Disclaimer

This paper reports the results of research and analysis undertaken by Census Bureau staff. It has undergone a Census Bureau review more limited in scope than that given to official Census Bureau publications. This report is released to inform interested parties of ongoing research and to encourage discussion of work in progress.

The current official poverty measure provides individuals and policy makers with information about the types of families and people who are not making ends meet. One important dimension along which this information is provided has to do with where people live. It is quite obvious to all that consider it that the cost of living is different depending upon where you live. But here we find one of the more contentious issues in measuring poverty, how to accurately portray the difficulty of making ends meet when the cost of basic necessities varies widely for people living in different places.

The current official poverty measure makes no adjustments for geographic area. It presents the cost of getting along as uniform across the United States. Poverty rates by state, for example, as shown in the first figure, are calculated using the same poverty thresholds regardless of where you live. In her book on measuring poverty, Patricia Ruggles (1990) wrote that, “Other than differences in family size and type, the major source of possible differences in need that analysts have considered as a basis for adjustment are differences in place of residence.” Ruggles provided evidence that a strong case can be made for adjustment of the poverty thresholds for price differences by geographic area. She argued that, even though we cannot make precise adjustments for very small areas, we quite possibly would make fewer errors if reasonable adjustments were made for larger geographic areas. The challenge then is, as Ruggles stated, “the analyst must balance the possibility that a given adjustment will distort needs estimates in some cases against the potential error that may results if no adjustment is done.” In her view, “…the evidence for real differences in price levels across regions has become too compelling to ignore.”