The Supplemental Poverty Measure

Over the years, many researchers and analysts have proposed revising the federal poverty measure. Besides the Self-Sufficiency Standard, the other major methodology proposed as an alternative to the federal poverty measure is the National Academy of Sciences (NAS) recommendations. The new Supplemental Poverty Measure (SPM) developed by the Obama Administration in 2011 is based on the NAS methodology, with some revisions, and the earlier work by the Census Bureau and others. Since 2011, the Census Bureau has released reports of poverty trends utilizing the SPM measure. Meanwhile, the New York City Center of Economic Opportunity (CEO) pioneered the adoption of the methodology proposed by the NAS into an alternative poverty measure at the local level. The Census Bureau also has produced poverty estimates based on various combinations of the NAS recommendations, designating them as experimental poverty measures. Designed primarily to track poverty trends over time, NAS-type measures (including the SPM and New York City’s CEO measure) differ from the Self-Sufficiency Standard in several ways. Below we highlight some of the key differences, including how the SPM may depart from the original NAS recommendations.

The NAS is a measure of deprivation rather than self-sufficiency, using partial thresholds which include only the bare essentials for survival—food, clothing, and housing (including utilities)—but not health care, work-related expenses (child care and transportation), or taxes/tax credits. This methodology results in thresholds that are only slightly higher than the FPL on average, thus resulting in only a small increase in the poverty count; in fact, with geographic adjustments, some applications using the NAS methodology have resulted in thresholds lower than the FPL.

While the Standard is an absolute measure based on the prices of each item in the threshold, the NAS is a relative measure, pegged to expenditure levels of families at the 33rd percentile; because living standards rise faster than prices, this means that thresholds based on the NAS methodology would rise faster than the FPL, which is only updated for inflation (price increases) using the CPI, reflecting a general increase in standards of living. At the same time, the threshold would rise as living standards rise, but also fall when living standards fall, as in a severe recession. However, the SPM being developed by the Obama Administration is planned to be based on five years of data, thus the SPM threshold will fall only in the case of a recession that is severe enough to impact average expenditures over a five year period.

The NAS methodology is meant to include the total population, while the Standard applies only to working-age, non-disabled and non-elderly households. Therefore the Standard includes not only “survival” costs but also health care and work-related costs, such as child care and transportation, faced by working households. Rather than include the real costs of health care and work-related expenses in the threshold, the NAS methodology deducts actual expenditures from a family’s income. This methodology underestimates unmet need, as those with inadequate resources to pay for child care, health care, and transportation will go without, and therefore will have little or no “deductions” for these expenses. However, in a departure from the NAS approach, the U.S. Census Bureau plans to investigate the advantages and disadvantages of trying to measure actual expenses versus assigning an average expenditure amount to all working adults in the SPM.

The NAS-based SPM will provide a much needed new statistic to better understand the prevalence of poverty in the U.S. The SPM is not intended to be a replacement for the FPL but it will provide policymakers with additional data in accessing antipoverty programs and proposals. At the same time, the SPM will not replace the need for a true benchmark of income adequacy. The Standard will continue to be an essential tool for understanding what it takes to makes ends meet at a minimally adequate level in today’s economy.