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The current official U.S. measure used to estimate the percentage of people living in poverty by the Census Bureau omits several factors that are important determinants of poverty. Though it is annually updated for inflation and adjusted for family size, the official poverty measure has not changed from the formula developed in the 1960s. That formula was the cost of a subsistence diet multiplied by three, since food costs at that time made-up a third of a family’s budget. The poverty threshold was meant to reflect the minimum level of income needed to meet basic needs – like food - and as a result, has become a tool to track poverty trends. Most importantly, the threshold is used to determine eligibility for public assistance benefits, so if the threshold is too low or does not encompass up-to-date expenditures, many people that need benefits might not be eligible for those services. Adjusting the current measure can help to determine the real levels of poverty, as well as determining whether or not social programs are truly helping all of those in need.
Jointly produced by the Stanford Center on Poverty and Inequality and the Public Policy Institute of California, California became the first state to create a new index to measure poverty in place of the official U.S. measure.
This new California Poverty Measure (CPM) improves on the official measure by including recent nationwide spending levels on food, shelter, clothing, and utilities and is adjusted to account for differences in housing costs across counties, and to differentiate among those who are renting, paying a mortgage, or those who have already paid-off their home. Food stamps and other non-cash benefits are also included. These accompaniments create a more accurate look of how individuals and families are faring by reassessing the resources people need to make ends meet and measuring the resources that are currently in place.
Based on the 2011 state data, California’s official poverty rate was 16.2 percent. After taking into account the augmented resources and updated thresholds offered by the California Poverty Measure, the percent of Californians living in poverty increased to 22.0 percent— an almost six percent difference, which is equivalent to 2.2 million more people living in poverty. Main findings from the California Poverty Measure show that high living costs offset resources families living in poverty have available to make ends meet. Add in medical and work expenses, such as commuting and child care, and that considerably raises the poverty rate.
Since states currently follow the official U.S. poverty measure to determine the distribution of public assistance programs, the California Poverty Measure is a valuable model for other state policymakers to consider as findings demonstrate the important role government programs play in measuring poverty. For example, without taking into consideration cash-based, in-kind, and tax-based safety net programs, the child poverty rate in California would increase to 39.0 percent, which is 13.9 percent higher than the official child poverty rate estimate of 25.1 percent.
Policymakers can use the California Poverty measure to understand the obstacles individuals and families living in poverty face, such as the high costs of rent that has led to a dramatic increase in the number of homeless families and to expand on programs, such as the Earned Income Tax Credit, that have proven to lift people out of poverty.
Coming soon: More information on policy solutions in reducing poverty in our soon-to-be released report, Results-Based Public Policy Strategies for Reducing Child Poverty.