The Research Supplemental Poverty Measure: 2012
The Research SUPPLEMENTAL POVERTYMEASURE: 2012Current Population ReportsBy Kathleen ShortIssued November 2013P60-247IntroductIonThis is the third report describing research on the SupplementalPoverty Measure (SPM) releasedby the U.S. Census Bureau, withsupport from the Bureau of LaborStatistics (BLS).1 The SPM extendsthe official poverty measure by taking account of many of the government programs designed to assistlow-income families and individualsthat are not included in the current official poverty measure. Thecurrent official poverty measurewas developed in the early 1960s,and only a few minor changes havebeen implemented since it wasfirst adopted in 1969 (Orshansky,1963, 1965a, 1965b; Fisher, 1992).The official measure consists ofa set of thresholds for families ofdifferent sizes and compositionsthat are compared with before-taxcash income to determine a family’s poverty status. At the time theywere developed, the official povertythresholds represented the cost of1Short (2011), al/research/Short ResearchSPM2010.pdf andShort (2012), al/research/Short ResearchSPM2011.pdf ,accessed August 2013.U.S. Department of CommerceEconomics and Statistics AdministrationU.S. CENSUS BUREAUcensus.gova minimum diet multiplied by three(to allow for expenditures on othergoods and services).Concerns about the adequacyof the official measure haveincreased during the past decades(Ruggles, 1990), culminating in aCongressional appropriation in 1990for an independent scientific studyof the concepts, measurement methods, and information needed for apoverty measure. In response, theNational Academy of Sciences (NAS)established the Panel on Poverty andFamily Assistance, which releasedits report Measuring Poverty: A NewApproach in the spring of 1995(Citro and Michael, 1995). In Marchof 2010, the Interagency TechnicalWorking Group on Developing aSupplemental Poverty Measure(ITWG) listed suggestions forresearch on the SPM. The ITWG wascharged with developing a set ofinitial starting points to permit theCensus Bureau, in cooperation withthe BLS, to produce a report on theSPM that would be released alongwith the official measure each year.Their suggestions included: The SPM thresholds shouldrepresent a dollar amount spenton a basic set of goods thatincludes food, clothing, shelter,and utilities (FCSU) and a smalladditional amount to allow forother needs (e.g., household supplies, personal care, non-workrelated transportation). Thisthreshold should be calculatedwith five years of expendituredata for families with exactlytwo children using ConsumerExpenditure Survey data, and itshould be adjusted (using a specified equivalence scale) to reflectthe needs of different familytypes and geographic differencesin housing costs. Adjustmentsto thresholds should be madeover time to reflect real changein expenditures on this basicbundle of goods at the 33rdpercentile of the expendituredistribution. SPM family resources shouldbe defined as the value of cashincome from all sources, plus thevalue of noncash benefits thatare available to buy the basicbundle of goods (FCSU) minusnecessary expenses for criticalgoods and services not includedin the thresholds. Noncash benefits include nutrition assistance,subsidized housing, and home
energy assistance. Necessaryexpenses that must be subtracted include income taxes,Social Security payroll taxes,childcare and other work-relatedexpenses, child support payments to another household,and contributions toward thecost of medical care and healthinsurance premiums, or medicalout-of-pocket (MOOP) costs.2This report presents a povertymeasure that is based largely onthe NAS panel’s 1995 recommendations and reflects more recentresearch and suggestions fromthe ITWG. Particular emphasis ison internal consistency betweenthe thresholds and resources. TheNAS panel noted: “It is importantthat family resources are definedconsistently with the thresholdconcept in any poverty measure.”3The SPM, as defined by the ITWG,is an internally consistent povertymeasure that is based on spending“outflows” and money “inflows.”Spending outflows, or outlays, arethose for basic needs only: FCSUand other basic necessary goodsand services.4 Resources includemoney income from all sourcesplus the value of noncash benefitsthat help the family meet spendingneeds, less necessary expenses,like work-related expenses andtaxes that must be paid. A familyis designated as poor if its annualmoney inflow, net of necessaryexpenses, falls below its thresholdlevel of money outflow.52For information, see ITWG, Observationsfrom the Interagency Technical WorkingGroup on Developing a Supplemental PovertyMeasure (Interagency), March 2010, availableat www.census.gov/hhes/www/poverty/SPM TWGObservations.pdf , accessed September 2013.3Citro and Michael, 1995, p. 9.4For the BLS definition of expenditureoutlays, see Rogers and Gray, 1994.5See Garner and Short, 2010, for furtherdiscussion of measurement consistency.2The SPM does not take