Poverty Measurement:

Adjusting for Geographic Cost-of-Living Difference

GGD-95-64: Published: Mar 9, 1995. Publicly Released: Mar 29, 1995.

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Pursuant to a congressional request, GAO provided information on the statistical data requirements for constructing a cost-of-living (COL) index that could be used, at the federal level, to adjust for geographic differences in living costs.

GAO found that: (1) the current measurement to determine poverty levels does not account for geographic COL differences; (2) market baskets, a measure used to evaluate relative economic standing, would provide the foundation for any measure of living costs; (3) obtaining a consensus on what should go into a market basket for a COL index would be difficult; (4) there are 12 methodologies that could be used to contribute to an index to adjust the poverty measurement to reflect geographic differences; (5) the methodologies include budgeting for representative market baskets, measuring consumer spending norms, examining housing data, family budgets, or consumption data, developing various geographically specific price indexes, polling, calculating the relative amounts of time worked for each of the components of compensation, and estimating or modelling; and (6) experts' opinions about the methodologies' strengths and weaknesses were diverse and sometimes conflicting.

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