Brookings Papers on Economic Activity

ABSTRACT:

We propose a new measure of the rate of poverty we call the supplemental expenditure poverty measure (SEPM), based on expenditure in the Consumer Expenditure Survey. It treats household expenditure as a measure of resources available to purchase the minimum bundle necessary to meet basic needs. Our measure differs from conventional income and consumption poverty in both concept and measurement, and it has advantages relative to both. Poverty rates using our basic measure are very close in level and recent trend to those of the most preferred income-based poverty rate produced by the US Census Bureau. But the SEPM poverty rate differs from the US Census Bureau measure at different levels of the poverty line. For example, the number of individuals living in either poor or almost poor households is 5 percentage points greater (about 16 million individuals) using our measure. We also construct an augmented measure that adds additional potential liquid resources. This "maximal resources" measure indicates that if disadvantaged households used up all their bank balances and maximized their credit card borrowing, 9.6 percent of the population (over 31 million individuals) would still be poor and unable to purchase the goods necessary for the basic needs of life.