The Impact of Macroeconomic Performance on Alternative Poverty Measures

Abstract

This article studies how aggregate economic conditions affect alternative poverty indexes. The different indexes include the official headcount rate, and others based on improved methods for both identifying and aggregating individuals deemed poor. The empirical analysis uses March Current Population Survey state-level data for the 1990s to estimate cross-section/time-series models of the alternative poverty indexes. Resulting estimates indicate that the measured effects of aggregate activity on poverty turn critically on the procedures for gauging poverty. Based on some theoretically preferred alternatives, the powerful economy of the past decade has had much less of an impact than is suggested by the official headcount rate. The findings thus provide an important caveat for researchers trying to identify the links between economic conditions and poverty, and for policy-makers seeking to understand how best to reduce poverty.