Poverty

Study Shows That Extreme Poverty Statistics Have Been Overestimated, Especially Among Families With Children

The number of people deemed to be living in extreme poverty was significantly inflated

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New research published by the National Bureau of Economic Research (NBER) shows that more than 90 percent of people who had previously been classified as living in extreme poverty were actually misclassified. The number of people deemed to be living in extreme poverty was significantly inflated due to a combination of misreporting on surveys as well as a lack of accurate administrative data.

Now, new data "allows us to re-examine rates of extreme poverty," which NBER defines as "living on less than $2/person/day." It turns out the actual percentage of U.S. households living in extreme poverty is 0.24 percent.

Using information from the 2011 Survey of Income and Program Participation (SIPP) as well as administrative tax and benefit program data, researchers Bruce D. Meyer, Derek Wu, Victoria R. Mooers, and Carla Medalia found that "of the 3.6 million [non-homeless] households with survey-reported cash income below $2/person/day," the vast majority92 percentwere "not in extreme poverty once we include in-kind transfers, replace survey reports of earnings and transfer receipt with administrative records, and account for the ownership of substantial assets."

In fact, new research shows "more than half of all misclassified households have incomes … above the poverty line" entirely.

Essentially, the new NBER working paper attempts to more accurately reflect the cash income and overall assets of U.S. households. "Nearly 80% of all misclassified households are initially categorized as extreme poor due to errors or omissions in reports of cash income," researchers found.

The new classifications also take into account whether households are receiving significant benefits from Supplemental Nutrition Assistance Program (SNAP), Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and other assistance programs.

Researchers note that "the preponderance of evidence suggests that the households reclassified" due to underreported earnings and assets "have survey incomes that are likely to be gross errors," and this provides "a potential explanation for the lack of a strong correlation found by several studies between income poverty and material hardship." But "in contrast, the households reclassified due to receipt of in-kind transfers" (like food and housing benefits) "appear to be significantly worse off than the official poor on multiple dimensions of well-being, implying that these benefits are well targeted to the needy."

The authors certainly don't deny that extreme poverty is still an issue, and they point out that their survey data "excludes homeless individuals and institutionalized populations (such as those living in nursing care facilities and prisons)." But their research shows that the number of people in extreme poverty is less of a concern than had been previously believed.

"In the end, our best estimate of the extreme poverty rate is 0.24% among households and 0.11% among individuals," state the paper authors, adding that they "suspect the true extreme poverty rate is lower, given the evidence of survey underreporting for many income sources."

The composition of extremely poor households also differs from common understandings of it: "Among the 285,000 households left in extreme poverty, 90% are made up of single individuals. Households with multiple childless individuals make up the other 10% of the extreme poor. Strikingly, after implementing all adjustments, [none of the SIPP surveyed] households with children have incomes below $2/person/day."

The authors further state that their paper leaves room for a number of additional studies. These could get even more accurate numbers by using post-tax measures of extreme poverty and using more complete administrative data when it becomes available.

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34 responses to “Study Shows That Extreme Poverty Statistics Have Been Overestimated, Especially Among Families With Children

  1. It might be striking, but any small child can see that you aren’t going to have many, or any, real incomes below $2 per day. You can make ten times that begging on street corner or picking up aluminum cans for recycling. You can make 30 times that at a minimum wage job. If you include financial assistance, a single meal given by a charity exceeds $2 in value.

    Then, you realize that this number excludes homeless, and that’s absurd on a different level. No home can be run for $700 a year. Even if you eat nothing but rice and beans and have no utilities, you will still have to pay either rent or property taxes in excess of that paltry amount. That’s just not believable.

    People who have $2 a day income can only have that for a very short time, as both earning capacity and expenses dwarf that number for even the poorest of the poor.

    1. Same thoughts here. Exclude the homeless and how can anyone survive on $2 a day? Something fishy with this whole concept if they can actually claim this with a straight face.

  2. NBER defines as “living on less than $2/person/day.” It turns out the actual percentage of U.S. households living in extreme poverty is 0.24 percent.

    they point out that their survey data “excludes homeless individuals and institutionalized populations (such as those living in nursing care facilities and prisons).”

    Cool. So as long as you exclude the obviously extremely poor from the sample, there are very few extremely poor. WTF kind of research/conclusion is this? And do these researchers actually believe that an income of $2/day here in the US can actually purchase what $2/day can purchase in the Third World where that absolute income drives the definition of ‘extreme poverty’.

    the dishonesty in this sort of ‘poverty’ research is pervasive on both sides. Either people are creating bogus poverty stats via ‘relative poverty’ crap – or they are ignoring ACTUAL poverty stats by pretending that purchasing power means nothing.

    1. Seriously – the origin of that ‘extreme poverty’ $2/day was NEVER supposed to be a measure of actual poverty even in the Third World. It was a measure of ‘participation in the cash economy’. In the Third World, that measure was intended to exclude subsistence farmers – who exist in the Third World because land tenure is still iffy and anarchic. Subsistence farming in the US is damn near non-existent and if there is one thing that is certain in the US it is that squatters are stomped on like bugs.

