allow for all other expenses; however, as implemented, the concept is simply the threshold value that was set for 1963 updated for price changes. Hence, whether the concept is still relevant today, given the increase in the U.S. standard of living over the past 30 years, is very much a question.

THRESHOLD CONCEPTS

The measurement of economic poverty involves two primary components: a budget or threshold below which people are considered poor and an estimate of resources available to people to compare with that threshold. Although the two components work in conjunction with one another—indeed, they need to be defined in a consistent manner in order to have a defensible measure of poverty—for reasons of analysis and presentation we discuss each component in turn.

In this chapter we consider concepts for a poverty threshold for a reference family type, including the implications for how that threshold is updated over time. (Chapter 3 discusses adjustments to the reference family threshold for other family types.) We also consider levels for the reference family threshold with which to initiate a new series of poverty statistics under the proposed measure.

Analysts often use the terms "absolute" and "relative" poverty thresholds. Absolute thresholds are fixed at a point in time and updated solely for price changes, as is the case for the current U.S. poverty measure. Relative thresholds, in contrast, are updated regularly (usually, annually) for changes in real consumption.

Absolute thresholds also generally carry the connotation that they are developed by "experts" with reference to basic physiological needs (e.g., nutritional needs) for one or more budget elements. Relative thresholds, as commonly defined, are developed by reference to the actual expenditures (or income) of the population. For example, a relative measure might set the poverty threshold for a four-person family at one-half the median income or expenditure of families, adjusted for the composition of the population by family type.

Relative thresholds are often criticized on the grounds that the choice of the expenditure or income cutoff is arbitrary or subjective rather than reflecting an objective standard of economic deprivation. It is also argued that relative poverty thresholds do not provide a stable target against which to measure the effects of government programs because they change each year in response to real increases or decreases in consumption levels. In practice, however, relative poverty thresholds are not so different from thresholds developed according to expert standards of need: the latter also embody a great deal of relativity and subjectivity. Moreover, it is rare for expert (or other) standards to be maintained in absolute terms (i.e., to be updated solely for



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