account ofassets that may be used to meetnecessary expenses. Since assetscan add to the resources that areused to meet basic needs, someanalysts advocate counting themin measuring poverty. Others mayargue that many assets are notliquid or suggest that poor familieshave so few assets that includingthem would not change povertymeasures much. If our purpose isto target families who are in need,then it is clear that families withno assets are worse off than thosewho have some. On the other hand,families who have incurred largedebts are more vulnerable to financial trouble than those who havenot. The NAS panel discussed a“crisis definition of resources.” Thisdefinition included those assetsfamilies have on hand that couldbe converted to cash to supportcurrent consumption. They suggested that this “crisis definition”is only relevant for a very shortterm measure of poverty because,in their words, “ assets can onlyameliorate poverty temporarily.”6They suggested that it is important,however, to develop measures ofthe distribution of wealth and toexamine the relationship betweenasset ownership and poverty status. While spending down assetscan enhance income to make endsmeet, servicing debt can be a drainon family income that would otherwise be sufficient to purchase basicnecessities.7The ITWG stated that the officialpoverty measure, as defined inCitro and Michael, 1995, pp. 214–218.Interest payments on mortgages areincluded in SPM thresholds as a part of shelter costs, while income from assets, such asinterest and dividends, are included in cashincome. Short and Ruggles (2005) examinedmethods of taking account of net worth inexperimental poverty measures using datafrom the Survey of Income and ProgramParticipation (SIPP).67Office of Management and Budget(OMB) Statistical Policy DirectiveNo. 14, will not be replaced by theSPM. They noted that the officialmeasure is sometimes identifiedin legislation regarding programeligibility and funding distribution,while the SPM will not be usedin this way. The SPM is designedto provide information on aggregate levels of economic need ata national level or within largesubpopulations or areas and, assuch, the SPM will be an additionalmacroeconomic statistic providingfurther understanding of economicconditions and trends.This report presents updated estimates of the prevalence of povertyin the United States, overall andfor selected demographic groups,using the official measure and theSPM. Section one presents differences between the official povertymeasure and the SPM. Comparingthe two measures sheds light onthe effects of noncash benefits,taxes, and other nondiscretionaryexpenses on measured economicwellbeing. The composition ofthe poverty populations using thetwo measures is examined acrosssubgroups to better understand theincidence and receipt of benefitsand taxes that are missed in theofficial statistics. The distributionof income-to-poverty thresholdratios and poverty rates by stateare estimated and compared forthe two measures. The secondsection of the report examines theSPM itself. Effects of benefits andexpenses on SPM rates are explicitly examined, and SPM estimatesfor 2012 are compared with the2011 figures to assess changes inSPM rates from the previous year.U.S. Census Bureau
Poverty measure concepts: official and supplementalOfficial Poverty ntal Poverty MeasureFamilies and unrelatedindividualsAll related individuals who live at the same address, includingany coresident unrelated children who are cared for by the family(such as foster children) and any cohabitors and their relativesThree times the cost of aminimum food diet in 1963The 33rd percentile of expenditures on food, clothing, shelter,and utilities (FCSU) of consumer units with exactly two childrenmultiplied by 1.2Vary by family size,composition, and age ofhouseholderGeographic adjustments for differences in housing costs bytenure and a three-parameter equivalence scale for family sizeand compositionConsumer Price Index:all itemsFive-year moving average of expenditures on FCSUGross before-taxcash incomeSum of cash income, plus noncash benefits that families canuse to meet their FCSU needs, minus taxes (or plus tax credits),minus work expenses, minus out-of-pocket medical expensesand child support paid to another householdPoverty estImates for2012: offIcIal and sPmThe measures presented in thisstudy use the 2013 Current Population Survey Annual Social andEconomic Supplement (CPS ASEC)income information that refers tocalendar year 2012 to estimate SPMresources.8 These are the same dataused for the preparation of officialpoverty statistics and reported inDeNavas-Walt et al. (2013).The “Orshansky” thresholds areused for the official povertyThe data in this report are from the 2011to 2013 Current Population Survey AnnualSocial and Economic Supplement (CPS ASEC).The estimates in this paper (which may beshown in text, figures, and tables) are basedon responses from a sample of the populationand may differ from actual values becauseof sampling