	Background

		The Official Poverty Measure

Researchers have defined poverty in a variety of ways. Issues in Assessing a Family’s Economic Well-Being

In developing, as well as evaluating, a poverty measure, certain assumptions and choices must be made as one addresses two fundamental decisions: first, how to define a family’s resources and, second, how to select a threshold, or standard, to represent a “minimally adequate standard of living.” While the two decisions are distinct, the two definitions must be consonant with each other so that the eventual comparison of a family’s resources with a standard is considered fair. Although many technical choices must be made in developing a valid and practical measure of family economic well-being for the purposes of determining poverty status, we identified three key choices to be made: whether to directly measure a family’s spending on basic necessities or to use income and other economic resources as a proxy for its ability to buy those necessities, which economic resources should be considered available for meeting a family’s basic needs, and whether existing data sources are adequate or should be modified to improve the reliability of poverty estimates. We found disagreement among the experts, however, about how far to go in making these adjustments to cash income. Part of the argument for using expenditures rather than income to measure a family’s economic well-being is the claim that many apparently low-income households underreport their income. II provides more detail on these surveys.) Developments Since the NRC Report

OMB has not yet acted on the panel’s recommendations to revise the poverty measure but has discussed forming an interagency working group with BLS, the Bureau of the Census, and other interested agencies to explore general issues in measuring income and poverty and consider alternative measures to be developed and tested. Although many technical choices will need to be made in developing thresholds, we highlight four key choices: on what basis to set the level of a poverty threshold, whether to accommodate changes over time in standards of living as well how to quantify the difference in need among families of different size and whether and how to accommodate geographical differences in the cost of living. Conclusions

Some of the issues involved in updating the poverty measure seem to be fairly well resolved in the scientific community. But additional discussion and research may be needed for experts to reach consensus on other issues, such as how to incorporate government medical assistance in a measure of disposable income and how to accommodate geographical differences—and changes—in the cost of living. Recommendation 1.4

The Statistical Policy Office of the U.S. Office of Management and Budget should institute a regular review, on a 10-year cycle, of all aspects of the poverty measure: reassessing the procedure for updating the thresholds, the family resource definition, etc. Recommendation 4.2

The definition of family resources for comparison with the appropriate poverty threshold should be disposable money and near-money income.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed various issues involved in updating the federal government's measure of poverty, focusing on: (1) the issues associated with measuring a family's economic well-being and setting a standard below which families are considered poor; (2) the suggestions experts have for addressing these issues; and (3) recent developments on these issues since the National Research Council (NRC) Panel on Poverty and Family Assistance issued its report in 1995.

What GAO Found

GAO noted that: (1) the choices or issues to address in developing a routinely available, reliable measure of a family's economic resources include: (a) whether to directly measure a family's spending on basic necessities or use income and other economic resources as a proxy for their ability to buy these necessities; (b) which economic resources should be considered available for meeting a family's basic needs; and (c) whether existing data sources are adequate (for whichever resource definition is selected) or should be modified to improve the reliability of poverty estimates; (2) some issues in updating the family resource measure seem to be fairly well resolved in the scientific community, while additional discussion and research may be needed to reach consensus on some of the practical details; (3) although assessing a family's expenditures might provide a more direct picture of its economic well-being than income, measuring income is considered to be more feasible for obtaining routinely available poverty statistics; (4) the panel recommended that the official poverty measure should define a family's economic resources to include disposable money income and near-money government benefits, although experts differ on how to make some of the adjustments to cash income; (5) issues to address in developing a contemporary set of poverty thresholds to represent a "minimally adequate standard of living" for families in different circumstances include: (a) what basis should be used to set the level of the thresholds; (b) whether to accommodate changes over time in standards of living as well as in prices; (c) how to quantify the differences in needs between families of different size and composition; and (d) whether and how to accommodate geographical differences in the cost of living; (6) in contrast to defining family resources, additional research may lead to consensus on some issues in selecting a set of poverty thresholds, but other issues will require policy judgment; (7) the panel proposed a statistical formula derived from the literature to develop thresholds for different family sizes, but lacking an objective way to measure the difference in needs between families, left setting the formula's exact terms to policy judgment; and (8) the Office of Management and Budget has not yet begun a formal review of the poverty measure as the NRC panel recommended, but it plans to create a working group soon with the Bureau of Labor Statistics, the Bureau of the Census, and other interested agencies to explore general issues in measuring income and poverty and consider alternative measures to be developed and tested.