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Poverty Measures in Research

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First Quarter 2023
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The two most commonly used income benchmarks are the poverty threshold and area median income (AMI). This article discusses differences between them and how they are used to describe income dynamics in the context of the Fifth District.

For research purposes, the question of whether to use income relative to AMI or income relative to the poverty threshold to evaluate a population depends on the question being asked. If the researcher is conducting a longitudinal analysis, the poverty threshold provides a consistent benchmark against which to compare income over time. While AMI does vary over time, it also implicitly accounts for variation in cost of living across different geographic areas; this is because cost of living is highly correlated with AMI. For this reason, researchers looking to explore differences in purchasing power in different geographic areas over a short period may prefer to use income relative to AMI.

While the poverty threshold and income relative to AMI are the two most commonly used measures for determining income eligibility for means-tested programs, researchers may consider additional thresholds against which to characterize the income of populations. For example, the Census Bureau publishes the Supplemental Poverty Measure as an alternative to the poverty rate.

The Supplemental Poverty Measure refines the poverty rate by accounting for additional financial resources and recurring expenses and allowing for geographic variation in housing costs. In addition to earned income, which is used to generate poverty rates, the Supplemental Poverty Measure also includes cash and near-cash public assistance benefits among a family’s financial resources. Beyond the subsistence food budget used in the poverty rate, the Supplemental Poverty Measure also considers clothing, shelter, utilities, and telecommunications as among necessary expenses. The Supplemental Poverty Measure also accounts for differences in housing cost based on geography and whether a family owns or rents their home. Whereas the poverty rate differentiates families from unrelated individuals, the Supplemental Poverty Measure instead differentiates between resource units (to include families, unmarried partners and their relatives, coresident unrelated children, and foster children) and unrelated individuals.

In the Fifth District, the share of people in poverty according to the 2019 Supplemental Poverty Measure tended to be greater than the share of people in poverty according to the poverty rate in all Fifth District states (except West Virginia) and the District of Columbia.

As another alternative, United Way has developed a measure called ALICE, which stands for "Asset Limited, Income Constrained, Employed." ALICE is an alternative threshold based on a survival budget that includes housing, child care, food, transportation, health care, telecommunications, taxes, and contingency savings. Like the Supplemental Poverty Measure, it is intended to improve upon the poverty threshold approach by serving as a more accurate measure of how many households are having difficulty making ends meet. ALICE measures are county-specific and are currently available nationwide.

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