Measuring and Understanding Poverty
Sheldon Danziger
National Poverty Center
Gerald R. Ford School of Public Policy
University of Michigan
June 24, 2008
For Background, see S. Danziger, “Fighting Poverty Revisited” Focus, Newsletter of the
Institute for Research on Poverty, Vol.25, No.1, Spring-Summer 2007 and R. Blank, “How to
Improve Poverty Measurement in the United States,” Journal of Policy Analysis and
Management, Vol. 27, No. 2, 2008.
UNIVERSITY OF MICHIGAN
GERALD R. FORD SCHOOL OF PUBLIC POLICY
www.npc.umich.edu
Overview
1. Brief survey of key issues in measuring
poverty—is poverty as measured by the
Census Bureau too high or too low?
2. Brief review of economic and public policy
factors that have affected the trend in poverty
since the War on poverty—why is official
poverty rate the same today as in 1973?
3. Prospects for reducing poverty
What is Poverty in a Rich Country?
“Poverty is an inherently vague concept, and developing a poverty
measure requires a number of relatively arbitrary assumptions.”
“Living in poverty” suggests that a family has so little income that
they are unable to purchase the things that we as a society
think they need for a minimally decent life. In the U.S., this
typically means more than merely escaping starvation; it means
being able to purchase the goods and services that are
necessary to afford adequate and stable housing, to find and
hold a job, to participate as a citizen in the community, to keep
oneself and one’s family reasonably healthy, and to provide the
things that one’s children need to participate effectively in
school.”
R. Blank, 2007
Official Poverty Measure (Orshansky)
Threshold: based on 1955 economy food plan;
adjusted only for inflation using consumer price
index, not for increased real living standards
Income Concept: Annual Money Income (noncash
transfers & taxes not counted because they were
not common in mid-1960s)
Family Size & Composition: equivalence scale based
on food needs for a 1969 mix of family sizes &
types; does not recognize cohabitation
If income of each family doubles, the official rate will
fall because some families will be raised above the
fixed poverty line
Census Bureau’s Official Poverty
Measure, 2006
Elderly unrelated individual
$ 9,669
Nonelderly unrelated individual 10,488
Married couple, no children
13,500
Single mother, 2 children
16,242
Married couple, 2 children
20,444
Married couple, 4 children
26,938
Problems of the official poverty measure
Rapid growth of noncash income over last forty years:
food stamps, school lunch, earned income tax credit
are not controversial. But should value of
Medicare/Medicaid be included, and if so, how?
Consensus about the need to subtract taxes paid. What
about work, child care & transportation expenses?
No geographical differences (but these differences do
not affect income taxes either)
Thresholds are outdated: Blank labels them
“nonsensical”. National Academy of Sciences panel
suggested “food, shelter, clothing & a little more” not
just food spending & a semi-relative updating, not just
updating for consumer prices
Outdated concept of income-sharing unit (family)
Effects of problems of official measure
Income concept--not counting non-cash benefits
& EITC overstates poverty and understates
effectiveness of antipoverty programs
Poverty threshold—understates extent of poverty
compared to a poverty line that would have
increased over time as suggested by NAS
panel & others
Income-sharing unit—overstates extent of poverty
to the extent that cohabitors share income
Recommendations of 1995 National Academy of Sciences
Panel (Citro & Michael, ed. Measuring Poverty: A New
Approach)
Income concept—add in-kind transfers; subtract federal,
state & local income & payroll taxes; add EITC & other
refundable tax credits; subtract work-related child care
& transportation expenses
Poverty threshold—updated each year to reflect
changes in median expenditures of 2-adult, 2-children
families on basic necessities—food, clothing, shelter
and “a little more”
Income-sharing—treat cohabiters as married couples
Relative Poverty Measure
Most European researchers have only used relative poverty
measures; European countries have only recently adopted
official poverty measures
Threshold: based on a fixed percentage of median family income
(e.g., 40% or 50% or 60% of median adjusted for family size)
If income of every family doubled, then the Census Bureau official
rate would fall; however, relative poverty would remain constant
because the relative poverty line would also double. Relative
measures tend to fall less over time than absolute measures
Relative poverty is a measure of inequality—who has a living
standard that is less than half of the typical standard;
comparative deprivation
NAS panel proposed “quasi-relative”—poverty line would increase
with expenditures on necessities (which increase over time, but
at a lower rate than income increases)
The War on Poverty planners wanted to reduce income poverty by increasing
work, raising productivity to raise wages and raising incomes by providing more
government benefits. They chose an absolute poverty line:
“While income poverty is a relative matter, I do not think we should engage in
frequent changes of the poverty lines, other than to adjust for price change. As I
see it, the elimination of income poverty is usefully thought of as a one-time
operation in pursuit of a goal unique to this generation. That goal should be
achieved before 1980, at which time the next generation will have set new
economic and social goals, perhaps including a new distributional goal for
themselves (Lampman, 1971: 53). “
“In saying that the income-poverty problem can be solved in the near
future….we are not saying that all the causes and symptoms associated with
poverty are going to disappear…Ending income poverty does not require and
will not achieve a transformation of society. It is a modest goal (Lampman,
1971:167).”
