Alternative Measure of Poverty Shows Value of Recovery Act

Wednesday, May 4, 2011 at 10:10 PM by

A new report by University of Wisconsin researchers shows that the Recovery Act helped shelter state residents from the worst effects of the recession.

By official measures, poverty in Wisconsin rose from 10.2 percent in 2008 to 12.4 percent in 2009, according to the report. But the official measure of poverty takes only cash income into account. This means that non-cash income like tax credits or food stamps – both of which were significantly expanded by the Recovery Act and both of which can make a big difference to a family’s bottom line – are not considered when determining poverty status.

The Institute for Research on Poverty has developed an alternative measure of poverty. Here’s a description of their measure, fittingly called the Wisconsin Poverty Measure:

“[The Wisconsin Poverty Measure] takes a broad view of resources, incorporating not only pre-tax cash income, but also the estimated value of other federal and state resources to offset need. It also looks at expenses that reduce income that could be spent on food, housing, and other basic needs, such as work-related child care and transportation. The new WPM allows Wisconsinites to see how poverty is affected not only by federal programs but also by their own programs (e.g., the state Earned Income Tax Credit, BadgerCare health care program, SNAP or FoodShare food assistance, Wisconsin Shares child care subsidies, and the Homestead Tax Credit).”

With this tool, the researchers determined the extent to which the Recovery Act and other policy changes mitigated the recession’s impact on Wisconsin families. Using the Wisconsin Poverty Measure, the Wisconsin poverty rate in 2009 was 11.5 percent, virtually unchanged from 2008. That’s a very different picture than that painted by the increase in the official poverty rate.

The rate of children in poverty followed the same pattern. Using the official poverty measure, Wisconsin’s child poverty rate rocketed from 13.3 percent in 2008 to 17.1 percent in 2009.  But the broader Wisconsin Poverty Measure (which took more of the Recovery Act provisions into account) showed that child poverty stayed level between 2008 and 2009.

That’s not to say that the recession didn’t cause economic hardship in Wisconsin. No measure of poverty is perfect, and the Wisconsin Poverty Measure doesn’t take foreclosures into effect, or increases in debts.  But the Wisconsin Poverty Measure gives a more complete measure of poverty than the official measure does, and gives us a glimpse into how the Recovery Act helped prevent Wisconsin residents from slipping into poverty.

Tamarine Cornelius

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