How is poverty measured in the United States?

Official National Measure

The U.S. Census Bureau determines poverty status by comparing pre-tax cash income against a threshold that is set at three times the cost of a minimum food diet in 1963, updated annually for inflation using the Consumer Price Index, and adjusted for family size, composition, and age of householder. "Family" is defined as persons living together who are related either by blood or marriage. Thresholds do not vary geographically.[1]

The poverty threshold serves different purposes, including tracking poverty over time, comparing poverty across different demographic groups, and as the starting point for determining eligibility for a range of federal assistance programs. (For more on using the poverty thresholds, or their administrative counterpoint, the poverty guidelines, for determining eligibility, see FAQ #1.)

In 2011, the most recent year for which data are available, the poverty threshold for a family of four with two children was $22,811. The official national poverty rate was 15.0 percent. There were 46.2 million people in poverty.

When the official government poverty series began in 1959, poverty was at 22 percent. Unofficial estimates by researchers before that time found a poverty rate in 1914 of 66 percent; 78 percent in 1932; 32 percent in 1947; and 24 percent in 1958.[2] Figure 1 shows more recent poverty rates, in 1968, 1990, and 2011, using the official measure. Especially notable trends are the consistent increase in child poverty, the dramatic decrease in elder poverty, and the consistently high poverty rates among African Americans and persons of Hispanic heritage.

Figure 1: Official U.S. Poverty Rates in 1968, 1990, and 2011 Click for a larger view of Figure 1
Click to enlarge Figure 1

These official poverty estimates are drawn from the Current Population Survey's Annual Social and Economic Supplement (CPS ASEC), which is conducted in February, March, and April with a sample of approximately 100,000 addresses per year. The ASEC questionnaire asks about income from more than 50 sources and records up to 27 different income amounts. The Census Bureau also reports income and poverty estimates from a number of other major national household surveys and programs.

Researchers and policymakers have long criticized the official poverty measure for a number of reasons. However, in spite of its shortcomings, detailed below, its salience in policymaking is noted by the economists Bruce D. Meyer and James X. Sullivan: "Few economic indicators are more closely watched or more important for policy than the official poverty rate. The poverty rate is often cited by policymakers, researchers, and advocates who are evaluating social programs that account for more than half a trillion dollars in government spending."[3]

Principal criticisms of the official poverty measure include:

  • Its "headcount" approach identifies only the share of people who fall below the poverty threshold, but does not measure the depth of economic need;
  • It does not reflect modern expenses and resources, excluding significant draws on income such as taxes, work expenses, and out-of-pocket medical expenses, and excluding resources such as in-kind benefits (e.g., food assistance);
  • It does not vary by geographic differences in cost of living within the contiguous United States;
  • It is not adjusted for changes in the standard of living over time; and
  • Its strict definition of measurement units—"family"—as persons related by blood or marriage does not reflect the nature of many households, including those made up of cohabitors, unmarried partners with children from previous relationships, and foster children.

While the official measure remains the official national statistic, the Census Bureau has been estimating poverty using a number of experimental measures as well, since the mid-1990s. See Poverty: Experimental Measures on the Census Bureau's website for more about these approaches. The most recent and prominent experimental measure, the Supplemental Poverty Measure—a work-in-progress that will supplement but not replace the official measure—is discussed below, after discussion of data sources for estimating poverty at the state and local levels.

State and Local Data on Poverty

For poverty estimates at the state and local levels, researchers recommend consulting the Census Bureau's American Community Survey (ACS), the largest household survey in the United States, which is part of the 2010 Decennial Census Program. In contrast to the decennial Census, the ACS is conducted annually, although often data from two, three, or five years are averaged together to increase the precision of estimates for smaller geographic areas.

The most recent ACS brief on poverty covers 2010 and 2011 and was issued in September 2012. The ACS surveys approximately 3 million addresses per year through mail, telephone, and in-person interviews. It provides demographic, social, economic, and housing data for the nation, states, congressional districts, counties, and other localities.

The Census Bureau describes the ACS as "an ongoing survey that provides data every year—giving communities the current information they need to plan investments and services. Information from the survey generates data that help determine how more than $400 billion in federal and state funds are distributed each year."

