How We Measure Poverty: Catching up with Mollie Orshansky

Poverty—it’s a term we readily use, but don’t really understand very well, unless we’ve experienced it. It’s not enough to have just been down on your luck for a little while; you really understand poverty when you reach the point where you aren’t sure whether or how you will escape it.

We think we know what poverty is, but when pushed, it really isn’t easy to define. Poverty seems to be about not having enough, about deprivation. But sometimes it’s not easy to know how much is enough.

Poverty can be considered, and measured, as absolute—based on an agreed upon minimum level of resources that no one should be allowed to sink below, usually connected to a minimum level of basic needs. Or it can be considered as relative—based on some “standards of the community.” It can also be measured as “subjective”—based on levels of resources that individuals believe and report that they need in order to be healthy, satisfied, or happy.

In the US we use a “quasi-absolute” measure of poverty. It is historically based on an estimate of the cost of a minimally nutritious diet. So it is connected to a floor, or minimum level of resources that no one should be allowed to sink below, but a floor that supposedly supports a healthy life. This “official” poverty measurement emerged in the early 1960s based on the work and insights of Mollie Orshansky.

Working for the Social Security Administration , Orshansky was tasked with developing a response to a Congress member’s question about how much it costs a retired couple to live. Orshansky examined USDA data and found that in 1955 the average household of three or more people in the US spent about one-third of its annual income on food, which implied that it spent two-thirds on everything else it needed. So, if you knew how much a healthy diet cost, you could multiply that amount by 3 to arrive at the amount needed to meet basic needs, or the poverty threshold.

And it worked very well. Since she knew the cost of the USDA’s economy food plan (now known as the “Thrifty Food Plan”)—which was supposed to be the lowest cost, minimally nutritious diet—Orshansky multiplied its cost by 3, and she had the basic poverty threshold. Simple but elegant, and quite accurate in the 1960s.  It’s still the basis of the official poverty thresholds today.

But there is a problem with this approach: if the average proportion of income spent on food changes, then the multiplier would need to change, and so would the poverty threshold. And the proportion of income spent on food has indeed changed, as housing and health care costs have absorbed an ever-growing percentage of our annual incomes. In 2012, for example, the average share of expenditures spent on food for all consumer units was just 12.8%—far below the 33% in Orshansky’s day. Using her elegant logic, we would therefore need to multiply the cost of the minimally nutritious diet by 7.8—instead of 3—to accurately arrive at the basic 2012 poverty thresholds.

Using 2012 costs, if you multiply the cost of the Thrifty Food Plan for a family of four people by 3, you get $22,604—very close to the Census Bureau’s poverty threshold of $23,283 for a family of four. But if you instead multiply the cost of the Thrifty Food Plan by 7.8, the poverty threshold would be $58,771 per year for that same family.

While that may seem high, it is actually very close to the “Economic Self-Sufficiency Standard” that Diana Pearce estimated was $59,027 for a family of four in Albany County, NY in 2010. And it is a little more than the economic self-sufficiency income level of $54,636 for that same family in Allegheny County, PA in 2012. So Mollie Orshansky’s logic still seems to work reasonably well, it just hasn’t been adjusted to reflect the higher costs of basic necessities for contemporary families.

It is clear that if we accurately applied Mollie Orshansky’s approach to measuring poverty, much higher thresholds would result, and many more households and people would be categorized as living in poverty. In 2012, the median income level for all US households was $51,017.  If $58,771 (7.8 times the Thrifty Food Plan for a family of four in 2012) were the basic poverty threshold, more than half the households in the US would be classified as being in poverty. And that would probably be accurate in terms of the number of families that are unable to afford basic necessities.

Changing how we measure poverty would force a change in the narrative we tell ourselves as a nation.  When something affects half of the nation’s households, it becomes the problem of many more leaders, at all levels of government and society, forcing a recognition that poverty really was never about “them”, it is truly about “us”.  As it is, our measurement of poverty vastly understates the problem, allowing us to continue onward without effectively addressing it.

I frequently hear the argument that we can’t afford to reduce or eliminate poverty, and without doubt it would not be an inexpensive undertaking. But the unstated question this implies is “how much are we willing to pay not to eliminate poverty?” In 2007, four of the best poverty researchers in the country estimated that child poverty alone costs the US in excess of $500 billion per year. This estimate only includes costs arising from foregone earnings, crime, and health care, and is surely an underestimate of the actual total costs of poverty.

So the question we seem to be facing these days is this: “Do we value poverty more than not having poverty?” Are we as a country willing to pay more to have poverty than we are to eliminate poverty? It is an open question, but the answer is emerging rapidly.

John Cook, PhD, MAEd, is a Principal Investigator at Children’s HealthWatch, which does research at pediatric clinics and hospitals to show the real impact of public policy choices on the health, nutrition and development of young children.

Photo provided by Wikimedia Commons/Social Security Administration History Archives

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