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A Note on Poverty in 2011

This morning, the Census Bureau released new statistics on Income, Poverty, and Health Insurance Coverage in the United States: 2011.  The headline of the report was that the official U.S. poverty rate was 15.0% in 2011, little changed from the previous year.

The report did not contain any specific information on individual states, but some of the underlying data from the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) are now available.  Those data tell us that here in Arkansas, the poverty rate was 18.7%.  That was the fifth highest rate in the nation (of all 50 states plus the District of Columbia).  Median Family Income in Arkansas was  approximately $51,000, amounting to 84.3% of the national median of $60,500.  Arkansas’ ranking on family income was 46th.*

These statistics are based on the Census Bureau’s measure of “money income,” which does not include income from many programs intended to alleviate poverty.  For example, money income does not include Supplemental Nutrition Assitance Program (food stamps), housing subsidies, low-income energy assitance, or the earned-income tax credit.  A new Supplemental Poverty Measure which incorporates these income sources—along with updating the methodolgy for calculating the poverty threshold—were introduced last year.  Statistics on these alternative calculations will not be available until November.

It should also be pointed out that income and poverty data for individual states are more accurately measured in the Census Bureau’s American Community Survey (ACS) and the Small Area Income and Poverty Estimates (SAIPE), which will come out later this month and in November, respectively.

*Median income figures are calculated using the standard method and may differ from published Census estimates that are calculated using linear interpolation.

Income and Poverty in 2010

U.S. incomes decline and poverty rises – but Arkansas fares better than most other states

Yesterday’s report from the Census Bureau showed that real household median income in the U.S. declined by 2.3% in 2010, and the share of the population below the poverty level rose to 15.1%–the highest level since 1993.  Clearly, the severity of the 2008-09 recession and the sluggish pace of the subsequent recovery are continuing to suppress standards of living.  Nevertheless, there are caveats to the coverage of the Census statistics that moderate some of the dismal interpretations of these statistics.  Moreover, the data for Arkansas contain some relatively positive news.

One important detail about the Census Bureau’s measurement of income is that it includes only “money income.”  It does not include government transfers such as housing subsidies, the value of publicly provided medical care, and food stamps.  The value of these transfers has grown rapidly in recent years, particularly since the onset of the recession.  If we consider overall standards of living — especially for the lower-income segment of households — comparisons to previous years’ money-income figures tell only part of the story.

Arkansas has long been among the lowest-income states in the nation.  Yesterday’s report did not change that generalization.  Median household income in Arkansas was $38,571, the second lowest in the nation.  Given the uncertainty associated with sampling and measurement error, Arkansas is one of nine states in which a three-year average of median household income is not significantly different from the lowest level (statistically speaking). 

However, in inflation adjusted terms, the 2010 income figure represents an increase of 3.8% compared to the previous year.  Arkansas was one of only 22 states to see an increase, and in fact, ranked as the 7th highest growth rate among the 50 states plus the District of Columbia.

The Poverty Rate in Arkansas was 15.5% in 2010 — nearly equal to the national average.  In comparison to 2009, the poverty rate in Arkansas was down from 18.9%.   Arkansas was one of only 16 states to see a decline, and the drop of 3.4 percentage points was the largest in the nation.  There is a range of statistical uncertainty in the poverty numbers as well, but using a 2-year moving average measure, the Arkansas’ poverty rate was basically unchanged from 2008-09 to 2009-10.

One important factor to consider when comparing income and poverty in Arkansas to the rest of the country is differences in cost-of-living.  The median income statistics and poverty levels are adjusted for inflation, but not for differences in prices across states and regions.  According to the most recent statistics on relative cost of living indexes, Arkansas has the fifth-lowest cost of living in the nation, with the general price level equal to about 91.4% of the national average.  If the income and poverty statistics were adjusted for differences in prices, the standard of living in Arkansas is higher than indicated by the uniform national statistics (see previous post:  The Poverty Rate and the Cost of Living).

New Poverty Measures to be Developed

The Commerce Department yesterday outlined plans for a new methodology for measuring the poverty rate [“Census Bureau to Develop Supplemental Poverty Measure”].  The new measure will not replace the existing poverty-rate calculation, but serve as a supplement:  “the supplemental measure will not be the measure used to estimate eligibility for government programs. Instead, it will be an additional macroeconomic statistic, providing further understanding of economic conditions and trends.”

