Supplemental Poverty Measure: A Comparison of Geographic Adjustments with Regional Price Parities vs. Median Rents from the American Community Survey


SAE in welfare and wellbeing studies

Trudi Renwick (U.S. Census Bureau) (Speaker)
Bettina Aten (Regional Prices Branch, Bureau of Economic Analysis - US Dept of Commerce)
Eric Figueroa (Regional Prices Branch, Bureau of Economic Analysis - US Dept of Commerce)

Poverty statistics are used in the United States to evaluate national economic well-being as well as to compare economic well-being across states and major urban areas. Poverty estimates using the official poverty measure are used in formulas to distribute millions of dollars of federal anti-poverty funds but are based on thresholds that do not take into account geographic differences in prices and/or the cost of living. Small area poverty estimates that do not take into account these differences have limited use in the public policy realm.

Drawing on the recommendations of the 1995 report of National Academy of Sciences (NAS) Panel on Poverty and Family Assistance, and the subsequent extensive research on poverty measurement, in 2010 an Interagency Technical Working Group made a series of suggestions to the Census Bureau and the Bureau of Labor Statistics (BLS) on how to develop a new Supplemental Poverty Measure. The ITWG suggested that the poverty thresholds be adjusted for price differences across geographic areas using the best available data and statistical methodology. The estimates in the Census Bureau reports use American Community Survey (ACS) data to adjust the housing portion of the poverty thresholds for differences in housing costs. This geographic cost index uses median outlays of renters for rent and utilities for two-bedroom apartments. One shortcoming of this approach is that it does not account for geographic differences in the cost of other elements of the poverty threshold. Both the 1995 NAS report and the 2010 ITWG concluded that while adjustment of the entire market basket may be desirable, adequate data on price differences for other elements did not exist.

Over the past few years, the Regional Price Branch of the Bureau of Economic Analysis has developed regional price parities (RPPs) that combine data from the BLS Consumer Price Index program with Census Bureau multi-year rents. The RPPs provide estimates of price level differences across regions for various consumption expenditure classes, including rents, food, apparel, transportation, housing, education, recreation, medical, and other goods and services.

The focus in this paper is to compare two types of geographic adjustments: one based on the ACS median rent index (MRI), and one based on state and metropolitan regional price parities (RPPs) published by the Bureau of Economic Analysis. The RPPs are of two types: an all item index that includes a broad group of expenditure classes and another that is more narrowly focused on just food, clothing and rents.

This paper updates the 2014 analysis of these alternatives. Poverty rates for 2015 for major demographic groups will be compared across the three approaches. We will also compare state poverty rates using each approach.

Keywords: supplemental poverty measures, regional price parities

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