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The Development and History of the Poverty Thresholds

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The Development and History of the Poverty Thresholds The poverty thresholds are the primary version of the Federal poverty measure- rhe other version being the poverty guidelines. The thresholds are currently issued by the Bureau of the Census and are generally used for statistical purposes-for example, estimating the number of persons in poverty and tabulating them by type of residence, race, and other social, economic, and demographic characteristics. The poverty guidelines,4 on the other hand, are issued by the Department of Health and Human Services and are used for administrative purposes-for instance, for determining whether a person or family is financially eligible for assistance or services under certain Federal programs. The Development of the The Development and History Poverty Thresholds of the Poverty Thresholds The poverty thresholds were developed by Gordon M. Fisher* in 1963-64 by Mollie Orshansky, an economist working for the Social Security In recent years there has been renewed interest in the United States in the Administration. As Orshansky later definition and measurement of poverty. In early 1992, the Committee on indicated, her original purpose was not to National Statistics of the National Academy of Sciences began a 30-month introduce a new general measure of study requested by Congress that includes an examination of statistical issues poverty,s but to develop a measure to involved in measuring and understanding poverty. Some 2 years earlier, in assess the relative risks of low economic January 1990, the Administration had approved an initiative on improving the status (or, more broadly, the differentials quality of economic statistics. The current poverty measure was one of in opportunity) among different demographic groups of families with several dozen statistical series examined as part of that initiative. In April children.6 She actually developed two sets 1990, Urban Institute economist Patricia Ruggles published a book’ that of poverty thresholds+ne derived from urged the revision of the poverty line to reflect changes in consumption the Agriculture Department’s economy patterns and changing concepts of what constitutes a minimally adequate food plan and one derived from its standard of living. In July 1990, two private organizations concerned with the somewhat less stringent low-cost food poor and the elderly issued a report* reviewing current poverty measurement plan. She described an initial version of procedures and describing a Gallup poll in which a nationally representative these thresholds-for families with sample of Americans set an average dollar figure for the poverty line that was children only-in the July 1963 article higher than the current official poverty line. In view of these and other cited in footnote 6. She published an examples,3 it may be useful to reexamine the development and subsequent analysis using a refined version of the history of the current official poverty thresholds. thresholds-expanded to include thresholds for unrelated individuals and families without children-in a January 1965 article.’ *Office of the Secretary, Department of Health and Human Services. Because The Johnson Administration of the great interest in poverty and its measurement, the Bulletin asked Mr. Fisher announced its War on Poverty in January to write an article on the origin of the poverty thresholds. For related 1964, not long after the publication of information see, “Poverty Guidelines for 1992,” by Gordon M. Fisher, Social Orshansky’s initial poverty article. The Security Bulletin, Vol. 55, No. 1, Spring 1992, pp. 43-46. 1964 Report of the Council of Economic Advisers (CEA) contained a chapter on poverty in America.* The chapter set a poverty line of $3,000 (in 1962 dollars) for families of all sizes; for unrelated Social Security Bulletin l Vol. 55, No. 4 l Winter 1992 3 individuals, the chapter implicitly set a (“economy level”) of Orshansky’s two of Agriculture began to issue an poverty line of $1,500 (a selection that sets of poverty thresholds as a working or “economy” food plan, costing only 75 was shortly made explicit). The $3,000 quasi-official definition of poverty in 80 percent as much as the basic low- figure was specified as being on the basis May 1965. As noted below, the cost plan, for “temporary or emergency use when fUnds are low.“. .The food of before-tax annual money income. thresholds were designated as the plan as such includes no additional There was a brief discussion of the Federal Government’s official statistical allowance for meals eaten out or other theoretical desirability of using estimates definition of poverty in August 1969. food eaten away from home.16 of “total” incomes-including nonmoney Orshansky did not develop the poverty elements such as the rental value of thresholds as a standard budget-that is, To be more precise, what was used in owner-occupied dwellings and food a list of goods and services that a family developing the ihresholds was the dollar raised and consumed on farms-but it of a specified size and composition costs of the foods in the two food plans. was not possible to obtain such estimates. would need to live at a designated level Although the actual foods in both plans The CEA chapter pointed out that the of well-being, together with their provided a fully nutritious diet, families total of money plus nonmoney income estimated monthly or annual costs.” If spending for food at the dollar cost level that would correspond to the cash- generally accepted standards of of the economy food plan had about 1 income-only poverty line of $3,000 minimum need had been available for all chance in 2 of getting a fair or better would be somewhat higher than $3,000.9 or most of the major essential diet, but only 1 chance in 10 of getting a The CEA chapter referred to consumption items of living (for good diet. ” Orshansky’s July 1963 article and its example, housing, medical care, The three steps Orshansky followed in $3,165 “economy-plan” poverty line for clothing, and transportation), the moving from the cost of food for a family a nonfarm family of four. “Other studies standard budget approach could have to minimum costs for all family have used different market baskets, many been used by costing out the standards requirements were (1) to define the of them costing more. On balance, they and adding up the costs. However, family size and composition prototypes provide support for using as a boundary, except for the area of food, no definitive for which food costs would be computed, a family whose annual money income and accepted standards of minimum (2) to decide on the amount of additional from all sources was $3,000. .“I0 This need for major consumption items income to allow for items other than passage has led some people to think that existed either then or today. food, and (3) to relate the cash needs of the CEA’s $3,000 poverty line was The “generally accepted” standards of farm families to those of comparable derived to a greater or lesser degree from adequacy for food that Orshansky used in nonfarm families. Orshansky’s $3,165 poverty line. developing the thresholds were the food Because of a special interest in the However, Robert Lampman (a member plans prepared by the Department of economic status of families with children of the CEA staff) had been working on Agriculture. At the time there were four and because income requirements are an analysis of poverty using the $3,000 of these food plans, at the following cost related to the number of persons in the figure as early as the spring of 1963l’-- levels: liberal, moderate, low-cost, and family, Orshansky estimated food costs several months before Orshansky’s economy. The first three plans had been separately for nonfarm families varying initial article was published. Instead, the introduced in 1933, and the economy in size from two members to seven or $3,000 figure was a consensus choice food plan was developed and introduced more. Families were further classified by based on consideration of such factors as in 196 1. Data underlying the latter plan sex of head and the number of members the minimum wage level, the income came from the Agriculture Department’s who were related children under age 18. levels at which families began to have to 1955 Household Food Consumption Among three-person families, for pay Federal income taxes, and public Survey. I4 In developing her two sets of instance, there were separate assistance payment levels.‘* poverty thresholds, Orshansky used the subcategories with the following Orshansky was concerned by the CEA low-cost and economy food plans:15 compositions: three adults; two adults, report’s failure to adjust its poverty line The low-cost plan, adapted to the food one child; and one adult, two children. for family size, which resulted in patterns of families in the lowest third Two-person families were further understating the number of children in of the income range, has for many classified by age of head as those under poverty relative to aged persons. This years been used by welfare agencies age 65 and those aged 65 or older.‘* The prompted her to begin the work that as a basis for food allotments for lower poverty thresholds that resulted for needy families and others who wished resulted in her January 1965 Social aged units of the smallest size were Security Bulletin article, extending the to keep food costs down. Often, however, the actual food allowance for simply a mechanical consequence of two sets of poverty thresholds-at the families receiving public assistance having separate subcategories for two- “economy level” and at the “low-cost was less than that in the low-cost person families with aged and nonaged level”-to the whole population.
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