Reports from the Economic Front

by Martin Hart-Landsberg

The Tragedy of Child Poverty

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Children are our most important resource.  Everyone says it, but we don’t really mean it.  Exhibit one: the percentage of children under the age of 18 that live in poverty. In 2007, at the peak of our previous economic expansion, the child poverty rate was 18 percent.  In 2009, it hit 20 percent.  The figure below provides a look at child poverty rates in each state.  New Hampshire has the lowest rate–11 percent.  Mississippi has the highest rate–31 percent.

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Children under the age of 18 are counted as poor if they live in families with income below U.S. poverty thresholds.  There are a range of poverty thresholds which are based on family size and number of children.  The thresholds are adjusted yearly using the change in the average annual Consumer Price Index for All Urban Consumers (CPI-U).  These poverty thresholds are far from generous.  The 2009 poverty threshold for a family of two adults and two children was $21,756.  Poverty thresholds for 2010 have not yet been published.   

Sadly our poverty rates understate the seriousness of our poverty problem, for children and adults.  The history of how we developed and calculate our official poverty thresholds provides perhaps the clearest proof of the inadequacy of current statistics.  In broad brush, the Johnson administration, having announced a war on poverty in January 1964, needed a measure of poverty.  In response, its newly created Office of Economic Opportunity [OEO] introduced the first poverty thresholds in 1965.

These thresholds were largely based on previous work of the Department of Agriculture [DOA].  The DOA had developed four low-cost weekly food plans, the least generous called the “economy plan.” That plan was designed for “temporary or emergency use when funds are low.” It had no allowance for eating outside the home.  The Department had also determined, based on surveys, that families of three or more persons spent approximately one-third of their after-tax income on food.  The OEO took the cost of the economy food plan for families of different sizes and multiplied the total by 52 to get a series of yearly food budgets. Then, it multiplied those food budgets by three to generate a series of poverty thresholds. 

From 1966 to 1969, these poverty thresholds were adjusted annually by the yearly change in the cost of the food items contained in the economy food plan.  After 1969 the poverty thresholds were simply adjusted by the rise in the consumer price index.

This methodology has produced a poverty standard that is deficient in several ways.  First, it does not acknowledge that our knowledge of nutrition has significantly changed since 1965.  Second, it does not acknowledge that most families now spend approximately one-fifth of their after-tax income on food, not one-third.  That correction alone would mean that the food budget should be multiplied by 5 rather than 3, thereby producing higher thresholds and poverty rates. Third, it does not acknowledge that poverty is best thought of as a relative condition.

The National Academy of Sciences Panel on Poverty and Family Assistance has played a leading role in developing one of the most promising alternative poverty measures.  A 2008 Bureau of Labor Statistics Working Paper refine and extend the Panel’s experimental methodology and use it to calculate poverty thresholds and estimates for the period 1996 to 2005.

The authors of the Working Paper start with a reference family, two adults and two children, the most common family unit in the United States.  Then, using Consumer Expenditure Surveys, they calculate the dollar amount of spending on food, clothing, shelter, utilities and medical care by all reference families in a given year. 

The poverty threshold for the reference family is set, following the work of the Panel, at the midpoint between the 30th and 35th percentile of the spending distribution for all families with two adults and two children.  Small multipliers are then used to add spending estimates for other needs, such as transportation and personal care, slightly raising the poverty threshold.  This threshold is adjusted to generate thresholds for families of other sizes and compositions.     

Poverty rates are determined by comparing family resources with these poverty thresholds.  In contrast to current poverty calculations which rely on pre-tax incomes (even though official thresholds are based on the share of after-tax income spent on food), the authors of the Working Paper define family resources as the sum of after-tax money income from all sources plus the value of near-money benefits (such as food stamps) that help the family meet its spending needs. 

The chart below shows national poverty rates for the years 1996 to 2005.  We see that the rates produced by this experimental methodology are significantly higher than the official rates.  Strikingly, while the official 2005 poverty rate is lower than the 1996 official poverty rate, the 2005 experimental poverty rate is the highest in the period.   

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Returning to the issue of child poverty, the table below highlights the difference between the two measures for specific demographic groups over the same period.  Notice that the child poverty rate calculated using the experimental measure is always higher than the official rate.  As previously stated, the official 2009 child poverty rate is 20 percent.  The experimental rate would no doubt be several percentage points higher, closing in on 25 percent.

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What can one say about a situation where between one-fifth and one-fourth of all children in the United States live in poverty?  And all signs point to a higher rate for 2010.  Words like outrageous, unacceptable, an indicator of a flawed economic system all come to mind.  What also comes to mind is the fact these poverty statistics rarely get the attention they deserve.  So does the question of why that is so.

Written by marty

September 11th, 2011 at 10:35 am

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