The Role of Prices in Measuring the Poor's Living Standards

In this paper, we revisit two pieces of conventional wisdom in the current debate about poverty, paying close attention to the price data underlying these findings: that the poor pay more than households of higher income for the goods and services they purchase; and that poverty rates, at least as measured by the U.S. Census, have remained essentially flat since the late 1960s, raising questions about the success of the policies implemented to reduce poverty. By examining scanner data on thousands of household purchases, we find that the poor pay less—not more—for the goods they purchase. And by extending the advances on price measurement in the recent decade back to the 1970s, we find that current poverty rates are less than half of the official numbers.