Lampman does not say that the line should never be changed, only that it
should be infrequently changed, perhaps, once a generation. Most analysts
would consider it reasonable to change the line after 40 years!
Various dimensions of poverty
Official Measure: Annual Money Income
Persistent Poverty: Income averaged over a longer
time period (e.g. several years)
Concentrated Poverty: Spatial concentration &
neighborhood effects
Intergenerational Transmission: to what extent do
poor children become poor adults?
Dysfunctional behavior: Poverty is not primarily a
monetary issue, but is a psychological or cultural
issue
Material Hardship: lack of food, shelter, ability to pay
for essential goods & services; no health
insurance
Stylized Facts: A rising tide lifts all
boats, 1947-1973
Rapid economic growth (GDP per capita)
Rapid growth of wages for all workers; more
workers have health insurance & pensions
Rapidly falling poverty
Slowing falling inequality
Modest trend away from 2-parent families
Increase in inflation-adjusted minimum wage
Rapid increase in social spending due to War on
Poverty & Great Society
Stylized Facts: Uneven Tides & an
Era of Rising Inequality, 1973-today
Slow economic growth
For men: falling wages for less-skilled workers; no wage
growth for median workers; rapid growth for top
earners. Loss of unionized manufacturing jobs that
provided good wages, health insurance & pensions for
less-educated men
For women: increased work & earnings for most workers
No decline in poverty (except for elderly)—fluctuations
due to business cycle around 11% from 1973-2006
Substantial increases in inequality independent of cycle
Rapid increase in divorce & nonmarital childbearing
Rapid increase in immigration
Decline in inflation-adjusted minimum wage
Slowdown in growth of income transfers for the
nonelderly poor; EITC is major exception
Alternative Poverty Measures, 1959-2004
35
31.1
30
25
22.4
20.3
20.0
20
17.1
15.8
15.2
15
15.1
11.1
12.7
10
12.0
9.1
8.6
5
0
1959
1964
1969
1974
1979
Year
1984
1989
1994
25% Above Official Line
Note: Source: Calculations from March CPS.
The official poverty line for a family of four was
$19,307 in 2004. The alternative poverty line is
adjusted for inflation using the CPI-U-RS and was
$16,566 in 2004.
Official Line (Cash Income)
Alternative (Cash + non cash - tax + tax credit)
1999
2004
Poverty did not decline after 1973 even though the
economy grew slowly, Why? A critique that has been
dominant since the early 1980s is that government programs
themselves were responsible for persisting poverty by
discouraging work and encouraging family breakup.
In 1964, the famous War on Poverty was declared. And a funny
thing happened. Poverty, as measured by dependency, stopped
shrinking and actually began to grow worse. I guess you could
say “Poverty won the War.” Poverty won, in part, because
instead of helping the poor, government programs ruptured the
bonds holding poor families together (President Reagan, Radio
address, February 15, 1986.)
