Houston Chronicle, July 25, 2008: Editorial: A poor measure
On Thursday, workers who are paid the federal minimum wage got a little salary boost. As the second of a three-step increase that will take the nation’s minimum wage to $7.25 an hour, this week’s 70-cent rise brought baseline hourly pay to $6.55, only slightly closer to being a living wage.
For the struggling Americans known as the working poor, the bump in pay has got to be welcome. But no one should fool himself about how much relief an extra few cents an hour will mean to lean budgets pinched tight by the rising costs of fuel, food, housing and health care.
New York Mayor Michael Bloomberg proposes to tackle the poverty problem from a different angle. In mid-July, Bloomberg’s office announced the city would employ a much broader method of measuring poverty than the one used since the mid-1960s by the federal government. Congress should carefully consider the merits of the New York plan.
The federal standard is based on data from a 1950s-era study that showed the poor spent roughly a third of after-tax wages on food. Since then, the government has simply tripled the annualized cost of groceries to determine the baseline income a family would need to live above the poverty line. That calculation has become increasingly divorced from the reality of American household finances. Bureau of Labor Statistics show only an eighth of a modern family’s take-home pay is spent on food.
Under the federal formula, the official poverty line stands at only $20,444, an obviously outdated number. It’s hard to imagine how four people could live on that for a year in Houston, where the cost of living is relatively low. It seems nearly impossible to get by on that in New York, where a two-bedroom apartment rents for an average of $1,318 a month.
By contrast, the Bloomberg method would include the cost of child care, housing, clothing and other expenses the federal formula ignores. But the mayor’s plan also would consider income not included in the federal calculation: benefits, such as the earned income tax credit, food stamps and housing subsidies, that improve impoverished families’ bottom line.
This more comprehensive view of family finances offers different conclusions about who is poor. Bloomberg’s formulation shows fewer New York City residents living in extreme poverty, but it raises the overall poverty rate to 23 percent, compared to only 19 percent under the federal poverty guideline. A greater number of elderly are categorized as poor under the mayor’s scheme, mainly because the new formula acknowledges seniors’ medical expenditures.
One need not be an economist to understand that this is a more accurate way to measure poverty, one that can better target aid to the poor and lift families into the middle class. It can reduce wasteful spending on ineffective programs based on faulty information.
On July 17, U.S. House members held hearings to mull a revamping of the federal poverty gauge under a bill filed by Rep. Jim McDermott, D-Wash. With no similar Senate bill, little progress is expected this legislative session. But at least the ball’s rolling.
“I’m a big believer in the saying, ‘If you can’t measure it, you can’t manage it,’ ” Bloomberg said of his plan. “So just as we need a more creative, more vigorous approach to fighting poverty, we need a more accurate method of assessing whether we’re making any progress.”
On this one, Bloomberg’s right on the money.