Bureau of Labor Statistics

TO CALCULATE THE NUMBER of Americans living in poverty, the U.S. Bureau of Labor Statistics uses an approach originally developed in 1964 by Mollie Orshansky at the U.S. Social Security Administration. Though other agencies sometimes use different formulas, the Orshansky approach is still the most common. To account for inflation, the poverty line is updated each year by the U.S. Department of Health and Human Services.

To define poverty, Orshansky turned to a 1955 study from the U.S. Department of Agriculture (USDA). The study had concluded that families of three or more members spent about a third of their after-tax income on food. Thus, Orshansky set the poverty line at an after-tax income of three times the cost of the USDA's “economy” food plan, which was the USDA's cheapest food plan and provided minimum acceptable nutrition. Because the USDA's economy food plan was designed for emergency situations, Orshansky developed a second poverty threshold that allowed for slightly higher family incomes. Though she considered the second threshold to be a more realistic measure of poverty, it has rarely been used.

Apart from each family spending a third of its income on food, Orshansky's poverty threshold made no other assumptions about how the family would spend its money. Her model did distinguish between families in different circumstances, such as whether the family was headed by a male or female, was older or younger, was farm or nonfarm, and how many people were in the family. Including all these factors, she generated a matrix with 124 different poverty thresholds for different types of families.

Orshansky emphasized that her poverty thresholds showed when family incomes were clearly inadequate—not when they were adequate, which she thought impossible to determine in general. In May 1965, the U.S. government adopted the Orshansky method as its official approach to defining poverty. In 1969, the government indexed the poverty level so that it would rise to match changes in the Consumer Price Index (CPI).

In 1973 the Office of Management and Budget formed several committees to study poverty standards. One committee recommended that the formula used to calculate poverty, as well as its assumptions about nutrition and family budgets, be updated every 10 years. The recommendations were not implemented. Various other studies were done in the 1980s, but no significant changes were made.

In 1990, Congress asked the National Research Council to study updating the definition of poverty and the methods used to calculate it. The council published its study, Measuring Poverty: A New Approach, in [Page 97]1995. The study recommended changes in how poor families' incomes were calculated, such as adding noncash income from food stamps and public housing while subtracting medical costs, taxes, and work expenses. It also noted that the poverty line had been the same (in constant dollars) since 1965, and recommended that the line be raised to match increases in living standards. The study's recommendations were not implemented.

In 2004, the latest year for which data were available, the official poverty line puts 12.5 percent of U.S. residents at or below the poverty threshold: a total of 37 million people, or 1.1 million more than in 2003. The poverty threshold has been criticized on various grounds.

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