      IOW those who for whatever reason don’t want to or can’t participate in the cash economy are actually FAR worse off in the US than in the Third World because here they can’t even feed themselves from some 20×20 patch of garden with a few rabbits or chickens.

      1. “IOW those who for whatever reason don’t want to or can’t participate in the cash economy are actually FAR worse off in the US than in the Third World because here they can’t even feed themselves from some 20×20 patch of garden with a few rabbits or chickens.”

        Except the whole point of the follow up study is that a significant number of these people aren’t actually living on $2/day. If you read through the critiques of the original study, you see that a significant number of such people are just statistical artifacts of how you choose to count income.

        I doubt anyone would disagree that there are obviously homeless people who are living on scraps. If it is your belief that government ought to engage in a program to address those people, it is vital that you start with a good target population. Including people who are already being taken care of, or actually have means to subsist in your population means that your program is doomed from the start.

        1. Overt, sorry if we are being unclear, but all of these complaints are on the first study. This second study that is the subject of this article should not have been necessary, as the first one should have failed the most basic of peer reviews due to it’s ludicrous conclusions.

        2. How is a significant amount of homeless living on scraps affording their alcohol and or drug habit? I suspect the average income of a homeless individual is way above $2 a day and may even be above minimum wage. There is a large overlap of homeless with those with severe mental illness who simply can’t manage living independent living outside an institution.

      2. You cannot be an American subsistence farmer on $2/day, because the property taxes on even a 10-acre micro-farm will exceed that.

    2. A person living in a nursing home or prison is most obviously living on more than $2 per day (just a portion of your living expenses are being paid by someone else on your behalf). As is someone who is receiving SNAP or WIC welfare benefits already. That’s really the point of this followup study. If you only include active income directly attributed to you, a lot of people are going to appear super poor, even if they are being taken care of. For example, an elderly person whose expenses are being paid for by their children, or a disabled person whose care is handled through medicaid.

      The original study is being cited by 2020 Dem candidates as justification for new tax and welfare programs. It absolutely makes sense to exclude people who are already receiving benefits that push them above the “shock” figure of $2/day. And it is especially necessary if over half of those people actually end up above the poverty line (not the extreme poverty line, but the poverty line) once you factor in these alternative modes of funding.

      1. $2/day is a meaningless number outside the Third World and it has always been so. The number was created by the World Bank by surveying countries where squatting is common, where much of people’s food needs is met by subsistence farming and barter not by cash purchase, and where that sort of cash income would also cover emergency medical access – and access to sanitation/water – and access to basic education/information.

        So no – you cannot ‘exclude the homeless’ or ‘exclude emergency medical’ or ‘exclude necessary (defined by World Bank as a BMI of 16) food cash expenditures’ and still pretend that the $2/day level here in the US means a damn thing. It costs a LOT more than $2/day to be Third World ‘extreme poor’ here in the US. The only way to measure what it does cost is to fucking measure what it does cost – and adjust any subsidies from that point – not to cut-and-paste the number from Chad.

        I don’t give a rat’s damn what numbers the Dems or Reps use for their politics. They are both dishonest in everything they say. They are both dishonest in everything they say about the other side too. And everyone who pretends otherwise is the worst sort of useful idiot.

    3. The homeless are mostly a mental health problem, or an addiction problem. The number of people homeless simply because of poverty is actually quite small.

      Which isn’t to say that the homeless don’t deserve help, just that they may need a different kind of help than simply money.

      1. Not really. The number of homeless in LA county rose to 60,000 in Jan – a 12% increase in one year and doubled in the last 7 years. And they interview them too. It’s not an increase in mental problems or drugs. It’s not even an increase in homeless moving there from elsewhere anymore. It’s people who have jobs and can’t afford the rent. 30% of renters in LA spend more than 50% of their income on rent. That’s the at-risk universe – some unexpected expense or lose their job and they are on the street. Same dynamic is true in many cities now though the West Coast is the most extremely rent-burdened.

        This is the actual impact of the inflation that has been created over the last 15 years or so with the reinflating of housing/asset bubbles and interest rate subsidies. Same as the millenials/Z’s who took forever to leave home cuz they couldn’t afford to rent. Homeless just tend to be older. It IS a poverty problem now and is a direct result of us trying to avoid a deck-clearing recession at all costs.

        1. I don’t know if that’s true about it not being people moving there any longer… But I wouldn’t be entirely surprised if that were the case.

          In SF and Seattle it is largely a moved here from somewhere else problem. Either way though there are SOME people who have always lived on the margins of society who have been royally fucked by the insane spike in housing costs. Even those that make good money are getting fucked. Somebody who made $100K a year in Seattle 10 years ago had a damn good standard of living… Now their real standard of living is less than a friggin’ mechanic in Cleveland or whatever.

          I honestly can’t wait for the coastal real estate bubble to pop. It is overdue, and will be beneficial for most people. Hopefully people will learn their lesson this time and it won’t get out of line for a few decades.

