New Method Needed to Assess What Working-Class Families Need to Make Ends Meet

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New Method Needed to Assess What Working-Class Families Need to Make Ends Meet

Federal Poverty Measure Falls Short

WASHINGTON - In an effort to address the shortcomings of
the current federal poverty measure and inform efforts to expand the
middle class, a new report from the Center for Economic and Policy Research (CEPR) evaluates current poverty metrics and suggests a new measure for a broader standard of basic income adequacy.

The report, "Measuring
Poverty and Economic Inclusion: The Current Poverty Measure, The NAS
Alternative, and the Case for a Truly New Approach
," finds that
both the current approach, and the poverty measure designed by the
National Academy of Sciences (NAS) do not provide adequate minimum
standards for determining the income working families need to make ends
meet in their local communities.

"To guide efforts to
expand the middle class, we need to move beyond unidimensional measures
of income adequacy, like the current poverty measure and the NAS
alternative, and develop a multidimensional measure that is more
consistent with public understanding of what it takes to get by in
today's economy," said Shawn Fremstad, Director of CEPR's Bridging the
Gaps Initiative and author of the report.

The report
is broken into three sections, beginning with a discussion of the
current official poverty measure and its main criticisms. The next
section looks at the NAS standard and explores the changes in poverty
rates under this approach. The third section of the report puts forth a
"tiered" approach designed to better measure poverty and economic
inclusion.

Fremstad, in commenting on the federal poverty measure and the NAS alternative,
noted, "Both measures falls far below the minimum amount that a
majority of the public says is needed to 'get along' at a basic level."

The study
draws from Census Bureau research to show that the NAS measure yields
poverty thresholds modestly higher than the current measure and thus
does not address the adequacy criticism of the federal poverty measure.

The author also compares state-level poverty and food
insecurity rates, and finds that poverty rates calculated using the NAS
approach do a poorer job of predicting food insecurity than the current
poverty measure.  

To address these problems, the report then offers a new, at-risk-of-poverty or economic-inclusion approach consisting of three tiers:

  • a price-adjusted, low-income measure: fixed at 60 percent of
    median income for the baseline year of 1998/1999 and adjusted annually
    for changes in prices;
  • an income-adjusted, low-income measure: set at 60 percent of
    median household income and adjusted annually for changes in median
    income (rather than prices); and
  • a combined measure of material deprivation and low income:
    measuring the number of children living in households that are both
    "materially deprived" and have an income below 70 percent of median
    income.

The adoption of such a standard measure, similar in feel to the
standard adopted by the United Kingdom in 2003, would go far in helping
to determine the minimum income working families need to attain a
decent standard of living.

The full report can be found here.

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The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.

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