ECON351: Notes on Official and Supplemental Poverty Measures (OPM vs SPM)
Origins and purpose of poverty measurement in the United States
Poverty definition varies by perspective (social factors, purchasing power, money). In policy, the government uses an economic measure focused on income.
Government use: to assess how people are doing and to determine eligibility for social programs.
Core idea: poverty is determined by income relative to a threshold, not just a qualitative judgment about need.
The Official Poverty Measure (OPM)
Developer and motivation in the 1960s: Molly Orshansky, government economist and statistician.
Basis for thresholds: wanted a real-world estimate of what families needed to get by.
Foundational data: the USDA had detailed food plans by household size; surveys showed families spent about one-third of their income on food.
Threshold construction (Orshansky method):
Threshold for a given household size is built by taking the cost of a no-frills food plan for that size and multiplying by 3 (to approximate total expenses for basic necessities beyond just food).
Formula (conceptual): T{ ext{OPM},n} = 3 imes Fn where F_n is the cost of the no-frills food plan for a household of size n.
Classification: households with income below the threshold are considered poor; those above are not poor.
What it measures: income-based poverty threshold, not full costs or needs.
Historical trajectory:
Poverty fell quickly after the 1960s, then leveled off.
The rate has typically fluctuated between about 11\% and 15\%, rising during recessions and falling when the economy strengthens.
Limitations and outdated aspects:
The fixed focus on food costs became outdated as costs of housing and other essentials rose while food costs fell.
Does not account for several important anti-poverty programs (e.g., refundable tax credits, SNAP/food stamps).
Excludes necessary expenses such as medical care, transportation, and child care.
Threshold is uniform across locations, so it ignores geographic variation in living costs (e.g., NYC vs rural Wisconsin).
Practical implications:
Provides a consistent long-term measure for tracking poverty trends.
Serves as a starting point for determining eligibility for many social programs.
Important for understanding who is considered poor under the traditional framework.
The Supplemental Poverty Measure (SPM)
Introduced by the U.S. Census Bureau in 2011 as an updated, more comprehensive measure.
Goals: address gaps in the official measure and provide a fuller picture of poverty.
Key features of the SPM:
Thresholds based on current costs of necessities, not just food; reflects what families actually need today.
Expands the household definition to include people who aren’t related by birth, marriage, or adoption (e.g., roommates, non-traditional families).
Applies geographic adjustments to housing costs to account for regional differences in living expenses.
Counts resources more broadly by including not just income but also the value of public benefits and tax credits.
Subtracts certain expenses from resources: the costs of medical care and work-related expenses.
Conceptual formula for SPM (illustrative):
Resources: R_{ ext{SPM}} = I + B + T - M - W
I = income
B = value of public benefits
T = tax credits
M = medical expenses
W = work-related expenses
Threshold: L{ ext{SPM}} = C{ ext{necessities}}(n, location, household composition)
Poverty status under SPM: poor if R{ ext{SPM}} < L{ ext{SPM}}
Practical interpretation:
The SPM generally starts higher than the OPM because it counts broader costs and resources but often aligns more closely with the official measure over time due to the impact of anti-poverty programs.
Historical context of the SPM line (as described in the materials):
The SPM line, calculated back to 1967 by researchers at Columbia University, starts much higher than the OPM line but has converged toward the OPM line over time.
The shift toward convergence reflects the success of anti-poverty programs in increasing resources for families.
Significance and limitations:
Provides a more comprehensive picture of poverty by incorporating the costs families actually face and the benefits they receive.
Remains a supplementary measure; the official poverty measure continues to be used for certain program eligibilities and historical tracking.
Key comparisons and implications for policy
Core differences between OPM and SPM:
Household definition: OPM uses a narrower household concept; SPM broadens it.
Resources: OPM focuses on income; SPM includes the value of public benefits and tax credits.
Costs included: OPM centers on a food-based threshold; SPM expands to include current necessities and subtracts medical/work costs.
Geographic adjustments: OPM uses a single national threshold; SPM adjusts for housing cost differences across locations.
Why these differences matter:
Policy design and eligibility: Many social programs rely on the OPM for eligibility thresholds; SPM provides a more realistic picture of poverty around program effects and living costs.
Evaluation of anti-poverty programs: SPM can reflect how benefits and taxes affect net resources, potentially showing different poverty dynamics than the OPM.
Practical example to illustrate location effects:
A family living in a high-cost city like New York City faces higher housing costs than a family in rural Wisconsin; the SPM would adjust the threshold to reflect housing costs, potentially lowering the number of people counted as poor relative to a rigid national threshold.
Ethical and philosophical implications:
Measuring poverty involves value judgments about what counts as necessary expenses and what constitutes a basic standard of living.
The inclusion of public benefits and tax credits in resources recognizes the role of social programs in altering living standards, not just cash income.
Balancing a consistent historical measure (OPM) with a more current, comprehensive measure (SPM) reflects a trade-off between comparability over time and an up-to-date picture of need.
Takeaways for understanding who is poor in the United States
The official poverty threshold is a fixed-income-based standard derived from the 1960s food-cost approach, illustrating historical foundations but with known limitations.
Poverty rates under the OPM have fluctuated between roughly 11\% and 15\%, rising in recessions and falling in stronger economies.
The OPM omits several important costs and programs, which can understate or mischaracterize true living standards for many households.
The Supplemental Poverty Measure (SPM) accounts for current necessities, geographic cost differences, extended household types, and the monetary value of public benefits and tax credits, while subtracting medical and work expenses.
Over time, the SPM has moved closer to the OPM as anti-poverty programs have helped many families, but the measures still serve different purposes:
OPM: stable, long-run trend tracking and program eligibility baselines.
SPM: a more comprehensive view of living standards and policy impact.
Connections to broader concepts and real-world relevance
Understanding how poverty is defined informs who gets aid and how programs are designed and evaluated.
The evolution from OPM to SPM reflects a broader shift in economics and public policy toward assessing actual living costs and the effectiveness of social safety nets.
The differences between measures highlight the ethical question of what we owe to those in need and how best to allocate resources to reduce hardship.
For exam purposes, remember:
OPM threshold derivation and purpose: T{ ext{OPM},n} = 3 imes Fn
SPM components: resources (I + B + T − M − W) and threshold as current necessities adjusted for household composition and geography.
The historical trend and policy relevance: OPM shows long-run stability with fluctuations; SPM provides a broader view and often aligns with reality shaped by anti-poverty programs.