Poverty Threshold

POVERTY THRESHOLDS ARE the minimum income levels, adjusted for family size and number of children, below which household members are deemed to be living in poverty. Necessarily, poverty thresholds vary from country to country because of different levels of income and standards of living. They will change in time in response to the rate of inflation and insofar as governments aspire to bring more people out of the currently accepted definition of poverty.

Customarily the poverty threshold in developed economies is set as a proportion of the median income; mean income is an inappropriate measure because of the hugely growing inequality caused by spiraling income for the very rich in many developed countries over the past decade.

In 2004, for the United States, the poverty threshold for a single individual was $9,827 annually for people under 65 and $9,060 for people aged 65 and over. This rises to $12,335 for two-people households, $15,071 for three people, and then by approximately $3,000 to $4,000 per additional person (U.S. Department of Commerce figures). This was calculated by multiplying the 2003 average weighted thresholds by the percentage difference in consumer price indexes across the two years, equal to just less than 1.027.

Poverty threshold methodology is subject to criticism both on ideological and practical grounds, since it is not established that the Consumer Price Index is necessarily the best way of measuring poverty in the way it is customarily defined.

In particular, it is not true that consumption patterns remain stable over extended periods of time, and so poverty thresholds calculated by reference to the past will in themselves be inadequate. Clearly governments will have an incentive to keep thresholds lower than they might be to minimize costs.

In the United States, for example, maintaining poverty thresholds equivalent to the 1964 level would entail increasing current thresholds by some 165 percent; 1964 was the year when President Lyndon John-son's War on Poverty was declared. Significant change has affected typical household composition since that time. Meanwhile in parts of many European countries, housing prices have risen disproportionately as a result of lack of space, and this has distorted the meaning of income levels.

Alternatives to poverty thresholds include proposing a range of meaningful, measurable variables, such that a person falling beneath any of them will be deemed to be living in poverty. However, more complex methods tend to be less successful in less developed countries because of the difficulties in obtaining timely, credible statistics. Besides, different social structures [Page 864]and support networks affect the incidence of poverty in some societies.