The definition of poverty, which is conventionally measured by income, is associated with Charles Booth, who came up with the concept of the poverty line in his important survey The Life and Labor of the People in London, which was carried out between 1889 and 1903.
The poverty line reflects any calculations about the money required for subsistence living, including housing, food and other necessities. In measuring the level of poverty, a poverty line or poverty threshold, usually stated in terms of income, is defined to divide the society into two separate groups. An individual is classed as being poor if they are regarded as living below the poverty line.
Theorists believe that in order to calculate the poverty level of a society, the poverty line and poverty index need to be defined. The traditional poverty index is referred to as the headcount ratio, which is the proportion of people in a society who are living in poverty. Another poverty index, which is also used, is the income-gap ratio. This is the percentage of the average income shortfall of the poor in relation to the poverty line.
The definition of the poverty line varies from society to society. This is due to the fact that the minimum amount of resources needed for living depends on the specific society and that the calculated absolute poverty line also tends to vary. For example, an individual with an income that is said to be at the U.S. poverty line would be regarded as rich in some developing countries.
In the United States, Mollie Orshansky of the Social Security Administration between 1963 and 1964 developed the official poverty line. This occurred at around the same time as then President Johnson declared a "war on poverty" and introduced the poverty measure. It has since been adjusted each year thereafter to take inflation into account. The measure gives a range of income thresholds, which are adjusted for factors such as family size, gender of the family head, number of children under 18 years old and farm or non-farm residence.
The American poverty line is regarded as an absolute poverty line because it was calculated as the minimum amount of resources needed for living at a point in time. It is not affected by changes in the entire income distribution. The U.S. government official poverty threshold is an absolute poverty line, which means that below it families or individuals are considered to be lacking the resources to meet the basic needs for healthy living; having insufficient income to provide the food, shelter and clothing needed to preserve health.
The poverty rate in the United States in 2009 was the highest since 1994, although it was 8.1 percentage points lower than the poverty rate in 1959, the first year for which estimates are available. The number of families in poverty in 2009, stood at 8.8 million, up from 8.1 million in 2008, while 20.7 million children under 18 were defined as living in poverty, a rise of 19 percent from the figures of 2008.
The 2009 statistics reveal that the poverty rate increased across all types of families. Figures for ‘married-couple families' stood at 3.4 million in 2009, against 3.3 million in 2008; ‘female householder with no husband present families' were 4.4 million in 2009 compared with 4.2m in 2008 and for the ‘male householders with no wife present families' the figure was 942,000 in 2009, against 723,000 in the previous year.
As defined by the Office of Management and Budget and updated for inflation using the Consumer Price Index, the weighted average poverty threshold for a family of four in 2009 was $21,954. Yet the poverty line does not reflect regional or local differences in the cost of living, which can dramatically affect purchasing power.
According to the 2009 survey, the 10 states with the highest percentage of the population living in poverty were:
- New Mexico, with 17.7 percent;
- Mississippi, 17.1 percent;
- Arkansas, 17.1;
- District of Columbia, 16.7;
- Louisiana, 16.7;
- West Virginia, 15.6;
- Texas, 15.2;
- Oklahoma, 15;
- Alabama, 14.6;
- New York, 14
The key factors included in the U.S. government poverty definition are household earnings, interest, dividends, rents, pensions and retirement income. Other things taken into account include unemployment compensation, workers' compensation, Social Security, Supplemental Security Income, public assistance, veterans' payments, survivor benefits, educational assistance, alimony and child support. Non-cash benefits, such as direct housing assistance, are not included in the definition.
Apart from fairly minor changes, the approach of the United States government to measuring poverty has remained static for four decades. The definition of poverty does not take into account significant changes. These include the costs of food relative to other goods and services.