        2. 30% of renters in LA spend more than 50% of their income on rent. That’s the at-risk universe – some unexpected expense or lose their job and they are on the street.

          If they don’t have a job or a home, why are they staying in a place where the average rent is $3000/month?

          This is the actual impact of the inflation that has been created over the last 15 years or so with the reinflating of housing/asset bubbles and interest rate subsidies.

          While those rotten policies certainly have hurt Americans in general, you can’t extrapolate from L.A. to the entire country. Cities like L.A. have their very own, very special economically destructive policies.

          It IS a poverty problem now and is a direct result of us trying to avoid a deck-clearing recession at all costs.

          There won’t be a “deck clearing recession” because voters won’t let it happen; any major recession at this point will not restore economic sanity, it will bring political oppression and destruction.

          Furthermore, this isn’t an American problem, it’s a global problem.

    4. So as long as you exclude the obviously extremely poor from the sample, there are very few extremely poor. WTF kind of research/conclusion is this?

      The homeless are largely drug addicts; their problem isn’t lack of economic resources, their problem is addiction.

      And if you need someone to explain to you why people in prisons, hospices, and mental institutions shouldn’t be included in economic statistics, then maybe you should enter one of those institutions yourself.

  3. The number of people deemed to be living in extreme poverty was significantly inflated due to socialist propaganda.

  4. By international standards, there is no poverty in the U.S.

    1. No, there is. The truly homeless and indigent would be considered poor anywhere. They do not have a roof over their heads or any means of getting sustenance other than charity. They are objectively poor by any standard. Even a third world subsistence farmer is better off.

      However, I grant you, the majority of people that we consider to be living in poverty would be considered comfortable or wealthy by some standards.

      1. This….

        Prince Albert died of typhoid, Coolidge’s son of an infection that would be cured easily today by any thirdrate MD. Yesterday’s well off don’t stack up too well against today’s paupers when it comes to the basics of food and medicine.

      2. I disagree about the third world subsistence farmer. Read Things Fall Apart by Chinua Achebe. A subsistence farmer in a third world country isn’t like Old McDonald growing wheat but also raising chickens and tomatoes and beans and corn. Typically it’s one or two crops. In Achebe’s novel, they raised yams. Once or maybe twice a year locusts would fly by in huge droves and everyone was excited because NOW we get to eat LOCUSTS and vary up our diet. Don’t tell me that’s the lot of homeless in the US.

        1. Locusts are almost exclusively a cash crop for the NGO hipster market. The locals prefer cattle, sheep, goats, and chickens.

          1. Lol. I ate grasshopper tacos in a hipster Mexican restaurant in DC once.

            No way you can convince me that’s local cuisine.

        2. Are they really too stupid to have their main crop they grow to trade, and also grow some other shit to make life not suck? I mean that really is how most people did it in America and Europe, I don’t see why Indians or Africans wouldn’t do the same…

      3. The truly homeless and indigent would be considered poor anywhere. They do not have a roof over their heads or any means of getting sustenance other than charity. They are objectively poor by any standard.

        It makes no sense to compare someone living under a tarp in Burundi with someone living under a tarp in LA; the causes of that phenomenon are completely different.

        The distinction is important because a free society cannot eliminate homelessness or all the other outward markers that you call “poverty”. To the contrary, progressive attempts to reduce homelessness and “poverty” in the US have made the problem worse rather than better, because if you subsidize something, you’ll get more of it.

  5. New light on this subject will be much like Bloomberg/ Moms Demand Action grossly exaggerated claims of school shootings. It will take months or even years for the inaccuracy to be so well known before it will be dropped as talking points easily derided. Meanwhile, you must hate the poor.

    1. Or that Americans use 500,000,000 straws a day.

  6. I grew up in the projects. There wasn’t a single person I know who wasn’t making money under the table. It was everything from taking in laundry and ironing (back in the day, this was a pretty lucrative side job), babysitting and housecleaning to selling drugs and prostitution (though I didn’t know any streetwalkers- it was more escort type stuff and the two I babysat for had regulars). Then there was the money and other necessities from declared and undeclared baby daddies. It was an interesting economic system.

    1. The progressive view of the poor is that they are flat on their backs and unable to satisfy even their basic needs. That’s why progressive policies fail, they assume all poor people are flailing like the drug addicts and the mentally ill. They’re not.

    2. Especially when you consider how many in the projects have a drug habit of $100 a day or so. I was always amazed because that’s $3,000 a month. If you only spent $100 a week, you’d still have $2500 or so a month left over.

      1. Oh yeah. With the money a lot of criminals make (whether dealers, hookers, thieves, etc) they would often be doing VERY well for themselves if they didn’t have bad habits.

  7. If you’re making less than $2/day in this country, you must be putting a lot of effort into avoiding any form of meaningful work.

  8. […] The new classifications also take into account whether households are receiving significant benefits from Supplemental Nutrition Assistance Program (SNAP), Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and other assistance programs. Read More > at Reason  […]

  9. […] Study Shows That Extreme Poverty Statistics Have Been Overestimated, Especially Among Families With Chi… […]

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