In addition to providing current small-area information about people's age, sex, family and relationships, income and benefits, disabilities, and veteran status; and the poverty rate, which is an estimate of the proportion of people with income below their poverty threshold; the ACS (and the CPS) also gauges the depth of poverty.[4]

Depth of Poverty

Depth of poverty is expressed in an income-to-poverty ratio, which measures how close a family's or individual's income is to their poverty threshold, measuring the depth of poverty for those below their threshold, and the nearness to poverty for those above their threshold. (For current thresholds, see FAQ #1.) Either the ACS or the CPS can be used to measure the depth of poverty; in this discussion we refer first to ACS overall income-to-poverty ratios by state (Table 1), and then to CPS national income-to-poverty ratios by age, sex, race/ethnicity, and family status (Table 2).[5]

Families and individuals with an income-to-poverty ratio of less than 100 percent are identified as in poverty. An income-to-poverty ratio of 100 to 124 percent indicates a family's or person's income is at or no more than 24 percent above their poverty threshold. An income-to-poverty ratio of 50 percent indicates a family or person is living with income that is half of their poverty threshold; that is, they are living in deep poverty.

Table 1 below shows the percentage of people by specified income-to-poverty ratios for the United States and by state in 2011. The table shows that among the states, New Hampshire (12.0 percent) had the lowest proportion of people with income-to-poverty ratios of less than 125 percent. The states with the lowest deep poverty rates—that is, the lowest proportion of people living below 50 percent of their poverty thresholds—in 2011 were New Hampshire (4.4 percent), Wyoming (4.7 percent), Alaska (4.7 percent), New Jersey (4.8 percent), and Vermont (4.9 percent). The states with the highest proportion of people with income-to-poverty ratios of 50 percent were New Mexico (9.4 percent), Louisiana (9.4 percent), Mississippi (9.8 percent), and the District of Columbia (10.3 percent). The national deep poverty rate was 7.1 percent; Wisconsin's was 5.8 percent.

Table 1.

Percentage of People by Income-to-Poverty Ratio in the Past 12 Months by State, 2011
 

State

Under 50.0 Percent

50.0 to 99.9 Percent

100.0 to 124.9 Percent
   
New Hampshire 4.4 4.4 3.2
Maryland 5.0 5.1 3.0
New Jersey 4.8 5.6 3.4
Alaska 4.7 5.7 4.1
Connecticut 5.0 5.9 3.2
Wyoming 4.7 6.6 3.6
Vermont 4.9 6.6 4.6
Virginia 5.3 6.2 3.9
Massachusetts 5.3 6.3 3.6
Delaware 5.8 6.1 4.1
Minnesota 5.2 6.7 3.8
Hawaii 6.1 6.0 3.4
North Dakota 5.8 6.5 3.6
Iowa 5.9 6.9 4.2
Wisconsin 5.8 7.3 4.5
Nebraska 5.6 7.5 4.7
Colorado 6.1 7.4 4.6
Utah 5.6 8.0 4.2
Pennsylvania 6.2 7.6 4.2
Kansas 5.7 8.1 4.5
Washington 6.2 7.7 4.3
South Dakota 5.9 8.0 4.8
Maine 5.2 8.9 5.2
Rhode Island 6.8 7.9 3.9
Montana 5.8 9.0 5.6
Illinois 6.9 8.1 4.7
Missouri 7.0 8.7 5.0
Nevada 7.2 8.7 5.0
 
UNITED STATES 7.1 8.8 4.9
 
New York 7.1 8.8 4.5
Indiana 7.9 8.1 4.7
Ohio 7.6 8.9 4.6
Idaho 7.1 9.3 5.3
California 7.2 9.4 5.4
Florida 7.5 9.5 5.6
Oklahoma 7.4 9.8 5.6
Oregon 7.7 9.8 5.0
Michigan 8.1 9.5 4.8
North Carolina 7.8 10.0 5.5
Tennessee 7.9 10.4 5.6
Texas 7.6 10.8 5.7
West Virginia 7.8 10.7 5.6
District of Columbia 10.3 8.4 3.2
South Carolina 8.5 10.4 5.8
Arizona 8.7 10.3 5.4
Alabama 7.8 11.2 5.9
Georgia 8.6 10.5 5.3
Kentucky 8.4 10.8 5.5
Arkansas 7.9 11.5 5.9
Louisiana 9.4 11.0 5.4
New Mexico 9.4 12.1 6.0
Mississippi 9.8 12.8 6.5
 
Source: U.S. Census Bureau, 2011 American Community Survey.
Note: Details may not sum to totals because of rounding.
 

