas and rose in urban and suburban ones. It jumped in the north-east and the West, while staying almost level in the South and falling in the Midwest. The most dramatic rise was for the elderly—from 9.9% in the official measure to 16.1% in the SPM, in part because of their high medical expenses.