How high is the U.S. poverty rate?

by on February 21, 2008 at 6:08 am in Data Source | Permalink

Here is some wisdom, from the non-libertarian, non-right-wing,  never-asked-to-contribute-to-the-WSJ-Op-Ed-page Lane Kenworthy:

Poverty comparisons across affluent nations typically use a “relative”
measure of poverty. For each country the poverty line – the amount of
income below which a household is defined as poor – is set at 50%
(sometimes 60%) of that country’s median income. In a country with a
high median, such as the United States, the poverty line thus will be
comparatively high, making a high poverty rate more likely…

Using a relative measure, the U.S. poverty rate is higher than Romania’s and only slightly lower than Mexico’s (see here). Similarly, Mississippi’s relative poverty rate is the same as Connecticut’s.

So when you hear that the U.S. poverty rate is about 20 percent, keep this in mind.  Here is more, including links to research.  Here is a response from Paul Krugman.  Note that Krugman’s initial Op-Ed stresses how the measured rate has not fallen over (some periods of) time, but his response simply cites a ranking of the U.S. among other wealthy nations, based on an absolute poverty rate.  Have the time series comparisons been jettisoned or should we stand by them?

Here is more useful information.  It’s also worth noting that poverty rate numbers do not take into account food stamps, housing subsidies, the Earned Income Tax Credit, and Medicaid, among other benefits.  Not to mention black market income and underreported income (often for EITC reasons); yes it is worth referring back to consumption data which show that the poor do quite a bit better than income data alone would indicate.  That said, a very good case can be made that we overinvest in fighting the poverty of the elderly and underinvest in fighting the poverty of children.

The bottom line: Be very suspicious when you hear talk about the poverty rate.  The real question, as stressed by James Heckman, is what rate of return we can hope to achieve from feasible interventions in favor of poor, young children.  That’s a much harder question to argue.  Heckman of course finds a high rate of return, so I suspect the key question centers around what is "feasible" given the imperfections of politics.  It’s worth noting that many federal anti-poverty programs have in fact failed, or so changed that we don’t even call them anti-poverty programs any more.  At the end of the day that calls for "better action" rather than inaction, but softening people up with overly pessimistic and uncritically presented numbers will probably make a good program less rather than more likely. 

Finnsense February 21, 2008 at 6:59 am

There is nowhere in Finland that comes close in terms of poverty to the poorest areas of the US. The daycares and schools in the worst areas here are just fine and you never feel scared. Everyone can meet their basic needs (flat, food, healthcare etc) and even the drunks seem to do okay. One reason is that Finland does not allow the ghettoisation of poor areas. They tend to plonk quite a bit of public housing in with the wealthier areas, which I think has a moderating effect.

odograph February 21, 2008 at 7:39 am

I absolutely agree that a poverty rate based on an arbitrary fraction of median income is BS.

On the other hand, a number without taking account climate is BS too. Is it nicer to be poor in NY or in Miami this winter?

(I can’t shake my tour of Malaysia, in which a native observer talked about how hard it was to get people to work seriously. I looked at the palm trees, the beaches, and wondered how hard I’d work.)

Good luck finding a real poverty rate …

Chris Blattman February 21, 2008 at 8:46 am

These are all reasonable points, but I’m surprised no one has suggested that a relative rate of poverty or inequality in a country remains a useful piece of policy information. A sizable amount of evidence suggests that life, liberty and happiness are each a function of relative not absolute material well-being.

Would an absolute level of poverty measure be helpful? Most certainly yes, and indeed such measures do exist. Most well-known internationally are the $1 and $2 purchasing power parity cutoffs, but absolute measures exist that are more relevant to developed countries. As with unemployment rates, the statistical agencies in question have simply not spent time or money developing a measure that is consistently measured across countries.

Short story: be suspicious as well when you hear talk about the absolute poverty rate.

coyote February 21, 2008 at 9:02 am

There is actually at least one study out there by a left-leaning think tank that sort of addresses this (though not exactly).  The study first shows US and European income of the bottom 10 percentile vs. the median income of that country.  Not surprisingly, since US median income is so high, the bottom 10 percentile have a low share.  BUT, they then do the numbers a second, time, showing the bottom 10 percentile income in each country all compared to US median income, ie all with the same denominator,  here, the US poor do at least as well as most European countries.  The comparison shows clearly that while the US has more income inequality, it is not because our poor are poorer but because our rich and middle class are richer.   Here is that second study: (If the comments won’t show the image, see the link above)

Study2

spencer February 21, 2008 at 9:47 am

the budget number for head start you gave work out to be a 4.4% growth rate, a
modest increase in real terms using the CPI. But if you deflated by teachers wages this would appear to be a flat to slight reduction in real terms.

