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Relative or Absolute — New Light on the Behavior of Poverty Lines Over Time

Gordon M. Fisher, Department of Health and Human Services

[GSS/SSS Newsletter [Newsletter of the Government Statistics Section and the Social Statistics Section of the American Statistical Association], Summer 1996, pp. 10-12]

One of the central questions in discussions about poverty lines is whether they should be updated in "absolute" or "relative" fashion. (Once established, an absolute poverty line is updated for price changes only, while a relative poverty line is updated for changes in the median or mean income or consumption of the general population.)

In American debates on this aspect of poverty lines, the tendency has been to put forward theoretical arguments for using one or the other form of updating. However, it is not necessary to confine oneself to theoretical arguments on this issue. One can also consider the empirical historical behavior of poverty lines, particularly before the 1960's. (During that period, unofficial poverty lines were developed and then superseded after some period of time by new unofficial poverty lines.) The American evidence on the historical behavior of poverty lines (evidence that many people are not aware of) has been summarized in a longer paper by the author, together with similar evidence from Britain, Canada, and Australia. [The long paper is available on the Census Bureau's Poverty Measurement web site, at the specific address A 9-page summary which covers the British, Canadian, and Australian evidence as well as the U.S. evidence is also available.]

This extensive body of American evidence demonstrates that successive poverty lines developed as absolute poverty lines show a pattern of getting higher in real terms as the real income of the general population rises. (This phenomenon has been termed "the income elasticity of the poverty line.") This evidence includes "expert"-devised minimum budgets prepared over six decades; "subjective" low-income figures in the form of national responses to a Gallup Poll question over four decades; and the recorded common knowledge of experts on poverty lines and family budgets from about 1900 to 1970. The recently released report of the National Research Council's Panel on Poverty and Family Assistance (C.F. Citro and R.T. Michael (editors), Measuring Poverty: A New Approach) referred to this historical evidence half a dozen times.

From roughly 1905 to 1960, American budget experts developed a number of "standard budgets" (item-by-item "market baskets") at different levels of living. In 1966, Oscar Ornati analyzed about 60 standard budgets prepared during the 1905-1960 period, and classified them as being at "minimum subsistence," "minimum adequacy," and "minimum comfort" levels. (His "minimum subsistence" category corresponds to our concept of poverty.) A 1973 study by Robert W. Kilpatrick showed that Ornati's minimum subsistence figures over this 55-year period rose 0.75 percent in real terms for each 1.0 percent increase in the real disposable income per capita of the general population.

An examination of early poverty lines and budgets not considered by Ornati confirms and extends this picture. The poverty/subsistence figures examined (like Ornati's budgets) were all derived as absolute poverty lines. Yet over time, these successive absolute poverty lines rose in real terms as the income of the general population rose. Poverty lines and minimum subsistence budgets before World War I were, in constant dollars, generally between 43 and 54 percent of Mollie Orshansky's poverty threshold for 1963. By 1923, Dorothy Douglas' "minimum of subsistence level" was equal to 53 percent to 68 percent of Orshansky's threshold. A U.S. Works Progress Administration "emergency" budget for the Depression year of 1935 was equal to 65 percent of Orshansky's poverty threshold. Robert Lampman's low-income line for 1957 was equal to 88 percent of Orshansky's poverty threshold.

Evidence from an overlapping but more recent period (extending up to the 1990's) comes from the Gallup Poll. Since 1946, the Gallup Poll has repeatedly asked the American public the following question: "What is the smallest amount of money a family of four (husband, wife, and two children) needs each week to get along in this community?" The average response to this "get-along" question has been higher than the Orshansky poverty line, but it seems reasonable to assume that the relationship between the "get-along" amount and family income is a good indicator of how the public's perception of the poverty line would vary over time in relation to family income (if a "poverty" poll question had been asked). Half a dozen analyses have found that the "get-along" amount rises by between 0.6 and 1.0 percent for every 1.0 percent increase in the income of the general population.

Another significant (although neglected) source of evidence about the income elasticity of the poverty line is the common knowledge of experts on poverty lines and family budgets before 1970, as documented in quotations from their writings. There is one such quotation from 1841, over a dozen from the 1900-1959 period, and over a dozen from the 1960's. It is clear that the income elasticity of the poverty line was well known to these experts, and that they were quite familiar with the underlying social processes involved. One quotation which illustrates these social processes with particular clarity was written in 1938 by Carroll R. Daugherty: "A standard budget worked out in the [1890's], for example, would have no place for electric appliances, automobiles, spinach, radios, and many other things which found a place on the 1938 comfort model. The budget of 1950 will undoubtedly make the present one look as antiquated as the hobble skirt." Some of the quotations make ironic reading in the light of subsequent history, as when the Social Security Administration's Ida Merriam (Mollie Orshansky's boss) wrote in 1967 that "It is easy to observe that poverty in the U.S. today cannot meaningfully be defined in the same way as in the U.S. of 1900....obviously today's [poverty] measure, even if corrected year by year for changes in the price level...should not be acceptable twenty, ten or perhaps even five years hence." Others publicly recognizing the income elasticity of the poverty line during the 1960's included Rose Friedman and the Republican minority of the Joint Economic Committee of Congress.

In the light of this extensive American evidence from standard budgets, the Gallup Poll, and the common knowledge of experts, it becomes clear that the 1968-1969 decision to adjust the official poverty thresholds only for price changes (and not for changes in the general standard of living) represents a single major historical anomaly. The anomaly of the 1968-1969 decision is highlighted by the fact that when the Council of Economic Advisers' $3,000 poverty line and then the Orshansky poverty thresholds had been adopted only five years earlier, they had been known to be 14 to 19 percent higher in real terms than unofficial poverty lines in use only six to fifteen years earlier.

The force of this American historical evidence is strengthened when one realizes that the income elasticity of the poverty line results from social processes that have continued--indeed, have perhaps even intensified--since the 1960's. These social processes can be summarized as follows: As technology progresses and the general standard of living rises, new consumption items are introduced. They may at first be purchased and used only by upper-income families; however, they gradually diffuse to middle- and lower-income levels. Things originally viewed as luxuries--for instance, indoor plumbing, telephones, and automobiles--come to be seen as conveniences and then as necessities. In addition, changes in the ways in which society is organized (sometimes in response to new "necessities") may make it more expensive for the poor to accomplish a given goal--as when widespread car ownership and increasing suburbanization lead to a deterioration in public transportation, and the poor are forced to buy cars or hire taxis in order to get to places where public transit used to take them. Finally, the general upgrading of social standards can make things more expensive for the poor--as when housing code requirements that all houses have indoor plumbing added to the cost of housing.

In the light of these social processes, the only kind of American society in which it would be sociologically justified to have had the same fixed-constant-dollar poverty line since the mid-1960's would be a society in which there had been essentially no technological change or innovation since 1960. In a society in which there have been extensive technological changes and innovations since 1960, the appropriate course would be to have a poverty line which is higher than the poverty line developed in the 1960's and which does rise in real terms over time in response to increases in the general standard of living--as recommended by the report of the NRC's Panel on Poverty and Family Assistance.

[Return to the page of Further Resources on Poverty Measurement, Poverty Lines, and Their History]