 

Table 2 presents specified 2011 national income-to-poverty ratios by age, sex, race/ethnicity, and family status using CPS data. It shows, for example, that 6.6 percent of all people had income below one-half of their poverty threshold, often called deep poverty. Approximately one in three people—34.4 percent—had income under 200 percent of their threshold. Of children under age 18, nearly 10 percent—9.8 percent—had income below one-half of their poverty threshold; and 44.3 percent of children lived in families with income below 200 percent of their poverty threshold.


Table 2.

People with Income Below Specified Ratios of Their Poverty Threshold by Selected Characteristics, 2011

 
Characteristic Under 50 Percent Under 100 Percent Under 125 Percent Under 150 Percent Under 200 Percent
All people 6.6 15 19.8 24.8 34.4
Age
   Under 18 years 9.8 21.9 28 34 44.3
   18 to 64 years 6.3 13.7 17.8 22.2 30.7
   65 years and older 2.3 8.7 14.5 21 33.6
Sex
   Male 5.9 13.6 18 22.8 32.2
   Female 7.2 16.3 21.5 26.8 36.5
Race and Hispanic Origin
   White 5.5 12.8 17.2 22.1 31.4
      White, not Hispanic 4.4 9.8 13.4 17.5 25.7
   Black 12.8 27.6 34 40.4 51.3
   Asian 5.5 12.3 16.3 20.3 29.1
   Hispanic (any race) 10.5 25.3 33.3 41.5 55
Family Status
   In families 5.5 13.1 17.4 22.2 31.4
      Householder 5.1 11.8 15.5 20 28.8
      Related children under 18 9.4 21.4 27.5 33.5 43.8
      Related children under 6 11.8 24.5 31 37 47.4
   In unrelated subfamilies 27.2 43.4 48.4 56.4 70.7
   Unrelated individuals 11.3 22.8 29.9 36.2 47.2

Source: U.S. Census Bureau, Current Population Survey, 2011 and 2012 Annual Social and Economic Supplements.
 

 

Supplemental Poverty Measure

The Census Bureau introduced the Supplemental Poverty Measure or SPM in 2010 to provide an alternative view of poverty in the United States that better reflects life in the 21st century, including contemporary social and economic realities and government policy. As its name suggests, the SPM supplements but does not replace the official poverty measure, which remains the nation's source for official poverty statistics and for determining program eligibility.

The SPM was designed to address the official poverty measure's shortcomings, described above, which were assessed by a National Academy of Sciences (NAS) poverty measurement panel convened in 1992 that made recommendations for improvement (see below). The SPM incorporates much of the NAS methodology with modifications that were suggested by subsequent research.

In their research brief, "A Consumer's Guide to Interpreting Various Poverty Measures," David S. Johnson of the Census Bureau and Timothy M. Smeeding of IRP and the La Follette School of Public Affairs at the University of Wisconsin–Madison note, "The Supplemental Poverty Measure combines the best and most agreed upon elements of the research based on expert opinion and on the [Census Bureau's] experimental series."[6]

In a side-by-side comparison of the official poverty measure and the SPM, Johnson and Smeeding note their differences in measurement units, poverty threshold, threshold adjustments (e.g., by family size), updating thresholds, and what counts as resources, pictured in the text box below.

