New poverty measures
Date posted: December 9, 2011
Poverty is a major barometer of our economy, but measuring it can be tricky. The U.S. Census, which counts poverty, made some major changes in its calculation methods. N.C. State University economist Mike Walden explains.
“This is big. The … way that poverty historically been calculated was really bizarre. It was really based on a method developed in 1963, where essentially what the government said (was) ‘Alright we’re going to calculate what it would cost a household to buy some minimal amount of food to meet some minimal standard in their diet. We’re going to multiply that by three, and that’s going to be the poverty level.’
“Obviously since 1963 lots of things have changed. And even if that formula made sense in ’63, it likely doesn’t make sense today for a number of reasons. Obviously, number one, poverty is based on more than just food. Number two, there are differences in prices between regions of the country. And number three, this measure doesn’t account for government aid that people below certain income levels might receive, which would actually help them get out of poverty.
“So the bottom line here … is the Census finally got around to correcting these problems, and they now have a brand new way of calculating poverty that takes into account all of these previous criticisms.
“What did the results mean? Well, the results actually meant a little brighter news here in the sense that poverty is not quite as high by these new measures as we would have thought. For example, in 2010, using the old method of calculating poverty, the poverty rate in the country was 16 percent; using the new method, 15.2 percent.
Category: Economic Perspective