The poverty threshold--the level of income that separates the poor from the not poor--was the brainchild of economist Mollie Orshanksy of the Social Security Administration, who developed it in the early 1960s. Orshanksy did not have the extensive data on the income and consumption habits of Americans needed to fashion a completely satisfactory formula; as a result, it had certain built-in inequities, such as an underestimation of the cost of nonfood items.
After a time other problems became apparent. the formula did not allow for changing demographics, including the substantial rise in the number of working mothers, whose costs for child care were not factored into the formula. Nor did it take into account higher Social Security payroll and other taxes levied on the working poor. Nor did it adjust for geographic variations in the cost of living, such as the two-to-one differential between San Francisco and Houston. The only significant adjustment made was for cost-of-living increases.
This article was originally published with the title Defining Poverty.