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Recalibrating the Poverty Line

Los Angeles Times

This year marks the 50th anniversary of the landmark paper that helped delineate the federal poverty line. A huge leap forward in its day, the poverty line established credible criteria for what constituted an acceptable standard of living. It continues to be the official measure used, for example, to determine who will get what subsidies under assistance programs such as food stamps, housing assistance and Medicaid.

However, like anything half a century old, it could use a little updating. By its standards, only 15% of Americans fall below the poverty benchmark. Yet more than 35% of us hold jobs paying less than a living wage or are unemployed and trying to find a job, and another 1 in 10 receives just above a living wage. The out-of-whack poverty line carries huge repercussions for the poor, near poor and, indeed, the entire economy.

Here's the background. Mollie Orshansky, an economist and statistician with the Social Security Administration, devised the poverty line in the 1960s. She used the average family budget and the cost of food. Because the average family spent one-third of its budget on food in 1955, Orshansky set the poverty threshold at three times the minimum cost to purchase an adequate food diet. Her formula took a basic minimum (the food budget) and related it to the overall prevailing standard of living (its proportion in the total budget of the average family). She described it as an acceptable minimum social standard according to the custom of the day. It was not an absolute measure of poverty.

But that's essentially how the federal government treated it. It adjusted Orshansky's poverty line every year thereafter, accounting solely for the cost of inflation.

How out of whack is it? Food, Orshansky's key budget item, has now fallen to about one-sixth of the average family budget, no longer one-third as it was then and essentially still is in today's index. So if we were to use Orshansky's logic, the poverty threshold would require us to take the minimum food cost for an average family and multiply it times six in order to tie it to the current standard of living. For a four-person household in 2013, that comes to about $41,000, not $23,500, which is the approximate poverty line the federal government uses.