Is Poverty Highest in the U.S.?

February 19, 2008

No, it isn’t.

Poverty comparisons across affluent nations typically use a “relative” measure of poverty. For each country the poverty line — the amount of income below which a household is defined as poor — is set at 50% (sometimes 60%) of that country’s median income. In a country with a high median, such as the United States, the poverty line thus will be comparatively high, making a high poverty rate more likely. Measured this way, the U.S. does indeed have the most poverty among the rich nations. That leads to statements such as Paul Krugman’s in his otherwise insightful op-ed in Monday’s New York Times: “Poverty rates are much lower in most European countries than in the United States.” (See also here and here.)

Though widely used, and not without merit, a relative measure should not be the principal basis for poverty comparisons. It focuses too heavily on the distribution of income and too little on the absolute income level of those at the bottom. Using a relative measure, the U.S. poverty rate is higher than Romania’s and only slightly lower than Mexico’s (see here). Similarly, Mississippi’s relative poverty rate is the same as Connecticut’s.

I’ll say more about this in a future post. For now, if you’re interested there’s more in this paper and in this one (both pdf).

7 Responses to “Is Poverty Highest in the U.S.?”

  1. Denis Drew Says:

    Lane,
    America is the only nation whose — official federal — poverty rate is set at three times the price of the cheapest possible diet (dried beans only, no canned) — of all arbitrary things (probably was an accidental fit around ’55 when it was developed and still close enough around ’65 when adopted).

    Europe’s poverty line as you suggested is somewhat arbitrary too.

    A percentage of median income may not be an accurate way to compare poverty in America and Europe as median income in America is a lower percentage of average income than almost anywhere else — maybe much lower!

    From 1973 (the beginning of inequality here — which I grandly call the Great Wage Depression) to 2005 the 50 percentile wage in America grew from $12.99/hr to 14.29/hr — an increase of only 10% while average income grew 70%. [I got the wages from table 3.4, on p. 121 of the book The State of Working America 2006/2007].

    Wages don’t perfectly parallel income of course — a lot more members per family went to work over those years — but wages may more precisely be the point as to what has happened to American labor.

    Table 8.14 on p. 342 shows European manufacturing workers earning 20% more than American counterparts if you leave out Spain, New Zealand and Portugal (and is an OPTIMISTIC comparison because factories are the place in American private business where unions have hung on best). British book keeping just moved away from comparing factory workers only and came up with the conclusion that Americans families are now poorer than theirs: http://www.theglobalist.com/StoryId.aspx?StoryId=6369.

    Table 8.17 on p. 350 of State’ actually shows poverty in America higher than in any European state even using the 50% median measure. So it looks like Krugman may not be wrong.

    I have just worked out that 36% of American family incomes are below a “minimum needs line” (a rational poverty line? — using figures from the 2001 book Raise the Floor) without Food Stamps and other helps.

    I will drop that post next — not to write a book in one post. :-)

  2. Denis Drew Says:

    36% of American families living below a more accurately drawn poverty line?

    50 percentile (technically, mean third-quintile) family income for 2005 was $56,277.

    A plausible poverty line for a family of three (on the “minimum needs” table on p.44 of the 2001 book Raise the Floor) is $31,111 in 2005 dollars — if health care is otherwise covered. Add $10,000 for a 2008 family health policy and we get a plausible poverty line (as opposed to the implausible federal line computed at 3X the price of a super cheap diet) for a family of three of $41,111.

    (Raise’ supplies extensive explanations for its minimum needs numbers in Appendix B — its budget tables cite Solutions for Progress.)

    The difference between second and third quintile mean family income ($35,000, $56,000) is about $1,000 per percentile. That computes ($35,000 is 30 percentile + $6,000 more is 6 more percentile) to 36% of American families living below a believable poverty line (at least without food stamps and other helps — average family size is 3.13 persons).

    I had been touting 25% as a realistic poverty line — I just doubled the 12.5% official line — seemed to make a conservative fit with what at a quick look seemed Raise the Floor’s doubling of official criteria (a closer look says it was more than doubling — $17,000 in 2005 dollars being the official criteria for a family of 3).

    Assuming I can’t find something wrong with 36% in poverty, I will email this startling stat to media all over the country. Continuing to report 12.5% poverty without qualification is like reporting in Columbus’ time that the world is flat — it makes fewer waves; but informed people know otherwise.

  3. Denis Drew Says:

    The links for the above may be gotten at:
    http://ontodayspage.blogspot.com/2008/02/
    are-38-of-american-families-living.html

  4. piglet Says:

    A diningenuous post. If you argue that conventional poverty measurements don’t give an accurate picture, then you stil cannot conclude that poverty isn’t highest in the US. Rather you should say we don’t know.

    Now, there are alternative poverty metrics. The UN Human Poverty Index (http://en.wikipedia.org/wiki/Human_Poverty_Index) tries to take absolyte criteria into account and it ranks the US 17th among 19 of the wealthiest countries. So if you choose to use this index, you might say “poverty isn’t highest in the US but very close”. You have to have some criteria. Hand-waving won’t do.


  5. [...] of measure has some value, I don’t think it should be the headline indicator of poverty (more here and here). It depends too heavily on the distribution of income and too little on the absolute [...]


  6. [...] U.S.???? Denis Drew Says: February 20, 2008 at 3:41 pm. Lane, America is the only nation whose …http://lanekenworthy.net/2008/02/19/is-poverty-highest-in-the-us/Obama pushing through a world poverty bill that would cost the United …Obama pushing through a [...]


  7. [...] Kenworthy rightly chastises Paul Krugman, correcting the belief that the U.S. has the highest poverty rate [...]


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