Is Poverty Relative?

The Census Bureau recently announced that the official U.S. poverty rate has fallen to its lowest level on record. Yet, this metric—which measures whether American families can afford a fixed basket of goods first defined in the 1960s—has been widely criticized for failing to reflect the rising cost of a middle-class lifestyle. Measure poverty in relative terms—as the proportion of the population with incomes 40 percent less than the median—and it’s currently at an all-time high. Such relative definitions are widely used by international organizations and scholars to disparage America’s reliance on private enterprise to improve the general welfare.

Which measure—relative or absolute—should we prefer? While the official poverty rate is insensitive to the pain borne by those facing particularly high housing and health-care costs, it does broadly measure economic wellbeing. By contrast, relative poverty metrics often yield the opposite of reality—showing poverty declining during recessions, Mexico having less poverty than the United States, and China having lower poverty during a period of famine. We should therefore be wary of arguments based on them.

Much of welfare policy in the United States is based on the federal poverty level. The measure was established in the 1960s using an estimate of the household income needed for living expenses as a multiple of the basic cost of food. That benchmark has since been updated for inflation. It was $15,960 in 2026 for a single person, and $33,000 for a family of four.

The official poverty measure has many flaws. It doesn’t capture income from welfare benefits or account for taxes. Nor does it account for variation in the cost of living across the country or growing differences in the cost of essential goods.

Some sociologists have argued that economic growth causes workers to “develop new needs,” which are not necessarily reflected in a fixed poverty metric. For example, though industrialization pushes up wages, people must incur additional expenditures to obtain them—to get to these jobs, for example, workers must live in costlier urban areas and incur substantial commuting expenses. The price of some basic goods, such as housing, education, and health care, also tend to rise with others’ willingness to pay for them.

Because of these deficiencies, scholars have sometimes argued that poverty should be thought of as not absolute but relative—“a matter of falling behind the prevailing standards of one’s contemporary society,” as University of Southern California professor David Brady puts it. Following this line of thinking, the OECD defines poverty as an income less than half of a country’s median.

Many studies of welfare states have embraced this definition of “relative poverty,” as if inequality and poverty were synonymous. Citing such metrics, Brady argues that poverty rates are “staggeringly high” in the United States. The political utility of such arguments should be obvious.

But relative poverty statistics are at odds with common sense. In 2022, median household income in Mexico was about $16,000, compared with about $59,000 in the United States. Only 17 percent of Americans lived in households with disposable incomes less than $20,000 in 2024, compared with 93 percent of Mexicans. Yet according to the OECD’s relative definition, the share of Mexico’s population in poverty in 2022 (15 percent) was lower than that in the United States (18 percent).

Relative measures produce other absurdities. While recessions generally see the share of a population with incomes below an absolute dollar threshold increase, “relative poverty” rates typically decline. Because the incomes of those who took most advantage of boom times fall further in recessions, the poor become relatively less so.

As economist Gordon Tullock suggested, measuring poverty on a relative basis is like assuming that “if everybody has a toothache, it doesn’t hurt.” But rising incomes generally help people better meet their basic material needs—even if their neighbors’ incomes rise more.

Communism would seem to be the optimal economic system if minimizing “relative poverty” were the goal. But as China moved away from Marxist economics to permit the accumulation of wealth and resulting inequality, the nation progressed from near starvation to develop a modern middle class. From 1981 to 2005, the share of Chinese living on less than $1.25 per day declined from 85 percent to 15 percent. Yet “relative poverty” as measured by the OECD nearly doubled. As writer Tim Worstall has noted, “a measure of poverty that not just ignores, but actually gets the sign wrong on, the largest reduction in poverty in the history of our species is of limited value.”

Relative measures fail to account for the fact that poverty is largely about having “enough” to meet satiable basic needs. In The Wealth of Nations, Adam Smith wrote: “The desire of food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary.”

Many basic modern goods are similarly satiable. Whether we consider a room’s lighting, heating, and air conditioning satisfactory is largely a matter of surpassing a basic threshold—not how much is consumed relative to other households. The same may be said of laundry, internet connectivity, car maintenance, refrigeration, and plumbing.

Among developed countries, mortality is more closely correlated to relative than absolute poverty levels. But this comparison hides the ball: poverty most influences health outcomes in non-developed countries. Access to $30 per year of antibiotics may save more years of life than everything else that modern medicine has to offer combined. Beyond a basic level, the impact of medical spending on mortality is subject to rapidly diminishing returns—and the relationship between additional medical care and longevity gets outweighed by many other factors.

Absolute, not relative, income is what most people care about. Indeed, a recent Manhattan Institute survey found that U.S. voters want the government to secure “a basic minimum, regardless of how much others have” rather than reduce “the gap between the rich and the poor” by a margin of more than three-to-one.

The trouble with relative poverty measures, at root, is that the poor are not inherently better off if their wealthy neighbors are made poorer. Generally rising affluence provides the best opportunity for the poor to prosper—both through their own efforts and by expanding the assistance that others can afford to provide.