GDP growth slowed after 1973 but was still positive.
From 1959-1973 Real Per Capita GDP grew by an average
of 2.9% per year, Real Per Capita Personal Income (NIPA)
grew by an average of 3.4% per year and Real Per Capita
Personal Income (CPS) grew by an average of 4.4% per
year.
For the period 1974-present, the numbers are 1.9%, 1.8 %
and 1.5 % respectively.
See next slide
Per Capita GDP & Per Capita Income, 1959-2005
$40,000
$37,504
$35,000
2000 Dollars
$30,000
$27,340
$25,000
$20,000
$21,783
$13,782
$15,000
$10,000
$9,685
$10,763
$5,000
$0
1959
1963
1967
1971
1975
1979
1983
1987
1991
Year
Real Per Capita GDP (Chained 2000 Dollars) NIPA
Real Per Capita Personal Income (Chained 2000 Dollars) NIPA
Real Per Capita Personal Income (2000 Dollars CPI-U) CPS
1995
1999
2003
Sources: US Department of Commerce, Bureau of Economic
Activity and US Department of the Census Note: From 1959-1973
Real Per Capita GDP grew by an average of 2.9% per year, Real Per
Capita Personal Income (NIPA) grew by an average of 3.4% per
year and Real Per Capita Personal Income (CPS) grew by an
average of 4.4% per year. For the period 1974-present, the
numbers are 1.9%, 1.8 % and 1.5 % respectively.
Official Poverty Rate and Predicted Rates with
pre-1973 GDP/Poverty Relationship
25
22.4%
Percent Poor
20
15
12.7%
10
5
0
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
Year
Actual Poverty Rates
Constant GDP-Poverty Relationship, Actual GDP
Constant GDP-Poverty Relationship, GDP growth at 2.9%
Note: The predicted lines shows where the poverty
rate would be in subsequent years if the relationship
between per capita GDP and the poverty rate
remained the same as it did from 1959-1973. GDP
grew at an average of 2.9% per year from 1959-1973
and at an average of 1.9% from 1973-2004
Median Earnings, Full-Time, Year Round
Workers, 1960-2004 ( inflation-adjusted)
$45,000
41,195
$40,000
40,798
2004 Constant Dollars
$35,000
31,223
$30,000
29,013
$25,000
23,330
$20,000
$15,000
17,603
$10,000
$5,000
$0
1960
1964
1968
1972
1976
Male
Source: U.S. Bureau of the Census
1980 1984
Year
1988
Female
1992
1996
2000
2004
Actual and Predicted Median Earnings
(Male Full-time, Year-round Workers)
$100,000
$89,916
$90,000
$80,000
2004 Dollars
$70,000
$60,000
$50,000
$41,195
$40,798
$40,527
$40,326
$40,000
$29,013
$30,000
$28,904
$20,000
$10,000
$0
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
Actual median
Predicted median
Predicted median income, pre-1973 trend continued
Source: Calculations from data from the U.S. Bureau
of the Census. The growth rate of median earnings
was 2.6% per year prior to 1973 and approximately
0% since.
Actual and Predicted Median Earnings
(Female Full-time, Year-round Workers)
$50,000
$48,688
$45,000
$40,000
2004 Dollars
$35,000
$31,477
$30,000
$23,330
$31,223
$25,000
$20,000
$15,000
$23,286
$17,318
$10,000
$5,000
$0
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
Year
Actual Median
Predicted median
Predicted median income, pre-1973 trend continued
Source: Calculations from data from the U.S. Bureau of the
Census. Growth rate of median earnings was 2.3% per
year prior to 1973 and approximately 1.0% since.