Poverty Measure Concepts: Official Poverty Measure and Supplemental Poverty Measure
Official Poverty Measure Supplemental Poverty Measure
Measurement Units Families and unrelated individuals All related individuals who live at same address, incl. any coresident unrelated children who are cared for by the family (such as foster children) and any cohabitors and their children
Poverty Threshold Three times the cost of a minimum food diet in 1963 The 33rd percentile of expenditures on food, clothing, shelter, and utilities (FCSU) of consumer units with exactly two children multiplied by 1.2 to add 20% for all other necessary expenses
Threshold Adjustments Vary by family size, composition, and age of householder Vary by housing status: owners with mortgages, owners without mortgages, and renters. Geographic adjustments for differences in housing costs (using ACS) and a three-parameter equivalence scale for family size and composition
Updating Thresholds Consumer Price Index: All items Five-year moving average of expenditures on FCSU
Resource Measure Gross before-tax cash income Sum of cash income, plus in-kind benefits that families can use to meet their FCSU needs, minus taxes (or plus tax credits), minus work expenses, minus out-of-pocket medical expenses (reported)
Source: David S. Johnson and Timothy M. Smeeding, 2012, "A Consumer's Guide to Interpreting Various U.S. Poverty Measures," Fast Focus No. 14-2012, based on K. Short, The Research Supplemental Poverty Measure: 2011, Current Population Reports, P60-244, November 2012, U.S. Census Bureau.
Note: "Family" as defined by the Census Bureau is "a group of two people or more related by birth, marriage, or adoption and residing together; all such people (including related subfamily members) are considered as members of one family." http://www.census.gov/cps/about/cpsdef.html

A comparison of official and SPM poverty rates in 2011 for the total population and among three age groups; under age 18, adults ages 18 to 64, and elders age 65 and older is shown in Figure 2. Analysts attribute the differences in rates between the two measures among the populations to several factors, including the higher thresholds set by the SPM.

For most groups, SPM poverty rates were higher than official poverty rates; children are an exception with 18.1 percent poor using the SPM and 22.3 percent poor using the official measure. The much higher poverty rates for people age 65 and older partially reflect that the official thresholds are set lower for families with householders in this age group, while the SPM thresholds do not vary by age.

Figure 2: Poverty Rates Using Official and SPM Measures for Total Population and by Age Group, 2011 Click for a larger view of Figure 2
Click to enlarge Figure 2

 

Read more about the development of the Supplemental Poverty Measure, the most recent SPM report, and ongoing research on SPM development. Papers on the SPM thresholds that emphasize the imputations needed to incorporate noncash benefits in the expenditure distributions by a Bureau of Labor Statistics analyst also may be of interest.

History of Revising the Measure: NAS Recommendations

In 1992, the National Academy of Sciences study panel, the Panel on Poverty and Family Assistance, was established at the request of Congress to conduct a comprehensive examination of poverty measurement in the United States. Their charge was to evaluate the official poverty measure to see if it was still serving its intended purposes and whether the panel of experts thought it could be improved.

Among the panel members were two former IRP directors, Robert Hauser (UW–Madison) and Sheldon Danziger (University of Michigan–Ann Arbor); IRP affiliate and UW–Madison faculty, Franklin Wilson; and an off-campus IRP affiliate, David Betson, University of Notre Dame. In 1995, the panel issued a final report and recommendations for change in the monograph titled Measuring Poverty: A New Approach.

The study panel found the following:

Our major conclusion is that the current measure needs to be revised: it no longer provides an accurate picture of the differences in the extent of economic poverty among population groups or geographic areas of the country, nor an accurate picture of trends over time. The current measure has remained virtually unchanged over the past 30 years. Yet during that time, there have been marked changes in the nation’s economy and society and in public policies that have affected families’ economic well-being, which are not reflected in the measure.

The panel recommended the following:

The official U.S. poverty thresholds should comprise a budget for the three basic categories of food, clothing, shelter (including utilities), and a small additional amount to allow for other needs (e.g., household supplies). Actual expenditure data should be used to develop a threshold for a reference family of four—two adults and two children. Each year, that threshold should be updated to reflect changes in spending on food, clothing, and shelter over the previous 3 years and then adjusted for different family types and geographic areas of the country. The resources of a family or individual that are compared with the appropriate threshold to determine poverty status should be consistently defined to include money and near-money disposable income: that is, resources should include most in-kind benefits and exclude taxes and certain other nondiscretionary expenses (e.g., work expenses).

The procedure for updating the poverty thresholds over time is an integral part of the proposed measure…. We propose a regular updating procedure to maintain the time series of poverty statistics. We also recommend a conservative updating procedure that adjusts the thresholds for changes in consumption that are relevant to a poverty budget, rather than for changes in total consumption.[7]

History of Revising the Measure: CNSTAT Review

In 2004, the Committee on National Statistics hosted a workshop to review federal research on alternative methods for measuring poverty using an income poverty measure. The workshop was requested by the U.S. Office of Management and Budget to assess progress in moving towards a new measure of income poverty as recommended by the 1992 NAS Panel on Poverty and Family Assistance.