What point are you trying to make with this data — that for a program that seems to generate positive results we are spending too much or too little?

For most of Europe if you use PPP terms the average real income in the major western countries ranks them in the bottom third of US states. but the bottom quintile in those countries generally receive about twice as much of GDP as they do in the US so the bottom of the income scale in western Europe seem to be much better off then the bottom quintile in the US even though the average is higher in the US.

Charles February 21, 2008 at 9:57 am

The claim made by Coyote that the Heritage Foundation is a “left-leaning think tank” is utterly laughable. I´ll give him/her the benefit of the doubt and assume that it was an innocent mistake.

Macquechoux February 21, 2008 at 9:59 am

“Too bad any effort to reduce poverty has essentially been abandoned over the last eight years.”

Oh please! I drive by two Headstart schools daily. They are full of little kids. My wife is a pre-K teacher in a federally funded program that did not exist eight years ago. The same kids that qualify for Headstart qualify for the pre-K program.

happyjuggler0 February 21, 2008 at 10:59 am

The US poverty rate bottomed out in 1973.

This means that we have made zero progress in the past 23 years (last year available is 2006) in reducing poverty in the US despite reams of “antipoverty”* programs at the federal, state and local level.

Or is the word despite the correct one? Perhaps the problem is those very “antipoverty”* programs since they collectively impose a marginal tax rate of over 100%.

It seems to me we have three choices. One, we could extend “antipoverty”* programs to the middle class even more than we do now so as to avoid our current 100+% marginal tax rates on the poor. Two, we could eliminate means testing for various programs. Three, we could cut back, or even eliminate, some or all government “antipoverty”* programs.

All three should work to radically reduce poverty in the US, all three have major political obstacles.

There is also a fourth option, which is complemenary to any or all of the other three options. Namely, universal urban school vouchers, preferably combined with privatisation of all urban public schools. In the absence of perverse “antipoverty”* programs, poverty is basically a way of saying that one doesn’t have the skills to earn a much better income. Improving the productivity of US K-12 schools (as opposed to wasting yet more money doing the same thing) to European levels would do wonders to reduce (absolute) US poverty rates over time.

*Looking at effects, not intentions, it seems clear that collectively that “antipoverty” programs hurt more than they help.

BGC February 21, 2008 at 11:22 am

Intellectuals come up with various schemes to address poverty – but the only ones that actually get adopted are typically those which aim to help the poor secondarily to creating vast and expensive new middle class bureaucracies. The bureaucracies happen OK. But then maybe the programs don’t help the poor at all.

Why? Probably because the poverty programs are really about vote-buying, and vote-buying is about making people feel good when they vote; and when a program creates a new bureaucracy as well as making people feel good about helping the poor, then it is more likely to happen than a program that also makes people feel good but doesn’t create a powerful new interest group.

Colin February 21, 2008 at 12:04 pm

I’m surprised no one has brought up the role of immigration and the presence on our border of a third world country. Immigrants may have many virtues but the majority of them do not show up with bags full of money.

Floccina February 21, 2008 at 12:37 pm

According to the report, Italian Finance Minister Tommaso Padoa-Schioppa said the program is intended to spur more young men to move out on their own at an earlier age.

Click here to read about “Big Mummy’s Boys” on the Daily Telegraph Web site.
http://www.foxnews.com/story/0,2933,299836,00.html
According to the report, Italian Finance Minister Tommaso Padoa-Schioppa said the program is intended to spur more young men to move out on their own at an earlier age.

Click here to read about “Big Mummy’s Boys” on the Daily Telegraph Web site.

Eight out of 10 Italians under age 30 still live at home with their folks, with the average move-out age 36. Some experts said the trend is costing Italy in growth and innovation.

“Let’s get these big babies out of the house,” Padoa-Schioppa, who left home at 19, told the Telegraph. “If young people stay with their parents, they do not get married or have any independence.”