variability or other factors. Asa result, apparent differences between theestimates for two or more groups may not bestatistically significant. All comparative statements have undergone statistical testing andare significant at the 90 percent confidencelevel unless otherwise noted. Standard errorswere calculated using replicate weights.Further information about the source andaccuracy of the estimates is available at www.census.gov/hhes/www/p60 239sa.pdf , www.census.gov/hhes/www/p60 243sa.pdf , and www.census.gov/hhes/www/p60 245sa.pdf , accessed September 2013.estimates presented here, however, unlike the official estimates,unrelated individuals under the ageof 15 are included in the universe.Since the CPS ASEC does not askincome questions for individualsunder age 15, they are excludedfrom the universe for official poverty calculations. For the officialpoverty estimates shown in thisreport, all unrelated individualsunder age 15 are included andpresumed to be in poverty. For theSPM, they are assumed to shareresources with the household reference person.8U.S. Census BureauThe SPM thresholds for 2012 arebased on out-of-pocket spending on FCSU. Thresholds use fiveyears of quarterly data from theConsumer Expenditure Survey (CE);the thresholds are produced bystaff at the BLS.9, 10 Three housingstatus groups were determinedand their expenditures on shelter9Bureau of Labor Statistics, ExperimentalPoverty Measure Web site, www.bls.gov/pir/spmhome.htm , accessed September 2013.10See www.bls.gov/cex/anthology08/csxanth2.pdf or www.bls.gov/cex/anthology08/csxanth3.pdf for informationon the CE, accessed September 2013.and utilities produced within the30–36th percentiles of FCSU expenditures.11 The three groups includeowners with mortgages, ownerswithout mortgages, and renters.The thresholds used here includethe value of Supplemental NutritionAssistance Program (SNAP) benefitsin the measure of spending onfood.12 The American CommunitySurvey (ACS) data on rents paidare used to adjust the FCSU thresholds for differences in spending onhousing across geographic areas.13The two measures use differentunits of analysis. The official measure of poverty uses the censusdefined family that includes all individuals residing together who arerelated by birth, marriage, or adoption and treats all unrelated individuals over age 15 independently. Forthe SPM, the ITWG suggested that11See appendix for description ofthreshold calculation.12For consistency in measurement withthe resource measure, the thresholds shouldinclude the value of noncash benefits, thoughadditional research continues at BLS onappropriate methods. 13See appendix for description of thegeographic adjustments.3
the “family unit” should includeall related individuals who live atthe same address, as well as anycoresident unrelated children whoare cared for by the family (such asfoster children), and any cohabitorsand their children. Independentunrelated individuals living aloneare one-person SPM units. Thisdefinition corresponds broadlywith the unit of data collection (theconsumer unit) that is employedfor the CE data used to calculatepoverty thresholds. These units arereferred to as SPM Resource Units.Selection of the unit of analysis forpoverty measurement implies thatmembers of that unit share incomeor resources with one another.SPM thresholds are adjusted forthe size and composition of theSPM Resource Unit relative to thetwo-adult-two-child threshold usingan equivalence scale.14 The officialmeasure adjusts thresholds basedon family size, number of childrenand adults, as well as whether ornot the householder is aged 65 orover. The official poverty thresholdfor a two-adult-two-child family14See appendix for description of thethree-parameter scale.two adult, two child Poverty thresholds: 2011 and 2012(Dollars)2011S.E.2012S.E.Official . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,811X23,283XResearch Supplemental Poverty MeasureOwners with a mortgage . . . . . . . . . . . . . . . . . . 25,703Owners without a mortgage . . . . . . . . . . . . . . . . 21,175Renters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,22234729837825,78421,40025,105368233398S.E. Standard error.X Not applicable.Source: Bureau of Labor Statistics, September 2013 www.bls.gov/pir/spmhome.htm .was 23,283 in 2012. The SPMthresholds vary by housing tenurestatus and are higher for ownerswith mortgages and renters thanthe official threshold. These twogroups comprise about 76 percentof the total population. The official threshold increased by 472between 2011 and 2012. SPMthresholds for owners increasedsignificantly between 2011 and2012, but the increase was lessthan the increase in the officialthreshold for the same period. TheSPM thresholds for renters declinedbetween the two years.Following the recommendations ofthe NAS report and the ITWG, SPMresources are estimated as the sumof cash income; plus any federalgovernment noncash benefitsthat families can use to meet theirFCSU needs; minus taxes (plus taxcredits), work