The workshop provided a forum for comment on methods developed for key components of the CNSTAT Panel’s proposals and the degree of support for such methods. The roster was as follows (2008 affiliations are listed): Timothy Smeeding (co-chair), IRP Director and Arts and Sciences Distinguished Professor of Public Affairs and Economics, University of Wisconsin-Madison, and Director Emeritus of the Luxembourg Income Study; Barbara Wolfe, Professor of Economics, Population Health Sciences, and Public Affairs, and former Director of both IRP and the La Follette School of Public Affairs, UW–Madison; Rebecca Blank (co-chair), Under Secretary for Economic Affairs, U.S. Department of Commerce; David Betson, Associate Professor of Economics and the former Director of the Hesburgh Program in Public Service at the University of Notre Dame; and Graham Kalton, Chairman of the Board of Westat, Incorporated, an employee-owned research corporation.

Wisconsin Poverty Measure

Discussion of the official poverty measure's shortcomings and ways to improve it led to the realization that states and localities would benefit from having a better gauge of their own area's economic disadvantage. Among the researchers taking the lead in the development of more accurate and timely state- and local-level measures were researchers and programming staff at IRP, led by IRP Director Timothy Smeeding and Urban Institute Senior Fellow and IRP Visiting Scholar Julia Isaacs. They have devised a poverty measure that provides a more timely and accurate accounting of poverty throughout the state of Wisconsin.

The Wisconsin Poverty Measure (WPM) was designed to tell not only which people and families are poor, but also to gauge the influence of public policies on poverty. The WPM is suitable for estimating the costs and antipoverty effects of legislation that expands noncash benefits or provides tax credits to low-income citizens. It can tell state policymakers how much additional poverty occurs from program cutbacks or tax increases as well.

The WPM is the first state-level poverty measure effort of its kind in the nation and has been developed to serve as a model for other states and localities seeking to develop their own more meaningful measure to assess poverty and policies in ways that reflect the characteristics and policy interests of their own state.

The most recent Wisconsin Poverty Report presents findings for 2010, providing a detailed analysis of the state's economy, job gains and losses, public assistance program participation, and other economic benchmarks. It also presents state poverty rates using several different measures in addition to the WPM and explores poverty in Milwaukee County, the state's most populous and, in some areas, poorest region. A more detailed report presents Policy Context, Methodology, and Results.

Figure 3 compares official state poverty rates overall and for children and the elderly with those using the Wisconsin measure. Most striking is the difference in the child poverty rate between the two measures. The primary reason that the WPM child poverty rate (11 percent) is so much lower than the official child poverty rate (19 percent) is that the WPM takes into account the many non-cash benefits and tax credits for which families with children are eligible, and, in addition, their markedly higher take-up rates of SNAP food assistance.

Figure 3: Wisconsin Poverty Rates in 2010: Official and Wisconsin Poverty Measures Click for a larger view of Figure 3
Click to enlarge Figure 3

 

IRP researchers and programmers included in their analysis a study of data for Milwaukee County, which revealed dramatic variations in poverty rates. For instance, as shown in Figure 4, the overall poverty rate (all age groups combined) for the suburban communities of Brown Deer, Glendale, Shorewood, Wauwatosa, and Whitefish Bay was 5.3 percent in 2010, while the overall poverty rate for central inner-city Milwaukee was 35.6 percent.

Figure 4: WPM Poverty Rates within Milwaukee County by PUMA for 2010 Click for a larger view of Figure 4
Click to enlarge Figure 4

 

Next we turn to IRP researchers' findings in their analysis of the impact on Wisconsin statewide and regional poverty rates of the major public-benefit programs and of work and medical expenses, none of which are included in the official poverty measure. The IRP analysis covers data over a three-year period, from 2008 through 2010.

Figure 5 illustrates the effects of taxes (e.g., Earned Income Tax Credit), public benefits (e.g., SNAP food assistance), and expenses on overall poverty in Wisconsin in 2008 to 2010. Both taxes and SNAP significantly reduced child poverty in Wisconsin, while medical out-of-pocket expenses increased poverty among the elderly.

