Measuring poverty: Running on empty

Almost half a century ago, in 1963, Mollie Orshansky, an analyst at the Social Security Administration, was trying to measure differences in living standards among families with children. The problem, in her own words, was that "... there is no generally accepted standard of adequacy for essentials of living except food."

So Orshansky began her analysis with the amount of money needed to buy an economy food plan developed by the U.S. Department of Agriculture. She multiplied that amount by three -- because on average, at the time, Americans spent a third of their after-tax income on food. Thus were born the "poverty line" and the "poverty rate" -- the percentage of the population earning less than three times the cost of the economy food plan.

The poverty rate is probably the most durable, important and maligned statistic produced by the federal government. It is durable because it has lasted nearly 50 years, important because programs like Medicaid dole out more money to states with high poverty rates, and maligned because conservatives think it overstates the true extent of poverty, while liberals think the opposite.

The poverty rate is also an influence on our collective psyche. Is it going up or down? How does our state's poverty rate compare with that of others? How can we reduce the poverty rate? The rate affects the public's mood, which lately has been glum.

The poverty thresholds are updated every year by the Census Bureau. A simplified version of the thresholds, known as the poverty guidelines, is used to determine eligibility for various federal programs. In 2011, the poverty guideline was $10,890 for one person, rising to $22,350 for a family of four. Apart from special considerations for Alaska and Hawaii, the guidelines do not vary for any reason except family size.

Minnesota's poverty rate is below the national average, but it is rising. The latest Census Bureau data show 11.6 percent of the state's population in poverty, compared with 15.1 percent nationally. The recession that began in 2008 increased poverty in Minnesota and across the country.

Many people feel the official poverty rate exceeds the true extent of poverty because the income it measures does not include noncash benefits such as food stamps and housing subsidies. Others feel it is too low because they think we should count only discretionary income, after subtracting essential expenses such as medicine and transportation to work. With these criticisms in mind, the Census Bureau recently released an alternative poverty measure that makes both adjustments. Using the alternative measure, Minnesota's poverty rate falls slightly to 10.7 percent because we have generous welfare and medical assistance programs, while the national rate increases to 16 percent.

•Disabled.

•High school dropouts.

•Single mothers (never-married, divorced, or separated).

•College students.

•Unemployed.

A person with more than one of these characteristics has an even higher chance of being poor. After excluding college students -- who usually are only temporarily poor -- one characteristic unites those who are permanently poor: weak attachment to the labor force.

According to Isabel Sawhill of the Brookings Institution, "Most people are poor in the United States because they either do not work or work too few hours to move themselves and their children out of poverty."

Programs to reduce poverty in Minnesota need to focus on getting people to work. A never-married mom who didn't finish high school likely is poor because she brings too few skills to the labor market and faces too many barriers to employment.

The Legislative Commission to End Poverty in Minnesota by 2020 recommended two policies that would strongly encourage poor people to work. One of these is expanding the federal Earned Income Tax Credit (EITC) and its Minnesota counterpart, the Working Family Credit (WFC).

Established in 1975, the EITC is the nation's largest cash program directed at low-income families. It provides the working poor a refundable tax credit, meaning that those who earn too little to owe income taxes receive a payment. Unlike traditional safety-net programs, its benefits are tied to working.

Before the restructuring of Minnesota's WFC program in 1998, some poor households faced situations where earning additional money could actually reduce their income.

The combination of the EITC and WFC are powerful tools for reducing poverty in Minnesota, but they can be made even better. The credits do not increase for families with more than two children. Providing additional credits for households with three or more children would further reduce the rate of poverty in Minnesota.

The commission's second good proposal was to provide subsidized child care for working parents up to 300 percent of poverty. The cost of child care has long been recognized as a barrier to working among poor women. In 2011, family day care for infants and toddlers cost about $160 per week in the Twin Cities and $120 per week outstate. The cost of day-care centers is higher. Even at the lower rates, families need $6,000 or more per year just to care for one child while the adults work.

One economic study found that a 33 percent child-care subsidy would increase participation in the labor force by 36 percent among poor and near-poor women. Another study from Canada found that women who received a child-care subsidy when their child was younger than 6 continued to work more in the long term. This suggests that positive work habits learned from on-the-job experience don't go away.

But the commission also had one bad idea. Despite the fact that the central problem for most poor people is weak attachment to the labor force, rather than working for low wages, the commission recommended raising Minnesota's minimum wage from $7.25 to $9.50 per hour. They thought this stroke of a pen would increase income in Minnesota by nearly $10 billion. Here's what would happen instead:

I doubt that advocates for the poor would propose doubling the tax on car washes, because this visibly reduces employment. But a minimum-wage hike does roughly the same thing. It's even worse than a tax, because the whole cost is attached to the workers at the car wash, and not the other inputs like soap and water and electricity. It can only be avoided by using fewer workers.

Minnesota needs a clear-headed discussion of poverty, beginning with general agreement that the current upward trend is unacceptable. Then we need to agree on how to measure poverty, whom to count as poor. Following these basic steps, we can design workable, nonpartisan solutions, such as expanding child-care subsidies and the EITC.

If we do nothing, we will never meet the goal of ending poverty in Minnesota by 2020.

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