How do the feds define poverty?

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Oct. 12 2004 6:17 PM

How the Feds Define Poverty

What's food got to do with it?

A new report contends that 20 percent of American jobs pay lower than poverty-level wages. The Associated Press write-up notes that in 2002, the poverty threshold was $18,244 for a family of four with two children. How does the federal government determine the poverty threshold?

At its core, the threshold figure is all about grub. Today's numbers trace back to the work of Mollie Orshansky, a research analyst at the Social Security Administration during the 1960s. Orshansky was charged with helping the SSA develop a sense of how best to determine the number of poor Americans, as a prelude to the "War on Poverty." As a veteran of the Department of Agriculture, she was well-versed in that agency's nutrition research. Orshansky's novel idea was to base the poverty threshold on the USDA's data on food consumption; food, she figured, is the most basic human necessity.


Relying on a USDA Household Food Consumption Survey from 1955, Orshansky calculated that the average family of four spent a third of its income on eating. She then looked at the cost of the USDA's Economy Food Plan (now called the Thrifty Food Plan), a set of dietary suggestions for people experiencing short-term financial deprivation. By multiplying this number by three, Orshansky came up with the first-ever poverty thresholds in 1963 and 1964: In the latter year, for example, her threshold for a nonfarm family of four was $3,128. She tweaked this baseline figure for families of differing size by applying different multipliers, under the assumption that smaller families spend a smaller percentage of their income on food. And the threshold for farm families was set at 70 percent of the nonfarm equivalent, on the assumption that a good deal of farming clans dine on victuals they raise themselves.

The initial idea was to adjust the thresholds as the price of the USDA's Economy Food Plan changed. But it quickly became apparent that the USDA's suggested prices weren't keeping pace with the cost of living; there was no change in the food-plan prices, for example, between 1966 and 1967. So in 1969, a federal interagency committee decided to peg the poverty threshold to the Consumer Price Index, and to increase the farm threshold to 85 percent of the nonfarm equivalent. (The farm/nonfarm differential was completely eliminated in 1981.)

What this all means is that the current poverty threshold figures are, more or less, Orshansky's original numbers, adjusted annually for the increase in consumer prices. (The latest poverty threshold for a family of four is $18,810.) That fact has riled many economists, who point out that today's families spend a far lesser percentage of income on food than in the early 1960s. The Council of Economic Advisers, for example, has found that the average American family spends 14.6 percent of its household budget on food.

Also, the Economy Food Plan that Orshansky used assumes that the family in question eats no meals out of the house—a very unlikely scenario in today's society. Orshansky herself acknowledged this problem, noting in a 1963 article that the Economy Food Plan assumed that "the housewife will be a careful shopper, a skillful cook, and a good manager who will prepare all the family's meals at home."

Bonus Explainer: The poverty thresholds, which are now calculated annually by the Census Bureau, are slightly different than the poverty guidelines, which are issued by the Department of Health and Human Services. The guidelines, used to determine eligibility for some federal assistance programs, are simplified versions of thresholds, which are used primarily for statistical purposes. A detailed discussion of how the two figures differ can be found here.

Explainer thanks Gordon M. Fisher, author of The Development and History of the Poverty Thresholds.


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