New research from the University of Notre Dame reveals a stark difference in poverty trends compared to official figures. While the US Census Bureau suggests a mere 1.5 percentage point reduction in poverty since 1980, the Notre Dame study, using consumption poverty as a measure instead of income poverty, shows a more significant 27 percentage point decrease.
In the period between 2020 and 2022, the study indicates a steady decline in consumption poverty, even as income-based poverty experienced noticeable fluctuations. The findings challenge conventional wisdom by arguing that consumption, reflecting what families can afford in terms of essentials like food, housing, and transportation, is a more accurate indicator of economic well-being than income, which can vary for reasons unrelated to overall well-being.
Increased consumption
Over the years, consumption poverty dropped from 33.8% to 6.0% between 1980 and 2022, diverging significantly from the slight decrease suggested by the official poverty rate. The researchers attribute this disparity to flawed adjustments in the federal poverty line for inflation, a narrow definition of income, and biased measures of family resources.
“Our poverty estimates, based on how much people consume, are a much stronger indicator of well-being for the most vulnerable than those based on income,” the researchers say. “Government surveys miss many income sources that are important to those struggling to make ends meet, and income varies for many reasons that are unrelated to well-being.”
The data also questions the prevailing narrative that we saw a sharp drop in poverty during 2021, followed by a rise again in 2022. The data suggests that consumption poverty patterns didn’t follow this trend. Instead, there was a steady decline in consumption poverty.
“Annual income will not reflect the standard of living of individuals who smooth consumption by drawing upon savings or by borrowing,” the researchers explain. “This distinction is particularly relevant when income is fluctuating significantly, as was the case for families with few resources during the pandemic due to sharp changes in employment and sporadic cash transfers.”
A complex trend
Moreover, contrary to the common belief that the fluctuation in income poverty between the fall of 2021 and the rise in 2022 is primarily attributed to the child tax credit, the researchers contend that various other factors account for a significant portion of this trend.
“While the child tax credit played an important role, the primary reason income poverty was sharply lower in 2021 than in the preceding and following year was because of the economic impact payments (or stimulus payments) paid out in 2021,” the researchers say.
When using their consumption-based metrics, the reduction of poverty in America over the last sixty years can be attributed not only to tax rate cuts and credits but also to the expansion of various anti-poverty programs. The increase in Social Security benefits and the positive effects of higher educational attainment on earnings have contributed significantly. The researchers emphasize that the overall economic growth of the country has played a crucial role in the substantial decrease in poverty.
