African Americans Are Better Off

African Americans are not as impoverished as the United States Census Bureau’s 2011 Official Poverty Measure (OPM) stated, according to the bureau’s new Supplemental Poverty Measure (SPM).

“This is a group whose families have incomes that are often below the poverty line, so the starting point is an issue for African Americans,” Census Bureau research economist Kathleen Short told UrbanFaith via tele-conference after she presented her SPM report at a Brookings Institution press conference this morning.

“They’re starting with low income, so we’re going to see the benefits received by those families will be effective either in moving them across the poverty line or from the bottom of an income distribution,” she said.

African Americans are also more likely to live in alternative housing arrangements that are taken into account in the new measure, Short said. “When we create these new units, we’re bringing together people who have income who aren’t in the official measure,” she explained.

Addressing Criticisms of Bureau’s Official Poverty Measure

At the press conference, Short introduced the SPM as an “experimental measure” that addresses criticisms of the OPM, but said it “will not be used to estimate eligibility for programs or allocate funds.”

The SPM measures poverty by calculating resources that include cash income and federal government “in-kind” benefits that families can use to meet basic needs. Necessary expenses including, but not limited to taxes, clothing, housing, utilities, child care, child support, and out-out-of-pocket medical expenses are subtracted from the income total in the new measure.

It also assumes that un-related members of a household share resources as an economic unit, takes in to account the cost of living in different geographic regions and community types, and divides households into homeowners with mortgages, homeowners without mortgages, and renters.

The OPM was adopted in 1969 and is based on cash income, the cost of a minimum diet multiplied by three, and household units that only include members related by birth, marriage, or adoption. Unrelated members of the same household over the age of fifteen are treated as individuals in the OPM.

Ron Haskins, a Brookings Institution senior fellow for economic studies, said the Census Bureau “has done exactly the right thing” by producing the SPM, which he speculated will now be the “focus of attention,” even though he fears the OPM will not change.

“Anybody who has ever been involved in a congressional fight on a formula will agree with me,” said Haskins.

Comparing the Old and the New

The Census Bureau’s September 2011 poverty report estimated that there were 46.6 million Americans living in poverty in 2010. The SPM estimates that number to be 49.1 million. The OPM calculated the poverty threshold for 2010 at $22,113, while the SPM calculates the threshold at $24,343.

The SPM estimates lower poverty rates than the OPM for individuals included in new SPM household units, for children, Blacks, renters, those living outside of metropolitan areas, those living in the Midwest and the South, and those covered by only public health insurance.

It shows higher poverty rates for those 18 to 64 years of age, those 65 years of age and older, married-couple families, Whites, Asians, the foreign born, homeowners with mortgages, those with private health insurance, and residents of metropolitan areas, the Northeast, and the West. It also shows an increase in poverty rates for male householders, but no change from the OPM for females.

Short attributed geographic differences to differences in housing costs and said increased poverty rates among the elderly reflect the inclusion of out-of-pocket medical expenses in the SPM.

The initial starting point of cash income is important in determining poverty rates, she said, as are poverty thresholds, federal in-kind benefits, and basic living expenses.

“If a group typically has cash income below the poverty line, then we will find that in-kind benefits are effective at bringing them above that line and few expenses will be effective at bringing them below the poverty line. On the other hand, if we have a group that has income just above the poverty line, we will see expenses that are very effective at raising poverty rates and few effective benefits since many are already above the line,” Short concluded.

An NPR reporter on the conference call asked why other reports show an increase in poverty rates for children and a decrease for the elderly.

“What is reflected in this measure is the fact that transfers the elderly get are in cash for the most part, so you have Social Security benefits that are already in the official measure, while the benefits that children receive, and the families of children, are in-kind benefits that were not typically included in the official measure,” said Short.

Bearing in Mind New Measure’s “Moving Parts”

It’s important to bear in mind the “many moving parts” in the new measure when “making comparisons across measures, across groups, or over time,” Short said in her presentation, and indeed journalists participating in the tele-conference questioned its veracity for reasons already mentioned and because its accuracy is based on the truthfulness of government survey respondents.

“The measure is not perfect,” Short told reporters. She said ongoing research will seek to correct for reporting inaccuracies.

“Some of the parts increase poverty rates and other parts decrease rates,” Short told the Brookings Institution audience. “Determining one reason or finding one smoking gun for differences is difficult.”

The Census Bureau’s hope is that the SPM will provide a more accurate reflection of poverty statistics, she said, and it plans to release an improved SPM one year from now. Its long term goal is to release the SPM with the OPM as “complimentary statistic that provides additional insight.”

What do you think?

Are you surprised to hear that African Americans are in better economic shape than previously reported? Is the new measure an improvement?