expenses, and outof-pocket expenditures for medicalexpenses. The research SPM presented in this study adds the valueof noncash benefits and subtractsnecessary expenses, such as taxes,child care expenses, and MOOPexpenses. For the SPM, estimatesfrom additional questions aboutchild care and medical out-ofpocket expenses are available andsubtracted from income.15 The textbox summarizes the additions andsubtractions for the SPM; descriptions are in the appendix.15Documentation concerning the qualityof these data is available in various workingpapers at tml , accessedSeptember 2013.resource estimatessPm resources money Income from all sourcesPlus:Minus:Supplemental Nutritional Assistance (SNAP)Taxes (plus credits such as the Earned Income TaxCredit [EITC])National School Lunch ProgramSupplementary Nutrition Program for Women, Infants,and Children (WIC)4Expenses Related to WorkChild Care ExpensesHousing SubsidiesMedical Out-of-Pocket (MOOP) ExpensesLow-Income Home Energy Assistance (LIHEAP)Child Support PaidU.S. Census Bureau
Poverty rates: offIcIaland sPmFigure 1 shows poverty rates forthe two measures for the total population and for three age groups:under 18 years, ages 18 to 64, and65 years and over. Table 1 showsrates for a variety of selecteddemographic groups. The percentof the population that was poorusing the official measure for 2012was 15.0 percent (DeNavas-Walt etal., 2013). For this study, includingunrelated individuals under age 15in the universe, the poverty ratewas 15.1 percent.16 The researchSPM yields a rate of 16.0 percentfor 2012. While, as noted, SPMpoverty thresholds are generallyhigher than official thresholds,other parts of the measure alsocontribute to differences in theestimated prevalence of poverty inthe United States.In 2012, 49.7 million were poorusing the SPM definition of poverty,more than the 47.0 million usingthe official definition of povertywith our universe. For most groups,SPM rates were higher than the official poverty rates. Comparing theSPM to the official measure showslower poverty rates for children,individuals included in new SPMResource Units, Blacks, renters,those living outside metropolitanareas, those in the Midwest, thosecovered by only public health insurance, and individuals with a workdisability. Most other groups hadhigher poverty rates using the SPMrather than the official measure.Official and SPM poverty rates forfemales, people in female householder units, native-born citizens,residents of the South, and thosenot working were not statisticallydifferent. Note that poverty rates16The 15.0 and 15.1 rates are not statistically different.U.S. Census BureauFigure 1.Poverty Rates Using Two Measures for TotalPopulation by Age Group: 2012Official*SPMPercent2520151050All peopleUnder18 years18 to 64years65 yearsand older*Includes unrelated individuals under the age of 15.Source: U.S. Census Bureau, Current Population Survey, 2013 Annual Social andEconomic Supplement.for those 65 years and over werehigher under the SPM comparedwith the official measure. Thispartially reflects that the officialthresholds are set lower for families with householders in this agegroup, while the SPM thresholds donot vary by age.dIstrIbutIon of thePoverty PoPulatIonby characterIstIcs:offIcIal and sPmTable 2 compares the distributionof people in the total populationacross selected groups with thedistribution of people classified aspoor using the two measures. Figure 2 shows these estimates acrossage groups. The top bar shows therepresentation of these groups inthe total population. The share ofpeople 65 years and over in poverty was higher when the SPM isused, 12.9 percent compared with8.4 percent with the official measure, while the share of childrenwas lower.The SPM also results in a highershare of the poor for men, thosewho were 18 to 64 years old, inmarried-couple families, with malehouseholders, Whites, Asians, theforeign born, homeowners withmortgages, individuals with privatehealth insurance, the uninsured, allworkers, and individuals withouta work disability. The shares werealso higher using the SPM ratherthan the official measure for thoseresiding in metropolitan areasbut outside principal cities andthe Northeast and West regions.These differences by residenceand region reflect the adjustmentsfor geographic cost differences inhousing that are made to the SPMthresholds.5
Table 1.number and Percentage of People in Poverty by different Poverty measures: 2012(Numbers in thousands, confidence intervals [C.I.] in thousands or percentage points as appropriate. People as of Marchof the following year. For information on confidentiality protection, sampling erro
Economics and Statistics Administration U.S. CENSUS BUREAU census.gov. The Research SUPPLEMENTAL POVERTY MEASURE: 2012. Current Population Reports. By Kathleen Short Issued November 2013. P60-247. IntroductIon . This is the third report describ-ing research on the Supplemental Poverty Measur
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