As reported in a previous article on the Arkansas Economist, intensive research on new measures of poverty has been underway for many years.  The new measure will incorporate many of the changes that have been recommended by researchers, including the adjustment of poverty measures for differences in the cost of living across geographic areas. 

Final details about the new measure are still being worked out — it will not be available until the fall of 2011 (when the poverty statistics for 2010 are released). 

To see how differences in cost-of-living affect Arkansas’ rankings in the poverty statistics, see my previous post on the topic:  “The Poverty Rate and the Cost of Living.”

The Poverty Rate and the Cost of Living

When the latest data on state-level poverty rates was released last week (September 10), I was asked to comment for a story in the Arkansas Democrat-Gazette.  I pointed out that poverty rates are not adjusted for differences in the cost of living.

My point was the comparisons across states and regions can be misleading.  For example, Arkansas poverty rate in 2007 ranked it as the 4th highest in the nation, yet Arkansas also ranked as the 6th lowest in the nation for median gross rental rates for housing. When it comes to the affordability of the basic necessities of life, a uniform nationwide poverty threshold doesn’t adequately capture differences across states and regions.

This has long been a recognized shortcoming of the existing poverty rate measures.  In 1995, studies from the General Accounting Office (GAO) and the National Academy of Science (NAS) independently reached the same conclusion:  Cost of living differences matter, but a lack of data prevents the adjustment of poverty rates for regional cost disparities.  Since the NAS study, researchers have been working on recommendations for improving the quality of poverty rate statistics.

A recent flurry of research activity at government statistical agencies has aimed to address this shortcoming.  Just last month, Trudi Renwick—a statistician/economist at the Census Bureau—presented some recent findings on this topic at the Annual Meeting of the American Statistical Association.  In addition to providing a thorough review of the literature on the topic, Renwick reported comparisons of three different methods for adjusting the official statistics.  The first method is the Census Bureau’s experimental adjustment for Fair Market Rent (FMR) using data from the Department of Housing and Urban Development.  The second method—from an April 2009 report by Census Bureau researcher Alemayehu Bishaw—uses median gross rental costs derived from the American Community Survey (ACS).   The third adjustment technique— reported in November 2008 by Betina Aten and Roger D’Souza—represents collaborative research by the Bureau of Economic analysis and the Bureau of Labor Statistics to use hedonic regression methods for estimating regional price parity (RPP) differences incorporating a more comprehensive measure of cost-of-living.

The table below reports various measures of the poverty rate for Arkansas, comparing some of the alternatives to the current official standard.  The first set of rates (from Bishaw, 2009) uses the official poverty definition, comparing the unadjusted measure with two of the techniques for housing cost differences. After accounting for relatively inexpensive rents in Arkansas, the poverty rate falls by two percentage points, and Arkansas moves down in the rankings from 4th highest to 8th highest poverty rate in the nation.

The second set of estimates (from Renwick, 2009) uses the NAS alternative definition for the poverty threshold (which incorporates different expenditure and income definitions from the official definition).  The unadjusted alternative measure shows a slightly lower poverty rate for Arkansas, with a correspondingly lower state ranking.  When adjustment for regional price disparities is included in the analysis, the results are dramatically different:  For two of the three adjustment techniques, Arkansas does not even rank above the median for poverty rates.  Indeed, the most comprehensive adjustment—the Regional Price Parity approach—Arkansas ranks as having one of the lowest poverty rates in the nation.

The cost of living matters when it comes to poverty rates.  After accounting for differences in prices from state to state, the poverty rate in Arkansas is not nearly so high as the official statistics suggest.

 – Michael Pakko

Alternative Poverty Rates and Rankings for Arkansas
Alternative Poverty Rates and Rankings for Arkansas


Aten, Betina, and Roger D’Souza. November 2008. “Regional Price Parities: Comparing Price Level Differences Across Geographic Areas,” Survey of Current Business 88:11, pp. 64-74.

Bishaw, Alemayehu. April 2009. “Adjusting Poverty Thresholds Based on Differences in Housing Costs: Applications in the American Community Survey, “ poster presentation prepared for the Population Association of America Annual Conference.

Citro, Constance F., and Robert T. Michael (eds). 1995. Measuring Poverty: A New Approach. Washington, D.C.: National Academy Press. (National Academy of Science recommendations).

Renwick, Trudi.  August 2009.  “Alternative Geographic Adjustments of U.S. Poverty Thresholds: Impact on State Poverty Rates,” Paper presented at the Annual Meeting of the American Statistical Association Section on Social Statistics, Washington, DC.