changes in total consumption, which includes spending on luxuries as well as necessities. One may also question whether a poverty threshold should remain fixed in real terms, so that it progressively declines in relation to the standard of living, not only overall but for such necessities as food and housing.
In this section we first consider different approaches to constructing poverty thresholds. We then consider the definition of family resources, which is the other side of the calculation needed to determine if a given person or family is poor. Establishing a poverty measure also requires that several other issues be addressed, particularly the time period, the unit of analysis, and how information about those in poverty is presented; these are treated below (see "Other Issues in Poverty Measurement"). Last, we present three criteria that we believe are critical in assessing any measure of poverty for consideration as the official U.S. measure.
The literature often distinguishes between "absolute" and "relative" poverty thresholds. Absolute thresholds are fixed at a point in time and updated solely for price changes; relative thresholds are updated regularly (usually annually) for changes in real consumption. In this sense, the U.S. measure is an absolute one.
Absolute thresholds generally carry the connotation that they are developed by "experts" with reference to basic physiological needs (e.g., nutritional needs). In contrast, relative thresholds, as commonly defined, are developed by reference to the actual expenditures (or income) of the population. A typical approach is to select a cutoff point in the distribution of total family expenditures or income adjusted for family composition—say, one-half the median—and designate that dollar amount as the poverty threshold for a reference family, with thresholds for other family types developed by use of an equivalence scale. The European Community often uses relative thresholds to facilitate cross-national comparisons (see, e.g., O'Higgins and Jenkins, 1990). 7
One criticism of relative thresholds is that the choice of the expenditure or income cutoff is arbitrary or subjective, rather than reflecting an objective