Average Weekly Earnings, 1964-2003 (2003$),
(Production or nonsupervisory workers, private non-farm)
$650
Average Weekly Earnings (2003$)
635.3
$600
543.5
$550
$500
494.8
$450
$400
1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Year
Percentage Change in Real Hourly Wages
by Percentile, 1975-2002
0.7
0.61
Percentage Change
0.6
0.5
0.4
0.38
0.34
0.3
0.24
0.2
0.1
0.04
0.0
5
-0.1
10
15
20
25
-0.05
30
35
40
45
Male
50
55
60
Female
Percentile
65
70
75
80
85
90
95
Mean Annual Earnings (from wages & salaries), by
Quintile 1973 and 2003, Men and Women, Ages 25-54
$117,622
$120,000
$100,000
$88,368
$74,845
Dollars (2003)
$80,000
$60,000
$45,010
$43,187
$38,254
$40,000
$26,152
$16,301
$20,000
$17,976
$12,461
$2,475 $6,601
$0
Lowest
Middle
Men
Highest
1973
Lowest
2003
Middle
Women
Highest
Note: Persons with zero annual earnings
are excluded. Source: Calculations from
March 1974 and March 2004 Current
Population Surveys
Men, Ages 25-54, High School Degree or Less,
with Own Earnings & Family Income below an
Inflation-Adjusted Poverty Line
40%
33.8%
Percent Below $16,566
35%
30%
25%
24.2%
20%
15%
22.2%
17.2%
17.2%
16.4%
13.5%
11.1%
16.0%
10.9%
10%
9.0%
7.8%
5%
9.7%
0%
1963
1968
1973
1978
1983
1988
1993
Year
Note: Source: Calculations from March CPS. For
each income concept, a fixed threshold of
$16,566 is used. This is the poverty line for a
family of four adjusted using the CPI-U-RS
instead of the official poverty line.
Own Earnings Less than Poverty Line
Family Earnings Less Than Poverty Line
Family Income Less than Poverty Line
Adjusted Family Income Less Than Poverty Line
1998
2003
The Political Will that Motivated the War on
Poverty has been Absent for 30 years in the U.S.
According to President Johnson (1964):
“Americans today enjoy the highest standard of living in the history of
mankind. But for nearly a fifth of our fellow citizens, this is a hollow
achievement. They often live without hope, below minimum standards of
decency.
We cannot and need not wait for the gradual growth of the economy to lift
this forgotten fifth of our nation above the Poverty line. We know what must
be done, and this Nation of abundance can surely afford to do it.
Today, as in the past, higher employment and speedier economic growth are
the cornerstones of a concerted attack on poverty...But general prosperity
and growth leave untouched many of the roots of human poverty.”
We are citizens of the richest and most fortunate nation in the history of the
world….
The war on poverty is not a struggle simply to support people, to make
them dependent on the generosity of other.
It is a struggle to give people a chance.
We do this, first of all, because it is right that we should.
We do it also because helping some will increase the prosperity of all.
Because it is right, because it is wise, and because, for the first time in our
history, it is possible to conquer poverty, I submit…the Economic
Opportunity Act of 1964 (Johnson, March 16, 1964).
The Political Will To Address Poverty Was Evidenced by
Tony Blair in the UK in 1999
“Our historic aim will be for ours to be the first generation to
end child poverty, and it will take a generation. It is a 20 year
mission but I believe it can be done.”
And, since 1999 child poverty in the UK has declined
dramatically due to a set of policies that his government put
into place to provide “work for those who can; security for those
who cannot.”
A modest antipoverty initiative to cut the U.S.
poverty rate in half
 “Make Work Pay”—increased aid for working poor
- Expand earned income tax credit for low-income single persons
and childless couples (e.g. Gordon Berlin, 2007)
-Raise minimum wage to about 40% of average wage and index to
BLS average wage of production workers—about $7.00 now
(BLS=$17.61)
- Expand state child health insurance program (SCHIP) to cover
parents—example: Badger Care in Wisconsin
- Make federal per child credit refundable—many poor who pay no
federal income tax do not now receive it
 “Transitional Jobs of Last Resort”
- For those who do not qualify for UI and those no longer entitled to
cash welfare, this provides a way to “work-for-welfare” for those
willing to work who cannot regular find jobs