A recent study by researchers at the Bureau of Labor Statistics and Bureau of the Census, replicated the Panel’s work, estimated experimental thresholds using CE data and revised the resource measure. The study found that changes in the Panel’s proposed thresholds and their experimental thresholds (based on various definitions of a minimum expenditure bundle) appear to be similar over the time period covered. The study also found that poverty rates based on these thresholds followed trends over time that are similar to trends in the current official poverty measure. The study also found, however, that the poverty rates based on these alternative thresholds and resource measures were always higher, both over time and across thresholds and subgroups, than were rates based on the official measure.
Since the initial BLS/Census study was conducted, two additional government and nongovernment groups have identified areas requiring further research. Those areas related to the construction of poverty thresholds are:
- Setting the initial poverty thresholds. Should the initial poverty threshold remain unchanged?
- The treatment of housing. Should out-of-pocket housing expenditures be used or should such costs be estimated using a flow of services from home ownership, e.g., reported rental equivalence or imputed rent?
- Updating the thresholds over time. Should the thresholds be updated based on the change in median expenditures for a basic bundle of goods and services or by a price index?
- Determining the geographical index. How should the thresholds be adjusted for differences in prices across geographical areas?
- Choosing an equivalence scale. How should the thresholds be adjusted for differences in household sizes and types?
In this paper, we examine each of these five issues, focusing on the data and methodological issues related to the estimation of thresholds using CE data. We find that alternative definitions of the reference threshold do not significantly change the thresholds, with the treatment of homeownership having the largest effect. Thresholds based on imputed rents for owners result in lower thresholds than when the thresholds are based on out-of-pocket shelter costs, while higher thresholds result when shelter costs for owners are defined as reported rental equivalence. We find that updating the threshold using the change in median expenditures (the Panel’s proposed method) rather than the change in the all-items Consumer Price Index (CPI-U) leads to a slightly larger increase in the thresholds between 1982 and 1995, but the change in median expenditures has a higher variance than the change in the CPI-U. We also find that the geographic adjustment recommended by the Panel (a cost-of-living housing index based on a Housing and Urban Development (HUD) approach) yields similar results to those using BLS inter-area price indexes for 11 major expenditure categories. In addition, we find that the equivalence scale recommended by the Panel yields similar thresholds (using a two-adult, two-child reference household) to those resulting if other household types are chosen as the reference unit. (author introduction)