The NRC report recommended the following method of accounting for work-related expenses and child care. For families in which both parents work (or the single parent works), actual child care expenses should be subtracted from income, per each week worked, not to exceed the earnings of the parent with the lower earnings or a cap that is adjusted annually for inflation.1 In addition, for each working adult, a flat amount per week worked should be subtracted (adjusted annually for inflation and not to exceed earnings) to account for work-related transportation and other miscellaneous expenses (such as tools or work uniforms) that workers incur.

Because the Current Population Survey (CPS) (the current source of official poverty statistics) does not collect information on the amount of child care expenses actually incurred, the NRC report recommended modeling child care expenses with data on reported expenses in the Survey of Income and Program Participation (SIPP).2 The report proposed subtracting a flat amount for other work-related expenses because people often make a tradeoff between housing and commuting costs, such as by choosing a more expensive home closer to work or a less expensive one farther away (see Short, 2004 for more details). Since the same expenses are assigned to all workers, they represent expected amounts rather than actual expenses incurred, though the expenses are capped to not exceed workers’ earnings.

The Census Bureau reports on experimental poverty measures have implemented alternative ways of valuing child care expenses. The main difference in methods has to do with accounting for actual or expected expenses. This issue reflects the discussion of medical out-of-pocket expenses: conceptually, the central question is whether the poverty measure should take into account people’s actual reported child care expenses or their expected work-related expense needs, based on their demographic characteristics and labor force participation. A disadvantage of the method of using people’s actual expenses is that it overestimates nondiscretionary child care expenses for families who spend a lot on child care. If some families cannot afford to buy child care, it may also underestimate the number of

1  

The caps were recommended because the report noted that some child care or work-related expenses may be discretionary.

2  

Work-related expenses include: annual expenses, such as union dues, licenses, permits, special tools, and uniforms; mileage expenses, based on the number of miles people usually drive to work; and other expenses, such as bus fares and parking fees.



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