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Income Measurement Strategies

Researchers have used various strategies to measure poverty; these include:

  • indicating severity of poverty, such as “near poverty” or “extreme poverty,”
  • differentiating the population under measurement (total population versus children in poverty)
  • using relative versus absolute measures of poverty (state-reference poverty levels versus the federal poverty standard)[1],
  • measuring areas of concentrated poverty (census tracts with poverty rates of 20 percent or more) [2],
  • using the Official Poverty Measure versus the Supplemental Poverty Measure (SPM) which includes in-kind benefits, for example food stamps, as income and subtracts expenses on basic needs such as food, clothing, shelter and utilities.[3]

State-referenced poverty was not associated with mortality or infant mortality, but poverty defined by the federal standard did correlate to these mortality measures.[1] One disadvantage of a relative poverty measure is that it does not indicate an increase in poverty levels when overall incomes decrease, as during a recession.[4] In considering degrees of poverty, researchers have found that extreme poverty has particularly deleterious effects on children’s prospects for a healthy life and is less sensitive to economic changes than poverty or near-poverty.[5] Many reports have concluded that a concentration of poverty in neighborhoods can result in higher crime rates, lower quality public schools, poor housing and health conditions, as well as limited access to private services and job opportunities in these areas. [6]

There are a variety of ways to measure income inequality including:

  • Gini coefficient - This is the most commonly used measure of inequality. The coefficient varies between 0, which reflects complete equality and 1, which indicates complete inequality (one person has all the income or consumption, all others have none).
  • Decile dispersion ratios, including:
    • Ratio of the top 20th percentile cut-off for household income to bottom 20th percentile cut-off
    • Ratio of the mean household income of the top 20% to the mean household income of the bottom 20%
    • Ratio of the mean household income of the top 40% to the mean household income of the bottom 40%

Although there are now increasing references to the Gini coefficient in the popular press, the decile dispersion ratios are probably easier to understand than the Gini coefficient. It is fairly easy to understand a statement that says the average income for the top 20% is 5 times the average income of the bottom 20%. The Gini coefficient is more difficult to interpret. 

References

[1] Hillemeier MM, Lynch J, Harper S, Raghunathan T, Kaplan GA. Relative or absolute standards for child poverty: A state-level analysis of infant and child mortality. Am J Public Health. 2003;93:652-657.
[2] U.S. Census Bureau. Poverty: Definitions. Last Revised September 16, 2014. Accessed March 18, 2015.
[3] U.S. Census Bureau and Bureau of Labor Statistics. The Supplemental Poverty Measure: A Joint Project between the Census Bureau and the Bureau of Labor Statistics. Short K and Garner T. June 8, 2012.
[4] Blank RM. Presidential address: How to improve poverty measurement in the United States. J Policy Anal Manage. 2008;27:233-254.
[5] Wen M, Browning CR, Cagney KA. Poverty, affluence, and income inequality: Neighborhood economic structure and its implications for health. Soc Sci Med. 2003;57:843-860.
[6] The Enduring Challenge of Concentrated Poverty in America: Case Studies from Communities across the U.S.A ., A joint Project of the Community Affairs Offices of the Federal Reserve System and the Metropolitan Policy Program at the Brookings Institution. (Federal Reserve Bank of Cleveland, 2008)