Governments cite debunked ALICE study to justify welfare spending

United Way’s methodology miscalculates and overstates poverty

A large percentage of Michigan residents are barely scraping by, according to multiple news reports. MLive says 56% of households in Kalamazoo can’t survive. CBS explains that 40% of Michiganders are “financially insecure.” An NPR affiliate says four in ten Michigan residents don’t make enough “to pay for the basics.”

These are just a few of the dozens of examples of media reports that come out every year after the United Way releases its ALICE report. ALICE stands for Asset-Limited, Income-Contrained and Employed. The United Way says these are “households that earn above the federal poverty level but are unable to afford the basic costs of living in their county.” In other words, they are on the brink of survival.

But the ALICE report itself is faulty. It does not measure what these media reports claim it does. Most of the headlines and statistics used in these articles are misleading or just plain wrong.

The first problem is that, despite the acronym, the ALICE report does not measure households’ assets, income constraints or employment. The report simply asserts that the population it labels as ALICE has these characteristics.

There are also major problems with the way the report labels this population.

The ALICE methodology attempts to calculate what different types of households need to afford what the report claims are basic necessities, such as housing, food and transportation. The report’s list of basic needs also makes room for child care and smartphone plans with 10GB of data for each adult. There are many different types of households with many different types of needs in a large state like Michigan, but the ALICE report only considers three types: single-person households, two parents with two young children of specific ages, and senior citizens living alone. These are not typical households in Michigan, and it is inappropriate to assume that these figures apply to everyone, as the headlines claim.

The methodological problems go deeper. The report portrays average spending levels as if they represent the amounts households need to survive. These are not the same thing. With its method, the report says that every family of four in Michigan needs more than $72,000 of annual income to survive. News media extrapolate this figure and apply it to all families in Michigan, no matter their size or circumstance.

The report does attempt to adjust this figure to approximate the cost of living and typical household size in individual counties, creating “survival budgets” ranging from $40,000 to $75,000. But the report’s definition of households that supposedly live below these ALICE thresholds is simplistic. It counts how many households earn less than the threshold and declares all of them to be asset-limited, income-constrained and employed, even though none of those things are measured.

This methodology essentially guarantees that there will always be a significant portion of the population the United Way can call ALICE. Using average levels of spending as the threshold means there will always be a good portion of people who spend less than that. That’s inherent to an average number: It is calculated from a range of numbers. About half are above and half below that average. No wonder, then, that the percentage of households labeled ALICE has been about the same for more than a decade, despite significant changes in economic conditions.

This matters because government agencies are now using ALICE as a meaningful measure of poverty. The state’s “roadmap to rural prosperity” report repeatedly cites the metric. The Michigan Department of Labor and Economic Opportunity runs a project called “Lift Michiganders Up” that focuses on improving the state’s ALICE numbers. The state is even using the numbers to determine grant funding.

That’s why an inaccurate report with a bad methodology is so harmful. As the Mackinac Center noted in its study assessing ALICE:

“If policymakers, communities and individuals are going to address these issues, we should attempt to measure accurately what the actual needs are. The ALICE report, while claiming to do so, fails on this account. It may seem harmless to exaggerate the level of poverty in a state. After all, it could be argued it brings more attention to a serious concern. But complicated problems like poverty require precise and targeted treatments. With its miscalculated methodology, misconstrued assumptions and mischaracterized findings, the ALICE report does not help identify the populations in Michigan that are struggling financially and what policymakers might be able to do to alleviate the problem. In fact, it takes the focus off those who truly need help, an unfortunate consequence of a poorly designed study.”

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.