What is poverty? The official definition, in use for about fifty years, counts as “poor” anyone living in a household in which household cash income falls below a certain level. Those threshold incomes were set at three times the cost of a minimum diet, to reflect the minimum income deemed necessary to pay for non-food expenses. The thresholds vary with household size and ages.
This classic poverty measure has long been criticized. It ignores non-cash benefits that low income families receive in the form of food stamps, housing subsidies, school lunches, and home energy assistance. Similarly, it ignores the Earned Income Tax Credit—the most expensive means-tested cash benefit.
On the other side of the ledger, the official poverty measure does not subtract payroll, income, and sales taxes paid by poor families, nor does it adjust for regional variations in the cost of living. And it does not take into account out-of-pocket medical costs, which have skyrocketed for insured and uninsured workers as well for retirees, or job-related costs such as transportation and child care.
In November the Census Bureau released a new ”Supplemental Poverty Measure” meant to capture the missing pieces.[See America's Poor: Why a New Measure Shows More People are Living in Poverty Than we Thought, by Barbara Kiviat, TIME.com, November 21, 2011]
The results: the foreign-born population in general—and naturalized immigrants in particular—are far more likely to be counted as poor under the new poverty definition:
Recalculating poverty rates for 2010
Poverty rate (%)
Not a citizen
Data source: Census Bureau, The Research Supplemental Poverty Measure: 2010, November 2011. Table 1
Under the new poverty definition, the share of native-born persons living in poverty increases by 1.4%, while the comparable share of the foreign-born (which includes illegal aliens) rises by 27.5%. Poverty among naturalized citizens explodes by 47.4%—nearly thirty-four times the rise in native-born poverty under the new calculation.
The poverty rate for naturalized citizens goes from 21% below that of the native-born under the current poverty definition to 14% above under the new. Non-citizens are the poorest under both poverty calculations.
Why the big pop in immigrant poverty? We can only speculate because Census does not provide details. It could reflect the fact that a disproportionate share of foreign-born individuals live in high-cost regions of the country—e.g., in metropolitan areas on the East and West coasts. It is entirely proper for the new poverty definition to take regional differences in living costs into account.
Less defensible is the adjustment made for work-related expenses. Because a greater fraction of immigrants work—partly because they’re on average younger—these deductions will be relatively more important for immigrants than for the native-born. This is especially true for low-income workers for whom commuting and child care appropriate relatively large shares of income.
The paradoxical result: not only are low-wage immigrants displacing the native-born, but under the new poverty definition they could also appear to be poorer—and thus potentially more eligible for government help—than before they pushed natives out of the workforce. Conversely, poverty rates of newly-displaced natives could actually decline under the new definition because they no longer face work-related expenses.
The new poverty definition has a serious weakness. Currently, poverty thresholds are increased by the annual rate of inflation. When incomes do not keep pace with prices, poverty rises. But under the new definition, poverty thresholds are pegged to growth in household expenses at the 33rd percentile—that is, the amount households with incomes above the poorest third and below the richest two-thirds spend annually.
Thus poverty is defined in relative rather than absolute terms. Even if everyone enjoys a doubling, or tripling or [fill in the blank] rise in income and expenditures, poverty rates will remain unchanged.
Which might be useful if the federal government is angling to increase payments to the poor. In the future, however, this new definition would yield no meaningful information about the trend in poverty. (Apparently, the old definition will still be reported).
But right now, it turns out that, through immigration, the U.S. is importing more poverty than we thought.
Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.