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Policy provokes me to think and write. I currently work in ivory towers inspiring people to engage in their world. I am a student of the human condition and my classroom is the world. I don't need credentials to have an opinion but I've got paper to prove I know a few things about public health, social welfare and economics. I'm coming out of the tower and taking the words to the people and hope you will send some words back at me.

Thursday, November 10, 2011

Poverty 101 v1.0: The metrics of it all

The Technicalities of Counting the Poor

One month after announcing that approximately 46 million Americans (~15%) are poor, the Census Bureau revised their number to include another 3 million people. What changed? The Census has decided to: 1. include non-cash welfare benefits; 2. account for medical care and transport; and 3. take into account the changing composition of families. (For a Census press release on income, poverty and health insurance in 2010, click here).

Who is poor? What does 'poor' mean?

According to the Census Bureau's calculation - available in the press release noted above - poor in 2010 meant an income of $22,314 for a family of 4!!! That is a NATIONAL figure based on the Consumer Price Index and includes only the bare necessities of life. In any city in the USA, one person living on $22,314 would find it challenging. (For 30 years of poverty threshold data, click here).Using data from CommunitiesCount - a government and non-profit collaboration in the King County area of Washington state that includes Seattle, in 2007 a family of 4 with one working adult would require ~$50,000 to afford basic  necessities.A single parent household with 2 children would require ~$58,000. These dollar amounts refer to what is called 'a living wage' - which means exactly what it says: the wage needed to live at a basic standard (includes childcare, transportation etc etc). In 2007, Washington's minimum wage was $7.93/hour and if someone worked all 52 weeks at that wage they would make $16,494.40 before taxes.

The sum point of the previous paragraph is that the federal poverty line is actually a federal destitution line and having a job does not mean one can keep themselves out of 'real' poverty (vs the poverty as defined by the USA).

Using the federal minimum wage of $7.25/hour as a guideline (note that some states have a higher minimum wage than the federal one), a single person would make $15,080 per year working 40hrs/week for 52 weeks. And the poverty threshold for a single person under 65 in 2010 was $11,344. (For state and federal minimum wage data from the Department of Labor click here).

Counting the poor has been a statistical challenge for many governments in the OECD. At what point is someone poor? Should the notion of 'poverty' be absolute or relative? (The USA uses an absolute measure which is not the way most OECD countries measure poverty). What should be the basis for calculating 'poverty'?

Calculating 'Poverty'

The Census Bureau is responsible for counting people living in the USA.They measure a lot of 'metrics' (a very trendy word in the world of data) and they do it often, although they are mostly known for the decennial headcount. The Office of Management and Budget established the official measure of poverty in Statistical Policy Directive #14 and based on the Orshansky thresholds (for a complete history of the poverty measure click on this link) which were based on the threshold that the one major consumption item for which there was a minimum adequacy standard was food.

Without going into geek mode, the Census Bureau uses most sources of income to count the poor (defined BEFORE taxes). Though according to The Guardian (a British news outlet), the Census way of counting the poor is not very 'sophisticated'. What they do NOT include is an interesting list: capital gains/losses, non-cash benefits such as housing and food subsidies (until this current 'recalculation). The poverty measures were designed in 1963 - 1964(!!) and were based on food budgets of people in economic distress. At the time, food was the most significant fraction of a families budget. This food budget was based on a 'food basket' of items that were chosen to feed a family of 4  - 2 parents and 2 children.

The Cost of Food and Housing

The most glaring error in the system is that it is based on a food budget, which is a much smaller proportion of a family's budget than is housing. Typical 'ideal' budgets allocate 30% of income for housing. For a single person at the poverty threshold in 2010, this would mean $284/month on housing - practically impossible in an urban area other than perhaps dying Detroit. Which leads to another major complaint of the 'absolute' measure of poverty: there is no geographical variation i.e. poverty thresholds are the same for rural Mississippi as they are for Manhattan. This is why some states set a higher minimum wage than the federal government does.

So you'd think that with all this practice, they would get it right. But when it comes to the poor they have been screwing up for quite some time. And despite many voices calling for a new system for counting poverty, they  have been resistant to change.

The Importance of Counting the Poor

The number of the poor is a critical factor in the calculation of health and social welfare budgets because this measure is used to calculate eligibility for benefits. Some benefits are universal, e.g. Medicare, which means that someone is eligible without accounting for income or wealth. Other benefits such as Food Stamps are dependent on the relative income of an individual relative to the 'poverty line' i.e. the cut-off line for poverty status. The relative number of poor people year over year also helps a government to measure to what extent social welfare benefits are succesful in moving people out of poverty.

Fighting Poverty

I tried to be brief but poverty is not that simple. Neither is being poor and sometimes that reality gets lost in the numbers. See below for a list of links to organizations that fight poverty in all sorts of ways. The pic below is rather optimistic because we wont end poverty in a capitalist system but we can make poverty less painful (less holes in the safety net) and more 'real' (i.e. use real-life budgets and not some outdated theoretical notion from 50 years ago).

(National Women's Law Center) http://www.nwlc.org/ 

1 comment:

  1. Extremely informative and well-linked. I think I'll stay with it for some hours following links. I had not thought about the way numbers in poverty were calculated, just kind of trusted the government's totals. Pretty crazy of me. After all, I don't trust them about anything else.
    It sounds like the real numbers in poverty are far higher than reported. Occupy should know about this.