Some economists cited the rising cost of living and lack of work as a major factor in why young men aren’t able to strike out on their own earlier, according to the report. Recent research seems to indicate that clingy parents may also play a role.

jorod February 21, 2008 at 2:24 pm

One ratio is meaning less. Poverty is related to job skills and wealth accumulation, aka property rights. Without knowing the job skills and literacy of the poor, how can you make any kind of conclusion? What is the poverty rate among skilled and unskilled wokers? If you can’t accumulate wealth, there is no econommic growth. Also, what about the immigration policies of other countries? It is much easier for unskilled workers to get into the US than say Mexico. Just ask Guatemalans.

In Finland, if you don’t work, you starve. They have much better incentives there. Immigration, of course, is next to nil.

Jim February 21, 2008 at 3:25 pm

1. Relative poverty is not a measure of inequality, it is a measure of relative low income. These are related concepts, but different: it is perfectly possible to have a country with high inequality and zero relative poverty defined as 60% of median income. I’m surprised how many people don’t seem to understand this.

2. People’s idea of what a suitable ‘absolute’ poverty line is tends to rise over time roughly proportionally to incomes – that is, absolute poverty times are relative in the long run.

3. When making international comparisons, it is clearly highly disingenuous to complain (incorrectly, in fact) only that figures for the US leave out some laundry list of benefits, when a list of similar benefits in many European countries is most likely longer and more generous.

4. I am puzzled that Tyler seems somehow comforted by Lane Kenworthy’s remarks, since Lane goes on to point out in his next post that Switzerland, Norway, Denmark, Australia, Canada, Netherlands, Germany and Belgium all have lower levels of absolute poverty than the US. I look forward to Tyler bringing this post to the attention of his readers.

5. According to Lane’s numbers, the United States has high levels of relative poverty compared to other countries roughly categorised as ‘developed’, and middling levels of absolute poverty. If you only care about absolute poverty then you have to admit that the US has remarkably high levels of it for a very rich country.

jorod February 21, 2008 at 3:43 pm

Obviously, the wage rates for the nskilled will fall as the demand for their services falls and/or their number increases.

RogerClemens February 21, 2008 at 4:53 pm

The international comparison of poverty rates is difficult for a reason not highlighted in the discussion so far. The U.S. favors policies that encourage work (such as the EITC) and have been empirically found to increase earnings while many other industrialized countries favor policies that have the effect of discouraging work to a degree (such as cash welfare) which have often been found to reduce earnings.

The net effect: the anti-poverty efforts of the U.S. tend to be understated both because the EITC is not counted as income in poverty calculations (as Tyler pointed out) but also because a portion of the higher earnings and work attachment of poor people in the U.S. (relative to some other industrialized countries) is the result of the EITC.

liberty February 21, 2008 at 6:04 pm

Yup, and also this just swiped my new poverty paper, due to come out in the next week or 2 through Heritage, right out from under me — also (like Kenworthy, who I have come across before for this reason) using the LIS data. My old one can be found here.

KDeRosa February 21, 2008 at 8:14 pm

The poverty line for a family of four is about $20,000 per year, or $5,000 per person. How can a person be expected to live on $5,000 a year in the United States with its high cost of living?

The family is not expected to live off of that income.

On average a poor family will recieve about $3100 in TANF payments plus noncash benefits such as food stamps (about $2,200), housing assistance (about $5,400), Medicaid (about $6,000 for a family of four), the State Children’s Health Insurance Program (SCHIP) (about $1,000 per child), energy assistance (about $400), the school lunch and breakfast programs (as much as $600 per child), and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) (about $400 per person). It also does not count refundable tax credits such as the Earned Income Tax Credit (EITC) (about $1,700), because they are “post-tax.† (All figures are average benefit amounts in 2002 regardless of family size, unless otherwise noted.)

And it also doesn’t include the income of cohabitors and nonfamily household members, such as the single mother’s boyfriend.

Peter Whiteford February 22, 2008 at 3:58 am

Apologies for the long post, which had already put on Lane Kenworthy’s blog, but may be of interest here.

I have problems with some of these comparisons from LIS but for different reasons from the normal critique.

Lane’s chart shows that 10th percentile incomes are in absolute terms significantly higher in the US than in the UK or Australia, for example.

However, the poverty figures and calculations of income from income surveys don’t really match up well with what we know about people’s statutory benefit entitlements in different welfare states.

