How is Poverty Measured

Measuring poverty is not an easy process. There are multiple agencies of society and government that use differing ways of calculating a number that can be used as a threshold. There are concepts of absolute poverty and relative poverty, each with their own indexing, depending on the agency or nation involved.

Generally, relative poverty is related to thresholds for poverty where a person is either above, at, or below an established threshhold. Absolute poverty is the minimum needed to meet an absolute standard of living, and is often stated as 1 international dollar a day.

In the US, Mollie Orshansky was a statistician at the Social Security Administration and is credited with developing the poverty line. She based her calculations on the US Census Bureau definition of before tax income and on the cheapest of the four food plans, (the “economy plan” ) that the US Department of Agriculture had developed.

The US Census Bureau uses a system that measures two things: before tax income and need. For income, there are a host of incomes that are included, such as veterans benefits and royalties. There are incomes that are excluded, such as food stamps. The incomes are counted before taxes. Capital gains and losses are excluded. Family members and their incomes are included, but housemates and their incomes are not. Finally, there are many who cannot be evaluated for income, including residents of military barracks and college dorms, prisoners, and individuals living in unconventional housing or who are homeless.

Mollie Orshansky’s poverty line was not intended for use in programs, but the US government adopted it anyway.

Thus, the American “poverty line” was set up by the federal government in 1964 as a weighted measure of need that assumed 1/3 of income went for food, so the cost of a food basket, multiplied by three was the poverty line which was then weighted by family size. The poverty line was the same for all states, except for Hawaii and Alaska, and was uninterested in the costs of other things, such as housing, taxes and transportation, which can take a greater part of the budget.

In 2009, for example, the poverty line was $22,050 US for a family of four. In other words, the “Poverty line” in the traditional sense has not changed since the 1960’s.

The National Academy of Sciences (NAS) found three major problems with the existing poverty threshold: There is no trend analysis, no regional consideration, and no consideration of various populations who are significantly different than the nuclear family of four. As a result, there have been great changes in society compared to the static nature of the existing poverty line.

The NAS recommended a threshold that includes, among other changes: considering not just food, but clothing, shelter, utilities, and a small amount for other household needs. The reference family and threshold should use actual spending by/for two adults and two children. The threshold should be updated yearly and should reflect regional variations and differences. There has been no adoption of these recommendations yet.

The problem with using the nuclear family as the threshold is that the nuclear family may not be at all representative of those who are in poverty. There may be extended, multigenerational families or single parent families, or single individuals with income and needs that are unique to them. 

Medical care and prescription medication, with less food that younger adults and children eat are issues with rising numbers of single senior citizens who are not easily compared to a nuclear family of two adults and two children.

The United States and other developed countries have different ideas of poverty as a matter of course than other countries. The Indian government is examining new ways to establish poverty thresholds. In India the foodbasket is also the basis for establishing poverty lines. For an urban family, the line is at Rs.2200 a month. For a rural family, the line is at Rs.1650.

In 2010, India is working on a new poverty analysis and threshold that considers absolute and relative poverty. There is, first the minimal goods and services basket, which includes food as the most common and sole element of consideration. Then the food basket cost is calculated and considered in relation to and as part of income. The new Indian poverty threshold would also consider education and health. The importance of rural versus urban populations is also given more weight in Indian, as opposed to other countries programs.

Leslie Hossfield, “How Is Poverty Measured”

Institute for Research on Poverty, “How is poverty Measured In The United States”

MeriNews, “India To Adopt A New Poverty Line To Identify Poor”, April 19, 2010