Figure 5: Effects of Taxes, Public Benefits, and Expenses on Overall Poverty in Wisconsin, 2008 to 2010 Click for a larger view of Figure 5
Click to enlarge Figure 5

 

See http://www.irp.wisc.edu/research/wipoverty.htm for further details on IRP's Wisconsin Poverty initiative.

Further Reading

Poverty levels and trends in comparative perspective, Daniel R. Meyer and Geoffrey L. Wallace

A consumer's guide to interpreting various U.S. poverty measures, David S. Johnson and Timothy M. Smeeding

FAQ #1: What are poverty thresholds and poverty guidelines?

Poverty Measurement

Wisconsin Poverty Measure

Methodological Issues

Focus newsletter issue devoted to Revising the Poverty Measure (Spring 1998)

John Iceland, 2005, “The CNSTAT Workshop on Experimental Poverty Measures, June 2004,” Focus 23(4): 26–30.

Robert Haveman, “What Does It Mean to Be Poor in a Rich Society?” Robert J. Lampman Memorial Lecture, University of Wisconsin–Madison, June 18, 2008 (see PowerPoint slides).

Robert Haveman, 2008, "What Does It Mean to Be Poor in a Rich Society?" IRP Discussion Paper No. 1356-08

IRP’s 1999 Conference to Improve the Poverty Measure.

Further Reading on the Internet

Rebecca M. Blank, 2008, "Why the United States Needs an Improved Measure of Poverty" (testimony delivered to the Congressional Subcommittee on Income Security and Family Support of the House Ways and Means Committee, Washington, DC, July 17, 2008). A transcript of the testimony is available on the Brookings Institution's Web site at www.brookings.edu/~/media/Files/rc/testimonies/2008/0717_poverty_blank/0717_poverty_blank.pdf

John Quinterno, 2009, "Poor Measurement: Time for a Comprehensive New Poverty Measure" (commentary on the Spotlight on Poverty and Opportunity Web site, available at http://www.spotlightonpoverty.org/ExclusiveCommentary.aspx?id=813ce98d-610f-4f41-b174-4c79e81c317d).

Nancy K. Cauthen and Sarah Fass, 2007, "Measuring Income and Poverty in the United States" (fact sheet from the National Center for Children in Poverty, available at http://www.nccp.org/publications/pub_707.html).

 

[1] The Census Bureau cautions that the thresholds should be interpreted as a "statistical yardstick" rather than as a complete accounting of how much income people need to live. They were intended to define and quantify poverty in America and to record changes in the number of persons and families in poverty and their characteristics over time. See FAQ #1, What are poverty thresholds and poverty guidelines?, for a more detailed discussion of this topic.


[2] R. D. Plotnick, E. Smolensky, E. Evenhouse, and S. Reilly, "The Twentieth-Century Record of Inequality and Poverty in the United States," in The Cambridge Economic History of the United States, Vol. 3, eds. S. L. Engerman and R. E. Gallman (Cambridge: Cambridge University Press, 2000), 249-299; G. Fisher, "Estimates of the Poverty Population under the Current Official Definition for Years before 1959," mimeograph, Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, 1986.


[3] B. D. Meyer and J. X. Sullivan, "Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure," Journal of Economic Perspectives 26, No. 3 (2012).


[4] The ACS uses a different method to determine a family's or individual's poverty threshold than that used for the CPS ASEC. Poverty thresholds are determined by multiplying the base year poverty threshold (1982) by the average of monthly Consumer Price Index values for the 12 months preceding the survey month (since the ACS is a continuous survey). For information, see "How Poverty Is Calculated in the ACS" at http://www.census.gov/hhes/www/poverty/poverty-cal-in-acs.pdf.


[5] Note that the national poverty estimates from the ACS may differ somewhat from the official poverty rate based on the CPS data, because of methodological differences in the two surveys (e.g., sampling frame, amount of detail asked about income, and time period covered).


[6] For more about experimental poverty measures employed over time by the Census Bureau, see http://www.census.gov/hhes/povmeas/.


[7] C. Citro and R. Michael, Measuring Poverty: A New Approach (Washington, D.C.: National Academy Press, 1995), p. 1.