Monday, September 13, 2010

Poverty Data--What does it really mean?

The following excerpt is from an Associated Press article that recently appeared in the Deseret News:

"The number of people in the U.S. who are in poverty is on track for a record increase on President Barack Obama's watch, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty. Census figures for 2009 — the recession-ravaged first year of the Democrat's presidency — are to be released in the coming week, and demographers expect grim findings. It's unfortunate timing for Obama and his party just seven weeks before important elections when control of Congress is at stake. The anticipated poverty rate increase — from 13.2 percent to about 15 percent — would be another blow to Democrats struggling to persuade voters to keep them in power.

Interviews with six demographers who closely track poverty trends found wide consensus that 2009 figures are likely to show a significant rate increase to the range of 14.7 percent to 15 percent.Should those estimates hold true, some 45 million people in this country, or more than 1 in 7, were poor last year. It would be the highest single-year increase since the government began calculating poverty figures in 1959. The previous high was in 1980 when the rate jumped 1.3 percentage points to 13 percent during the energy crisis."

Okay, I freely admit I'm a "data geek." Not only is it my job to understand data, but I actually like . And, despite the fact that I haven't officially been sworn into the "data police," I thought this was a good time to talk about poverty rates:

  • The poverty rate for 2009 hasn't even been released yet. Why not wait until the Census Bureau releases the "official" figures (this month) to have a discussion on rise in poverty?
  • Poverty rates regularly rise and fall with recessionary and expansionary periods. Should it come as a surprise that poverty increased during a deep recession? (No.) Will the rates fall as the economy recovers? (Yes.) Are we recovering? (Yes. nearly every single national economic indicator is showing an improving trend.)
  • Rather than the increase, it might be better to talk about the level of poverty in historical terms--an analysis missing from this particular article. If the rate does come in at 15 percent, it will have some company. In 1983 the rate measured 15.1 percent, 1992-14.8 percent, 1983-15.2 percent, and 1982-15.0 percent. As today, those were all years following the trough of a notable recession. And what about the post WWII years? In 1960, the rate measured 22.2 percent and in 1959, it measured 22.4 percent.
  • Changes in demographics influence the poverty rate. For example, the rise in female-headed families (who are more likely to have poverty-level incomes) has undoubtedly changed the flavor of poverty rates. Back in 1960, female-headed families constituted less than 30 percent of families in poverty--today they account for almost 60 percent of families in poverty. Also, where baby boomers (or any other large demographic group) are in their earnings cycle affects poverty rates.
  • How does the U.S. determine what constitutes poverty? You might be surprised. . . It all started back in 1964 when the Office of Management and Budget (OMB) directed the Social Security Administration (SSA) to develop the original poverty definition to be used by all federal agencies. At the core of the initial definition of poverty in 1964 was the “economy food plan,” the least costly of four nutritionally adequate food plans designed by the Department of Agriculture. At the same time, the Household Food Consumption Survey suggested that families of three or more persons spent approximately one-third of their money on food. (Today we spend closer to 13 percent of our income on food-including restaurant food.) The SSA multiplied the cost of the economy food plan by three to obtain dollar figures for total family income. After some adjustments, these figures became the official poverty thresholds—which were, of course, adjusted for household size. Minor revisions to the definition were introduced in 1969 and 1981. But, for the most part, the federal government has retained the original methodology. Of course, prices have risen dramatically since 1964. To reflect changes in the cost of living, poverty thresholds are adjusted annually using the Consumer Price Index.
  • Noncash benefits are not included in the income total used to compute poverty rates. Capital gains and/or losses are also excluded. Not counting noncash benefits (Medicaid, Medicare, food stamps, housing/utility subsidies) raises the poverty rate.
  • Not counting certain expenses (medical, work-related) changes who is considered poor.
  • Poverty rates are not adjusted for cost of living or geography. The poverty thresholds are the same whether you are living in Manhattan or rural Utah.
  • An individual's income may place them below the poverty line, while in actuality, you and I might not consider them to be "poor." For example, a college student living away from home and working part-time (with parental support) would most likely fall in the "poverty" category.
  • Studies have shown that based on expenditures, many "poor" families under-estimate their income.
  • Contrary to popular opinion, individuals over the age of 65 actually show lower poverty rates than the general public.
  • Utah's poverty rates typically measure below the national averages. For example in 2008, the U.S. poverty rate estimate was 13.2 percent, in Utah the rate registered only 9.7 percent.

The bottom line? As with most data, poverty rates are more complex than they may appear at face value. If you'd like to learn more about poverty rates, visit:

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