Supplemental Poverty Measure: A Comparison of Geographic Adjustments with Regional Price Parities vs. Median Rents from the American Community Survey

One of the innovations of the Supplemental Poverty Measure is to make adjustments in the official poverty threshold to account for geographic price level differences, particularly for differences in the cost of shelter as measured by rents. A more recent initiative is to estimate thresholds that include price differences for goods and services other than rents. The focus in this paper is to compare two types of geographic adjustments: one based on the ACS median rent index (MRI), and one based on a recently published set of state and metropolitan regional price parities (RPPs). The RPPs are of two types: an all item index that includes a broad group of expenditure classes and another that is more narrowly focused on just food, clothing and rents. The differences between the MRI and the all item RPPs are significant for most states, resulting in higher poverty rates for 15 states and lower rates for 26 states. When the narrower RPPs are used, poverty estimates are higher than the MRI poverty rates in 20 states, lower in 22 states and not statistically different in 9 states. In metropolitan areas, the overall RPPs lower the poverty rates when compared to the MRI, because differences in the combined price level of goods and services are generally not as large as differences in rents. When the RPPs are constrained to food, clothing and rents, the poverty rates in metropolitan areas are greater than the MRI poverty rates.