December 23, 2008

New Method Needed to Assess What Working-Class Families Need to Make Ends Meet

Federal Poverty Measure Falls Short

For Immediate Release: December 22, 2008
Contact: Alan Barber, (202) 293-5380 x115

Washington, D.C.- In an effort to address the shortcomings of the current federal poverty measure and inform efforts to expand the middle class, a new report from the Center for Economic and Policy Research (CEPR) evaluates current poverty metrics and suggests a new measure for a broader standard of basic income adequacy.

The report, “Measuring Poverty and Economic Inclusion: The Current Poverty Measure, The NAS Alternative, and the Case for a Truly New Approach,” finds that both the current approach, and the poverty measure designed by the National Academies of Science (NAS) do not provide adequate minimum standards for determining the income working families need to make ends meet in their local communities.

“To guide efforts to expand the middle class, we need to move beyond unidimensional measures of income adequacy, like the current poverty measure and the NAS alternative, and develop a multidimensional measure that is more consistent with public understanding of what it takes to get by in today’s economy,” said Shawn Fremstad, Director of CEPR’s Bridging the Gaps Initiative and author of the report.

The report is broken into three sections, beginning with a discussion of the current official poverty measure and its main criticisms. The next section looks at the NAS standard and explores the changes in poverty rates under this approach. The third section of the report puts forth a “tiered” approach designed to better measure poverty and economic inclusion.

Fremstad, in commenting on the federal poverty measure and the NAS alternative, noted, ”Both measures falls far below the minimum amount that a majority of the public says is needed to ‘get along’ at a basic level.”

The study draws from Census Bureau research to show that the NAS measure yields poverty thresholds modestly higher than the current measure and thus, does not address the adequacy criticism of the federal poverty measure.

The study also compares state-level poverty and food insecurity rates, and finds that poverty rates calculated using the NAS approach do a poorer job of predicting food insecurity than the current poverty measure. 

To address these problems, the report then offers a new, at-risk-of-poverty or economic-inclusion approach consisting of three tiers:
  • a price-adjusted, low-income measure: fixed at 60 percent of median income for the baseline year of 1998/1999 and adjusted annual for changes in prices;

  • an income-adjusted, low-income measure: set at 60 percent of median household income and adjusted annually for changes in median income (rather than prices); and

  • a combined measure of material deprivation and low income: measuring the number of children living in households that are both “materially deprived” and have an income below 70 percent of median income.
The adoption of such a standard measure, similar in feel to the standard adopted by the United Kingdom in 2003, would go far in helping to determine the minimum income  working families need to attain a decent standard of living.

The full feport can be found here.