It’s worthwhile looking at OECD figures on social assistance entitlements in different countries, which are available at http://www.oecd.org/document/0/0,3343,en_2649_34637_34053248_1_1_1_1,00.html

You then open each Excel spreadsheet and can go and look at the level of basic welfare benefits for different family types in different years up to 2004. The figures are in national currencies, but you can adjust these to US dollars (or Euros or whatever) by using purchasing power parities also on the OECD website
I haven’t time to make these PPP adjustments, but if you take the example of a lone parent with two children, you will see that in the US their basic welfare entitlement (when private income is equal to Zero) was $9,960. (This refers to Michigan).

This doesn’t include Medicaid or SCHIP, but it also doesn’t include Medical assistance in any other country.

It does take account of housing benefits where relevant. (See the pdf country descriptions on the same web address.) It also includes all cash benefits such as TANF and also includes Food Stamps and the EITC where relevant (but this family type at zero earnings is not eligible for the EITC). All direct taxes are deducted including employee payroll taxes. This means that the well-justified complaints about the problems of the US poverty line do not apply to these comparisons.

Now for the UK a similar family (lone parent with two children) would receive about £13,800 (and in Australia the same family would receive just over A $25,000.)

These figures are much, much higher than for the US in absolute terms – about twice as high.

Thus, I think we have a paradox – what people are entitled to in Australia and the UK is in absolute terms much more generous than what people are entitled to in the US, but the 10th percentile incomes are absolutely higher in the US.

The same applies to relative benefit levels. If you are able to look at the chart in the main publication http://www.oecd.org/document/33/0,3343,en_2649_34637_39619553_1_1_1_1,00.html (but this requires a subscription) then you will find that relative to a 50% of median income poverty line then Australian and UK benefits (including housing benefits) are three times higher than in the US.

Indeed after taking account of housing benefits, the UK and Australia consistently rank towards the top of OECD countries. The same is true of low income working families, as relative to median wages and also median incomes, the minimum wage in the UK and Australia are about twice as high as in the US and in-work benefits for families with children are also much higher (also shown in the OECD publication).

The US comes consistently towards the bottom of OECD rankings in terms of relative generosity of basic entitlements for the non-aged. Where figures are available, only Greece, Italy and Turkey have lower benefit entitlements – but Mexico and Korea are not included in this analysis, and are also likely to have low benefit entitlements. (The figures for Italy are consistent with the LIS results.)

Now there are lots of reasons why entitlements may differ from recorded incomes for low income households. Average benefits in the US for older people are probably more generous than in other Anglo countries (but I wouldn’t have thought so for the poor). There may be problems of take-up of entitlements, and the household at the 10th percentile in the US could be working, while in the other Anglo countries they may be on benefits. (However, in all three countries more than 10% of the population of working age are in receipt of income-replacement benefits.) Alternatively they may be on more generous social insurance benefits in the US and various European countries, whereas these don’t exist in Australia and are practically non-existent in the UK.

Overall, while there are many caveats to be attached to these sorts of international poverty comparisons, I think it is fairly clear that in terms of basic benefit entitlements the US is undoubtedly towards the bottom of the OECD ranking in relative terms, and it is also below average in absolute terms.

happyjuggler0 February 22, 2008 at 1:10 pm

Just a thought, and I wish I had posted it yesterday (these threads have a short shelf life). There is a tradeoff between government handouts and private, voluntary handouts. Does no one bother trying to measure these private handouts when doing these international comparisons?

JK February 24, 2008 at 12:08 pm

I definitely agree that we should do the majority of our investing in fighting the poverty of children. If it is true that we overinvest in fighting the poverty of elders and underinvest in fighting the poverty of children, then that is ridiculous. Obviously the children have more to live for, so it makes no sense to underinvest in them.

I also found it interesting that poverty rate numbers do not take into account food stamps, housing subsidies, the Earned Income Tax Credit, Medicaid, and some other things. So that makes me wonder what the poverty rate would be if these thigs were accounted for.

Last, I was amazed that the US has more poverty than Romania. Wow. I hope in the future we can this down.

rahul dev September 4, 2008 at 12:21 am

it is tough to understand the meaning of poverty .The developed countries put a slightly confusing picture of what does it mean to be poor .while in India a middle class Indian is poorer than the poorest in U.S.A. . India can not give anything to its people .

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