Psychology assignment.

PERSPECTIVES OF POVERTY

! Question 3 from Lectures and Schiller: Chapters 1 & 2

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Question 3 Discuss two of the most important formulations of the poverty line (i.e. the President Council of Economic Advisor (CEA), and the Social Security Administration (SSA Index), showing their (a) strengths, and (b) glaring errors ETC.

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CEA and SSA Index ■ Both the President Council of Economic Advisor (CEA), and the Social Security

Administration (SSA Index) first determine what poverty is and then determine who qualifies as such

■ Determining what constitutes poverty and then based on that determination, deciding who is impoverished

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CEA Poverty Budget, 1963

■ One third allocated to food and two-thirds allocated to non-food items ■ Three meals a day would cost $2.74 per family ■ The average family spends one-third of its disposable income on food budget ■ “Typical family” is undefined

Category Amount Total Food Budget $2.736/day x 365 days $998.64 Nonfood budget 2 x food budget $1,997.28 Total Budget $2,995.92

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Glaring Error in CEA Estimation Procedure■ The husband in Family 1 is 37 years old and supports six children and a pregnant wife

on his income of $3,200 a year. ■ Family 2 consists of a soon-to-be-retried couple, both in their mid-sixties. The wife

does not work and the husband’s earnings amount to $2,800 per year. They own their home, having mad the final mortgage payment last Christmas.

■ Family 3 consists of a struggling graduate student, his working wife, and their three month-old child. They both work at the college carry-out store in their spare time. Their combined earnings, including overtime and tips, amount to $2,400 a year.

How did these three families place in the CEA’s measurement of poor Americans? Family 1, consisting of eight and one-half persons, was officially classified as non-poor. Families 2 and 3 were counted as poor, as their incomes were under $3,000 limit. But how many people would be willing to accept CEA’s classification of these families? Family 1 was clearly desperate, while Family 2 was living a quiet and perhaps comfortable life. Our graduate-student family was not exactly affluent, but they were not desperate on $200 a month.

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Social Security Administration (SSA Index)■ By Ms. Mollie Orshansky to offer a more reliable estimation of those suffering from

poverty ■ This approach makes its subjectively explicit ■ SSA began with the minimum cost living for a family of four and adjusted cots for

smaller and larger families sizes. The SSA estimation also made yearly adjustments due to inflation. However, the SSA ignores how increases in the standard of living can influence real poverty.

■ This approach adjusted for family size, then for varying family needs based on whether or not the family lived on a farm, whether the family was headed by a man or woman, and the number of children

■ Ms. Orshansky devised 124 family types and different needs

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The Social Security Administration (SSA) by Ms. Orshanskey

SOURCE: Department of Health and Human Services, Federal Register, vol. 72, no. 15 January 24, 2007, pp. 3147– 3148. SOURCE: Department of Health and Human Services, Federal Register, vol. 75, no. 148 August 3, 2010 pp. 45628– 45629

Size of Family 2006 2007 2010 One Member $9,800 $10,210 $10,830 Two Members $13,200 $13,690 $14,570 Three Members $16,600 $17,170 $18,310 Four Members $20,000 $20,650 $22,050 Five Members $23,000 $24,130 $25,790 Six Members $26,800 $27,610 $29,530 Seven Members $30,200 $31,090 $33,270 Eight Members $33,600 $34,570 $37,810

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U.S Census Bureau Poverty Threshold, 2012 Size of Family Unit Poverty Threshold

One Person (unrelated individual)

$11,720 Under age 65 $11,945 Age 65 or older $11,011 Two People $14,937 Householder under age 65 $15,450 Householder age 65 or older $13,892 Three people $18,284 Four people $23,492 Five people $27,827 Six people $31,471 Seven people $35,743 Eight people $39,688 Nine people or more $47,297

Source: U.S. Census Bureau, Weighted Average Poverty Thresholds, 2012, released in September 2013. 8

SSA Index ■ This approach accounts for rising prices of good and services but not for steadily

increasing standard of living. – Poverty line is only relative to poverty over time – Poverty lines adjusted only for inflation imply, a growing disparity between the

status of the poor and the rest of the population ■ The lines that separate the poor from non-poor does not indicate what is enough—it

only asserts what is too little. ■ Ratio between food and non-food cost have changed over time but there is a same

assumption that the poor spend 1/3 of their income on food and 2/3 on non-food items. – The poor spend 43% not 33% of their income on food – Changing the rationale would increase the number of poor.

■ If incomes of the poor were assessed after taxes, the number of poor would increase ■ By adding cash, food, housing, and medical benefits the number of poor will decrease

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Weakness of CEA and SSA Index ■ Poverty lines use pre-tax definitions of income and post-tax definition of expenses ■ Fail to account for geographical differences, exclude non-cash governmental benefits,

childcare and medical care expenses ■ The lines are simple and straight forward and neglect to establish what is enough for a

family to live ■ CEA

– Not all families are a ‘typical’ size with two parents and two children nor have the same need

– The council’s definition of poverty line must be adjusted for varying family size

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