The sequential costs of poverty: what traditional measures overlook

Journal of Sociology and Social Welfare, March, 2006 by Elizabeth A. Segal, Laura R. Peck

This research note proposes an addition to the poverty measurement debate. Motivated by dissatisfaction with the official poverty measure, which many scholars and practitioners share, we propose the use of sequential costs of poverty to enrich the poverty measure so that it might capture more closely the life-experiences of low-income families. After presenting some background on poverty measurement, this research note explores the conceptual framework that surrounds the notion of sequential costs. Drawing on our past research, we propose ways in which these sequential costs surface, with illustrative examples from health, employment, housing, and income maintenance.

Keywords: poverty measurement, low-income, latent and sequential costs of poverty

Background on Poverty Measurement

Devised by the Social Security Administration in the mid-1960s, the U.S. poverty threshold is computed as three times the USDA thrifty food budget. Families whose income falls below that threshold are considered to be poor. The threshold includes adjustments for family size but otherwise is essentially the same for all families across the U.S. This official poverty line was never intended to be a long-standing measure of poverty. Even creator Mollie Orshansky assumed that it would be updated (Orshansky, 1965). Some of the most common criticisms associated with the official poverty measure are that:

* It does not account for geographic variation in cost of living. The poverty line in New York is the same as in Mississippi despite the observation that a dollar goes much further in Mississippi.

* It was based on 1950s consumption patterns, which have changed substantially, such that food may no longer account for one-third of a family's expenditures (Bernstein, Brocht, and Spade-Aguilar, 2000).

* Although the poverty measure adjusts for inflation, it does not account "for the increases in real family income and consumption by children" (Lichter, 1997, p. 124).

* It does not account for in-kind (non-cash) public assistance, such as food stamps, housing or health assistance, which have grown markedly in the past four decades. The implication is that those who receive these sources of assistance may be less poor than they appear by a cash income measure alone.

* It does not account for the costs associated with working, such as child care, which, when considered, would make working families more often appear poor.

* It does not account for taxes, both payments and receipts (credits), which have wide state variation.

In addition to these common critiques, other problems with the measure also have been identified. According to some (e.g., Licther, 1997), the official poverty measure does not equivalize adequately for family size despite existing variation in the poverty line by family size and structure. For instance, it does not account for the growing share of children being raised by single parents with cohabitating partners whose incomes are not included in the official measure (Manning and Lichter, 1996). Although these sources of income might make some families appear less poor, there is no guarantee that resources from cohabiters will be used to benefit children. In other words, the official poverty measure "implicitly assumes that parents' resources are invested in children--biological, step, noncustodial--in an equitable or altruistic way (i.e., equally according to need)" (Lichter, 1997, p. 124). Recent work of ours has argued that, even more so than work expenses or payroll taxes, there are other, yet unmeasured costs associated with being low-income (Peck and Segal, 2006). If these "latent" and "sequential" costs would be accounted for, then more low-income families would be considered poor and we would have a better understanding of their true needs. We assert that, for several reasons, the official poverty measure underrepresents the proportion of families experiencing income hardship. Although the poverty measure's limitations are widely cited (e.g., Citro and Michael, 1995; Haveman et al., 1988; Ruggles, 1990), it is still commonly used because scholars and policy makers alike understand it, and it has been consistently measured over time. Alternative measures are used but often only in addition to, rather than as substitution for, the official poverty measure (U.S. Department of Health and Human Services [DHHS], 2004). Real headway on the revision of the official poverty measure came in the 1990s with the National Academy of Sciences report (Citro and Michael, 1995), which was followed by the U.S. Census Bureau's expanded use of what it calls "experimental" poverty measures to gauge well-being by measures more inclusive than money income alone.

Income poverty--whether measured by the official poverty line or some alternative--may still be insufficient to capture family and child well-being. In turn, some researchers have explored approaches to measuring and testing "hardship" indicators (e.g., Beverly, 2001; DHHS, 2004; Mayer and Jencks, 1989). Although income poverty and hardship have been shown to be correlated, there is not a perfect overlap. For example, among a Chicago sample in the 1980s, Mayer and Jencks (1989) found that income explains just 14 percent of the variance in material hardship. While measuring hardship is perhaps more desirable than measuring income poverty--because it may more closely capture real deprivation or well-being--it is a difficult task because of the large variation in possible measures.